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Good governance for dispute resolution in family business

Governance for dispute resolution in family business

Disagreements and disputes are only natural in business, and even more so when different generations of the same family are working together. But what happens when they escalate?

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Working closely with your nearest and dearest is part of the appeal of a family business, but it also makes it very easy to get into the habit of ‘talking shop’ at home.

Swapping stories over dinner isn’t necessarily a bad thing – in fact, a survey by the KPMG Enterprise and Family Business Australia (FBA) found that families who openly share information are better equipped to address difficult issues as they arise.

However, there’s one thing it’s important to get out on the table first and that is how disputes will be resolved.

United in business, divided in opinion

Differences of opinion are only to be expected when younger generations of the same family start getting involved in business operations – just ask Alex Burrell, who started Tentworld with his father, Rex, in 1968, took over around 1990, and is now Managing Director with his son, Jon, the General Manager.

“My father and I were good friends and good business partners,” Burrell says, “we only ever disagreed over current business issues and we could discuss them, agree or disagree, and move on.

“And it’s the same with my son – we can have some strong arguments at times, but we stick to the issues involved, we deal with them and we move on.”

Good communication and even healthy conflict are key components of socio-emotional wealth (SEW), a measure of the non-financial ‘value’ of a family enterprise. Without SEW, there is a greater likelihood that a business will be bought out by non-family members or forced to close.

But what happens when one or more family members can’t “move on”?

Agreeing how to disagree

Where disputes can’t be avoided or settled between the people involved, Judy Choate, Director of KPMG Law, says businesses that don’t have a dispute resolution framework in place can often skip right past independent mediation or arbitration and head straight for court, which can be costly, time-consuming, and potentially damaging to their relationships.

“Some businesses use family councils, advisory boards, or family constitutions to facilitate conflict-free planning and decision-making,” adds KPMG Enterprise Partner Kerri Reynolds, who is leading a master class with Choate on the implementation of governance structures to support growth in family business.

The structures you choose can be more or less formal depending on your business’s unique situation – for example, as the Financial Controller of Tentworld, Alex Burrell’s wife Barbara has a casting vote to settle particularly challenging issues.

A fair hearing

Choate says conflict generally stems from people having unrealistic expectations or being disappointed in some way, or from the fact they simply don’t feel heard.

The last might explain why communication style is the leading cause of conflict for over one-fifth (21.8 percent) of future family business leaders – a much bigger issue than financial stress, which was a source of conflict for only 7.3 percent of future leaders.

Interestingly, incumbents said balancing the needs of the family and business is their main source of conflict at 17.3 percent, compared to financial stress at only 11.5 percent.

Good governance supports SEW by facilitating transparent communication around different family members’ roles and responsibilities, and by providing some basic tools and procedures for conflict-free planning and decision-making.

Reynolds, who knows from personal experience how family business discussions can spill out over the dinner table, says it’s about “raising issues and making decisions for the family in a structured and orderly way, so you’re not having those conversations over your Sunday roast.”

This article was originally published on SmartCompany.

© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Liability limited by a scheme approved under Professional Standards Legislation.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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