At a glance
- Establish formal structures to separate business decisions from family matters.
- Address succession early and openly by creating a documented plan.
- A “Family Charter” can set rules for succession and conflict resolution.
- Use external advisors for objective guidance and to prevent costly disputes.
Family dynamics can be complicated at the best of times. Add running an accountancy business into the mix, and power struggles can quickly escalate.
Fans of Succession may recall the moment Kendall Roy highlights this complexity. In conversation with his brother and sometime co-CEO, Roman, he says bluntly: “I’m better than you. You’re … you know, I hate to say this because I love you, but you’re kind of evil.”
In a recent Mastercard survey, nearly a quarter (23%) of UK family-firm members cite personal relationships as one of their biggest business challenges, while 18% said there’s conflict over who’ll take over the family business.
Friction often arises when change is happening, whether that’s the business merging or growing, or family shifts such as retirement, death, marriage or divorce.
For Victoria Pigott, a partner at Mishcon de Reya, it’s almost always personality driven: “Things go wrong because new people are brought into the fold. People often change when they get a new partner who brings fresh eyes to family dynamics.”
Generational conflict can also be a problem, says Andrew Perkins, the head of commercial litigation at Ashfords. “Senior family members tend to manage younger members, who in time push back and hanker for independence – the work environment is no different.”
We spoke to the experts to find out what steps family-run firms can take to tackle conflict in key business moments.
Separate church and state
Putting in place frameworks for communication and decision-making is key, says Silvia Vitiello, partner and head of Family Business Group at Moore Kingston Smith. This might include holding “council meetings”, where business issues can be examined separately from any other family matters.
Clear decision-making processes should be established and followed to remove ambiguity. Vitiello advises that such an arrangement “avoids ‘informal’ decision-making processes, such as who has the loudest voice!”
“These are certainly not circumstances where ‘keeping it in the family’ is the best approach.”
Andrew Perkins, heaD of commercial litigation, Ashfords
Even family-run firms need to be professionally governed, with proper paperwork and governance structures. If leaders are concerned that members of the family might be unhappy about something, Pigott urges them to discuss it with the members concerned. “Don’t let it fester or hope that it will go away.”
Perkins warns that letting communication break down can be costly. He cites a case of two brothers who inherited shares in a development company from their father, one as an active partner and one as a “silent partner”. The pair didn’t keep each other up to date. Eventually it came to light that the active partner had extracted more than £1.5m from the business in the form of pension contributions and bonuses – all unbeknownst to his brother.
Address the elephant in the room
Succession can be one of the most sensitive matters for any family business to discuss, even while it is one of the most important for the longevity of the business and for supplier and client relationships. For Vitiello, it “brings to the surface questions of capability and fairness versus ‘natural succession as a birthright’.”
Building a formal succession plan, and revisiting it regularly, gives generations time to prepare, gain experience and anticipate stepping up to leadership. Vitiello recommends that family businesses avoid unwanted surprises by developing a “Family Charter” – a framework that encapsulates succession planning, conflict resolution, and decision-making.
Vitiello recalls a case that both surprised and amused her. “On one occasion, it was only when our discussion to create the Family Charter took place that a key family member casually mentioned that he would be retiring in just over 12 months – and had already purchased the boat he was going to sail around the world in!”
“He’d put in a huge amount of planning into his retirement dream, but had accidentally neglected to mention this to his brothers. The client was genuinely shocked that they didn’t realise this was his plan. He thought, ‘they would have just known’! The client did retire, but after three years, rather than one. And they remained a close family…eventually.”
Bring in the heavies
The informality of relationships means tensions have a greater risk of arising in family-owned businesses, and more than a third (37%) of respondents in the Mastercard survey said they would benefit from guidance. Indeed, external governance structures like advisory boards can help neutralise tension between family members.
External advisors or non-executive directors can bring objectivity and keep the focus on the business, without the risk of real or alleged favouritism. Lawyers, accountants and other professional advisers are able to understand issues and identify potential approaches to resolve them, says Perkins. He has found himself called into many family-owned business frictions in recent years, despite technically being a “disputes lawyer”.
Advisers should be consulted as early as possible to find a resolution, says Perkins. He gives the example of a property business owned by three siblings, two of whom wanted to pursue a risky development while the third resisted. This led to a prolonged deadlock and nearly £1m in legal costs. Then, through independent mediation, they settled the dispute in a single day. The legal costs could have been avoided altogether had mediation been used from the start.
As Perkins summarises: “These are certainly not circumstances where ‘keeping it in the family’ is the best approach.”
