When Your Family Squabble Impacts Your Family Business

Remember when your sister took your favorite sweater and stretched out the sleeves?  Now imagine that level of emotion combined with very large dollar amounts.  It gets ugly.

And because I am an investment banker and not a mental health professional, I will not try to diagnose anyone here, but I can say with authority that, when a family is in crisis, it impacts the performance of their family-owned business and in turn impacts the value of that business.

Hostile Culture

A fight between family members can create a hostile culture within the business.  Outside employees can feel as though they must pick sides or align with a particular family member.  When a culture of separation and hostility invades a business, decisions are made in ways that do not reflect the overall strategy, but rather the loudest individual’s goal.  In its most ridiculous state, decisions can be made in order to spite family members and actively hurt the business. 

Distractions

When employees and family members are worried about  who hates who on a particular day, they are not allowed to be their best selves.  Tension does not create the best work environment and outright yelling and fighting is a distraction on a subway platform, so will most certainly be a distraction in your office.  

Bad Decision Making

I have seen family business entrepreneurs hire the wrong people, delay marketing campaigns, and keep ineffective sales people, all in the name of keeping peace in the family.  If your family dynamic creates ineffectiveness in your business, something needs to change.

The end result of all this squabbling is a company that is not performing at peak levels, impaired profitability, and ultimately, business failure.

Why Are Fights So Bad In Family Businesses?

Of course, conflicts arise in every business.  In every office there will be disagreements about strategy.  The reason these squabbles are so detrimental in family businesses, however, is the inability for a human resources intervention or a removal of the offending party.  Family fighting can get particularly vicious because there is often no internal method of stopping it. 

Fighting can also become accelerated when a parent/child dynamic is engaged.  In a family, when a parent issues an order, children are expected to execute that order.  In a family business, children may see things differently than a parent and real business decisions can get overwhelmed by strange patriarchal influences.  Things get even worse when mom steps in or picks sides.

Fighting While Selling Your Business

If you think the fighting is bad when trying to decide whether or not to hire cousin Mark for that sales position, think about how much tension is created when someone wants to sell the business.  Sometimes, disagreements are so severe that the only way to resolve them is to sell the business.  

We have already established that fighting and tension can degrade a business’ performance, which will, of course, lead to lower valuations.  Other than cash flow, investment bankers are also selling the management team.  If that team is fractured or non-existent, buyers will shy away.  No one wants to inherit a messy management team.  If a buyer aligns with one particular family member in a sale process, they don’t want to risk losing other key managers along the way.  Buyers don’t want employees that are terrorized or ineffective either.

For the sake of your business valuation and your mental health – it is best to get things straightened out before you take your business to market.

How Do We Fix This?  Structure and Boundaries

The best way to manage difficult family situations is to give some authority to an outside, independent person or Board.  A family can do this in many different ways and doesn’t have to relinquish control of a business.  You can use the Board to help solely with decisions where there are disagreements.  You can use them to consult with you only about a potential sale.  You can use them to write guidelines that the organization will follow until those guidelines need to be updated.  The key is to make sure that the entire family understands that conflicts, when handled properly, can be used to make the business better, versus destroying value.