Managing and preventing family business disputes

The idea in brief: Mediation can be invaluable for helping family businesses resolve issues and avoid legal disputes – and you don’t need to wait until the damage is done. By intervening early, you can address problems and stop them escalating. It is quick, inexpensive and confidential. More importantly, it works. In fact, 89% of UK commercial mediations settle on the day or shortly after.

Rather than confront conflict, family members tend to avoid it, or avoid each other, until something snaps. When it does, fallings out can be serious. But if you need help dealing with family business issues, there is an effective alternative to litigation, and one that usually gets disputes settled swiftly. It is called mediation.

What is Mediation? It is a way of resolving disputes or disagreements between two or more parties.

The mediator - who is impartial and independent - helps the parties negotiate their own settlement, and the whole process is confidential. Mediation can take place at any time – at the emergence of a dispute or in the middle of litigation.  Mediation has become a standard part of the litigation landscape and the judiciary are strong supporters.

Why is it particularly suited to resolving family business issues?

Because while family businesses face the same challenges as other businesses, when it comes to dealing with conflicts, there’s a quintessential difference. In a business dispute, a relationship may be at stake. In a family business, it will always be. So, even straightforward commercial issues can be complicated by how people feel, or exacerbated by past altercations, unresolved misunderstandings, or by issues to do with the family, possibly triggered by events going back years.

That means that there is invariably an additional layer of complication to deal with too - and while litigation can be a sensible way of settling purely commercial issues, the courts aren’t good at dealing with relationships.

Often, in a family business dispute, both the problems and the people need sorting. Neuroscience teaches us that when feelings are running high in a conflict, those emotional aspects need to be addressed before one can make serious progress with logic or legal reasoning. Otherwise it can be like telling someone to calm down when they are angry. And about as effective.

The first thing a mediator usually does is engage with everyone - separately, preferably - so that, no matter how bruised they are by what they’ve been through, they trust the mediator enough to let him or her help them. Then, having earned that trust, the mediator works through the issues with the family members, acting as both bridge and buffer, and drives the process through to resolution.

How does it differ from litigation?

Cost-effective: Typically, the cost is a fraction of what litigation would involve. Day rates can be agreed in advance, so there are no hidden surprises either.
Speed: Arranging to mediate is easy and disputes, which may have festered for years, usually settle on the day.
Flexible: A mediator can help parties resolve all sorts of issues, not simply legal or commercial ones. You can agree whatever outcome suits you best.
Confidential & Risk-free: Discussions and settlement terms stay confidential. If you don’t want to settle, no-one can force you. This eliminates any danger of being saddled with an unwelcome legal ruling.
Informal: The mediation can be designed around the family and be as flexible and informal as you want. Discussions can, for instance, be spread over a couple of sessions to give people time to reflect on what they have heard and how they now feel.

Considering bringing in a mediator when ….

• people have different ideas about how the business should be run. Or who should run it.

• people are worrying about how a change may affect them, e.g. plans about the future of the business, succession, or due to a death or divorce.

• people have competing needs or interests, especially financial ones.

• a rift becomes personal. Especially where it is between founder/owner and family members, or competitive siblings, or over the treatment of family and non-family members.

• inter-generational issues need addressing. The younger generation may want control sooner than the older generation is prepared to relinquish it. Or vice-versa.

• serious conversations need to be had and you are worried about them going off-kilter.

For a family business, intervening early can be particularly important

Mediation can be very effective when issues start flaring up. A mediator can clear the air, stop conversations descending into the usual family arguments and knock heads together. So that family members can settle issues safely, without destroying themselves, the family or the business. If you intervene early enough, you also have a much better chance of repairing a relationship and getting it back on track.

Intervening early can be important for smooth succession planning, especially if a business founder is the epicentre of daily activity and reluctant to address the issue. Decisions like these require considerably more thought, but a mediator can start the process moving, help the family generate and evaluate options and build a road map that they can then discuss and hone with their advisers. (To be clear, mediators work alongside professional advisers and refrain from offering legal, tax, or financial advice).

Summary: Mediating may not make an unhappy family happy, but it can be an invaluable way of resolving sensitive family business issues and stopping them escalating. And it is worth considering if you have problems in the business that could be expensive, awkward or time-consuming to sort out.

 

Andrew Hildebrand is a leading commercial mediator and a member of the Civil Mediation Council. Andrew recently co-wrote ‘Dealing with Conflict’ for Step’s ‘Business Families and Family Businesses’ Handbook.