Adapted from “All in the Family: Managing Business Disputes with Relatives,” by Frank E. A. Sander (professor, Harvard Law School) and Robert C. Bordone (professor, Harvard Law School), first published in the Negotiation newsletter.
What happens when family members go into business together? In a few lucky cases, harmony and success follow without effort. More often, however, history, emotions, and competing visions of the firm’s future complicate matters. Because of the risk posed to relationships outside the office, many avoid confrontation with family members and hope that the tension will pass. Others behave in ways that make matters worse, jeopardizing not only the viability of the company but also the family itself.
While many sources of disputes in the operation and management of a family-run business are unpredictable, you can plan for others, such as those related to succession, inheritance, and strategic planning. Whenever possible, family members entering into a business relationship should agree explicitly and in advance on the norms, standards, and processes they will use to resolve disputes that may arise. To ensure that all relevant stakeholders remain in agreement, it also makes sense to revisit these dispute-resolution provisions when individual family members enter, leave, or invest in the business.
You also can anticipate specific family issues that are ripe for conflict and address them before they tear at the family fabric. Consider the case of a family of three brothers who co-owned several restaurants in suburban New Jersey for more than 30 years. Each had several children involved in various aspects of the restaurants’ operation. As the brothers faced retirement, they realized the family had grown large enough to make dividing the restaurants among their children a potentially bitter struggle. To head off a dispute, they decided to sell the restaurants and divide the proceeds among the three of them. Two of the brothers then purchased restaurants of their own; the other retired. While this may not have been the most elegant business solution, it accomplished the primary goals of resolving their joint business interest and ensuring that the family remained close for years to come.
Finally, when planning to manage business and family, keep in mind that you may face special legal and financial issues, such as inheritance law, tax implications, nepotism, and divorce or antitrust concerns.