Family Business Conflict Resolution and Negotiation

Unique challenges emerge when we're engaging in family business conflict resolution and negotiation. A strong understanding of these challenges and how to handle them will set you up for success.

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Family Business Conflict Resolution

Business transactions between family members and friends can be difficult. Close ties are generally founded on the expectation that we’ll look out for each other’s welfare and not “keep score.” In business relationships, by contrast, we expect to be compensated based on how much effort, time, and money we expend. We’re likely to experience a clash between these two sets of norms when engaged in family business conflict resolution and negotiation. This challenge and others need to be addressed when preparing for family conflict resolution and negotiation in the business realm.

Dealing with the Generosity Norm

Close bonds between negotiators seem to reduce dysfunctional competition and improve the exchange of information. Yet some research has found that we reach less satisfying and creative deals with those close to us. The desire to avoid impasse and conflict can result in a subpar agreement.

In a 2006 study, David R. Mandel of Defence Research and Development Canada found that participants tasked with selling a music CD to a friend asked for less than what the friend was willing to offer. Yet when negotiating to make a purchase from a friend, participants did not try to overpay. It seems that “giving” things to friends (even if we’re being paid) triggers a generosity norm that isn’t present when we’re buying things from them.

Thus, to improve the objective quality of your deal when negotiating with a friend or family member, agree in advance that you will rely on the fair market value of an item or a service rather than trying to grant each other special favors. Discuss the pitfalls of negotiating together up front, consider the possibility that conflict management will be required, and accept that you might get a better objective deal by negotiating with a stranger instead.

Navigating Business Breakups

Suppose you’ve been doing business with a friend (or a spouse, sibling, or child), but now you want out. How can you negotiate the dissolution of your working relationship without the need for family business conflict resolution?

Here’s one successful example. In 2008, after more than 25 years in business with his brothers Fred and Tom, Henry Elghanayan decided to dissolve their multibillion-dollar New York City real estate development business and strike out on his own. Fortunately, the brothers had put in place a process for dividing their assets years ago when a fourth brother left the business. Fred won a mini-auction that earned him the right to divide the combined assets into three “piles.” He had an incentive to divide the piles fairly, as he would choose last from among them. Henry won a coin toss that gave him the right to choose first; brothers Tom and Fred followed. Henry continued to swap development sites with his brothers until they were all satisfied with the final outcome. The keys to the Elghanayans’ peaceful, financially satisfying resolution? Foresight and careful planning.

When starting a business relationship with a family member, take the time to discuss the norms, standards, and processes you will use to settle any disputes or changes that may arise. It’s not easy to raise the possibility of conflict when embarking on an exciting new venture, particularly since family members may have different conflict management styles. But doing so will greatly improve your odds of maintaining a strong personal relationship if you eventually scale back your business dealings.

Avoiding Ethical Pitfalls

When we negotiate to help a family member gain access to a scarce resource or a select group (such as a job, a bank loan, or a spot on an admissions list), we typically focus on how helpful we are being. Meanwhile, we overlook the fact that our actions could disadvantage less-connected individuals, including underrepresented minorities.

In their book, Blind Spots: Why We Fail to Do What’s Right and What to Do about It (Princeton University Press, 2011), Max H. Bazerman and Ann E. Tenbrunsel describe this phenomenon as in-group favoritism—the common tendency to give special treatment to those who are similar or close to us, including family members and friends.

To take one example, from 2005 to 2009, about 800 unqualified applicants were granted admission to the University of Illinois based on their connections to state politicians and other well-connected individuals. Obviously, for each unqualified applicant who pulled strings to get into the university, a qualified applicant received a rejection letter. The scandal led to high-level resignations and an overhaul of the university’s admissions process.

The scandal illuminates the harm we can cause others when we privilege those close to us in our negotiations and other business dealings. When tempted to negotiate for special treatment of those close to us, we need to think about whether others could be harmed by our actions.

 What other dilemmas have you faced when engaging in family business conflict resolution and negotiation?

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