ExEcutivE REPORt FAMILY FORTUNES
Adam Bernstein wonders what happens if you run a business with family – is trouble guaranteed or will commercial harmony follow?
D
avid Emanuel, chairman at VWV, thinks that every family business dispute will
be different, but there are common themes. The most frequent tend to involve a lack of succession planning, which leaves the next generation feeling uncertain about what comes next and who should be involved. Differences over strategic direction might also lead to disputes – such as a family owned business that demands external management expertise at the expense of family members employed in the business; or different attitudes among or across generations on whether the business should stay in the family or be sold, and who decides.
Money is often the root cause, says Philippa Dempster, managing partner at law firm Freeths:
“Remuneration can often lead to a dispute if one family member feels that they are not being financially rewarded as well as another, or if they feel others are not pulling their weight but are remunerated the same as those that are taking on key roles.”
Dealing with the issues Documentation is key. For Emanuel, this could include an obligation in a shareholder’s agreement with mediation as a mechanism for resolving disputes. Dempster agrees, stating that alternative means of dispute resolution is always preferable “because litigation can be expensive and time consuming, and is a distraction.”
Emanuel suggests that if the family doesn’t want to bear the cost of mediation that an alternative is an independent, respected, family-related figure. But, as he explains, “the parties need to be in a frame of mind to mediate for this to have a chance of success.”
Risk management Families can also lower the risk of trouble through a charter which sets out the fundamental principles on which members want to see their business run, and a shareholder’s agreement that offers detail on ownership and management rights and responsibilities.
Dempster sees value here too. She thinks a formal business plan should be written “so that the parties have some
It’s about people too If agreement on business decisions cannot be reached then it is inevitable that family members may have to exit the business, or the business wound up. Here, says Dempster, “the business will need to be valued so that the leaving party can either be bought out by the remaining parties or the company buys back the shares at value.”
Of course, business isn’t necessarily about the current generation, it also concerns the future. Bringing in new family members at an early age can help them feel that the business is very much part of the family. Dempster’s advice is to get younger members of the family to shadow older family members – “It’s a great way for them to learn what is involved with, and what it takes, to successfully run the business,” she says, but shadowing alone may not be appealing to the younger generation “so it might be useful to give them small tasks in the business, so they feel that they are contributing.”
To conclude
So, while blood may be the strongest bond, it doesn’t guarantee success.
structure and each party is aware of the direction that is proposed for the business. Meetings should always be minuted to avoid misunderstandings down the line, with minutes circulated and if possible, an independent third-party is present.”
Both Dempster and Emanuel consider that regular communication is critical. Emanuel advocates a “forum for family members to meet away from home, to discuss family business issues in the context of their respective roles, whether as family member, employee, or shareholder.” Dempster recommends openness where “parties can be open and transparent with one another by, for example, having regular meetings to discuss company finances, business initiatives, staff issues.”
The reality is that without a firm basis for good communications, an understanding how businesses are run, and ideally, good documentation, the seeds of destruction will be sown. But each to their own. n
FIND OUT MORE Centre for Effective Dispute Resolution:
www.cedr.com Law Society:
https://solicitors.lawsociety.org.uk
Takeaways n Key causes of friction involve succession planning, differences over strategic direction, different attitudes to ownership and money.
n Good documentation and a forum for discussion can lower the risk of disagreement.
n Bring the younger generation into the business, but with thought and a plan for their development.
16 Executive Hire News - Jan/Feb 2022
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