The ties that divide

Family firms rarely last beyond two generations.

Blood is thicker than money, say the supporters of family-owned businesses. But when disputes break out, good commercial sense can be replaced with bitterness, envy and personal rancour. Years of suppressed anger often bubble up to threaten the vitality - and even survival - of family enterprises.

When Professor Sue Birley polled 274 owner-managed firms, 47 per cent of the sample were very concerned about the dangers of a serious rift with their business partner, while 36 per cent were specifically concerned about potential conflict between the interests of their families and the commercial needs of the business. Yet few firms have effective procedures to avoid or resolve conflict. Once the family has started to fight, it may only be the agency of a third party - an accountant, consultant or lawyer - which can put issues back into perspective and provide a solution.

Most firms assume - wrongly - that being a family business provides unrivalled channels of free and open communication to allow disruptive issues to emerge and be diffused. But formal structures for effective communication rarely exist in family-owned businesses. Although small firms are often thought of as autocracies, family businesses tend to be based on "negotiated paternalism" in which all the family members have some sort of stake in decision making, even if only a passive one. This style tends to create hidden agendas covering a series of potentially sensitive family - rather than business - issues which might generate conflict. Letting sleeping dogs lie is a fine philosophy until the dog wakes up.

The roots of conflict often lie at least as much in the emotions as in issues of strategy or management. Family relationships are fixed before business ones; the root of a dispute may be really as irrational as "Mum always loved you more" or just stiff-necked pride. At the extreme, family pressures can permanently separate family members.

Of all the spark-points which let the family tensions out of the bottle, generational issues are among the most significant. J M Keynes's three- generation cycle, where the founder makes the money, the heir coasts along and the grandchild goes bankrupt, is supported by insolvency statistics. Less than one-third of owners successfully pass family business ownership to the third generation.

Many family firms are holed by nepotism - unsuitable family members enter the business and alienate both family members and staff. And many high-flying outsiders are discouraged from entering family firms because of the fear that their performance will count for nothing against blood.

On the other hand, autocratic founders may be reluctant to allow heirs into the business. Equally, they may not recognise that the next generation has different aspirations. All family members should spend some time working outside of the business to help them crystallise their personal ambitions.

The admission of outsiders is likely to be a danger point, unless handled with the greatest of care and through wide consultation. If most family members perceive that the firm is family first and business second, the MD's decision to allow a 45-year-old finance director onto the board may not go down well with children who have ambitions of their own.

Family members must also accept that commercial reality will require evolution from Grand-dad's day. A useful vehicle, especially for businesses involving more than two or three family members, is a family forum or council. This should meet outside office premises and away from home. Any issue should be raised and everyone should be entitled to speak. The forum should discuss change - after all, the firm is where many family members will spend the rest of their lives. Individual objectives also change and need to be respected. Decisions taken about the business affect different family members in different ways, leading to changes in roles and ambitions that also need to be aired.

Along with communication goes information. Family owners and managers should communicate their thoughts, expectations, plans and decisions as early as possible to the family and the firm as a whole. The more important the issue, the more important it is that other stakeholders should be informed and consulted, rather than left to nurse their hurt pride after finding out on the grapevinen

Chris Christou is chairman of ACCA's Small Business Committee and Principal Partner in Leigh Christou, a Coventry-based firm of chartered certified accountants