In Part I: Getting a Grip on Conflict, we looked at why conflict in family enterprise is often so extreme and intractable– because conflict is inherent in family enterprise, with all of its overlapping systems (ownership, business, family, and governance.) In a family business in particular, it is critical to understand and manage systemic conflict for business success and to protect ongoing relationships.

Managing Systemic Conflict

How to Manage Conflict in Family Enterprise

There are three principal approaches to managing conflict:

1. Bargaining
2. Force and
3. Development.
Once the sources of conflict have been identified and broken down into their constituent parts, matching the appropriate approach to each component is critical.

1. Bargaining
Conventional dispute-resolution techniques, such as direct negotiation and mediation, may effectively address economic issues of money, power, and control. However, one cannot bargain the values of affection, talent and commitment—nor history. Bargaining is effective only for negotiating specific goals and deciding how decisions are made.

2. Force
Any attempt to force an outcome to one’s advantage through the use of power (i.e., litigation or threats of retaliation) runs the risk of exacerbating the conflict. After all, if conflict is triggered by the disrespected use of power, any additional use of power to manage it is likely to make matters worse. As with bargaining, whatever the motivation for using power may be, it can address only issues of opposing goals and how decisions are made. Feelings, history, talent, and psychological issues do not respond to force.

3. Development
While not a term usually associated with managing conflict, development—both structural and personal—can be the most effective approach to managing the systemic conflict that is unique to a family enterprise. It is especially effective when continuing relationships matter. Development is the process of identifying deficiencies and improving them.

Structural Development
Often in a family business, the following may be the breeding ground for conflict:

  • Reporting structures
  • Compensation schedules
  • Policies and procedures
  • Agreements and
  • Strategy

Ambiguity in documents, inappropriate reporting mechanisms, and inefficient communication and process can cause conflict because these all represent structural power entities. It is much easier to change such things than to change the people involved. Often the “low-hanging fruit” in family enterprise conflict management may be found in structural development of the system.

Specialists in the functional areas of the enterprise can have great impact by evaluating documents and structures, and then providing best-practice advice and independent guidance—for example, by suggesting ways to improve governance. Rather than merely professionalizing the company, the intention should be to support the enterprise in growing itself out of conflict-generating systems by addressing structural issues that underlie or exacerbate conflict.

Personal Development
Stakeholders can seek to grow themselves out of conflict through coaching and education, by developing increased empathy for and understanding of others, and by addressing psychological issues and longstanding resentments.

The Development Approach

Development, both structural and personal, is the only one of the three conflict-management approaches that can address values and historical impasses. In fact, as individuals learn more about themselves and the structures they are engaged with, many opposing stakeholder goals may get resolved.

For example, if a sister with a low tolerance for risk has been fighting her brother’s attempts to grow the company but then makes the effort to learn more about the market and the company’s finances, she may become better able to manage her fears and support the goals for growth.

Also, when values and historical impasses are addressed first, it is likely that any subsequent negotiations will be more successful. If litigation is still considered, there’s a greater probability that the focus can be on the search for truth and justice rather than revenge and coercion. Arbitration or mediation may then be possible, or you may gain an understanding that allows you to move forward without any “dispute resolution process” at all.

It is important to be aware of cases in which the family bond cannot work to leverage compromise or a commitment to personal change. When the family lacks the will to rebuild trust, address old resentments and develop a vision for how to be family in the future, litigation or separation might be the likely outcome.

Collaborative Teamwork

Following a comprehensive, systematic approach such as this will lead to a list of opportunities for structural and personal development. It will also help family members identify those issues that may be resolved through mediation and those that may require third-party intervention. An effective conflict management team may include:

  • Attorneys for document review, estate planning, and expert opinion
  • Business consultants for organizational and strategic analysis
  • A wealth manager for planning purposes
  • Accountants
  • Valuation experts for historic and comparative performance evaluation and a
  • Psychologist or clergy member to address emotional, personality, and forgiveness issues.

This team of professionals may guide the effective and reliable management of systemic conflict by working collaboratively with a common understanding of how the various systems interact and by being mindful of the importance of the ongoing relationships.

Understanding the systemic nature of family enterprise conflict leads to approaches that improve the individual skills of family members and other stakeholders. It also strengthens the organization’s processes, policies and agreements. The result is a family and an enterprise that are sustainable and resilient.

Originally published in Family Business Magazine

Did you miss part 1 of Managing Systemic Conflict? Read it here.

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