Resolving family conflicts as a tool for effective management of ...

Resolving family conflicts as a tool for effective management of family
business
Eliška Zoubková, ing.
Brno University of Tehnology, Department of Management, Brno, Czech Republic, zoubkova@fbm.vutbr.cz
Abstract
The paper deals with conflict management within the family business. Through the definition
of family firm it comes to conflict management and nepotism as a possible source of conflicts
within the family firms On the example of two case studies it examines the situation in two
small family firms.
Key words
Family business, conflict management, nepotism
INTRODUCTION
“It doesn't matter how many years or even generations it has taken to create a family
business and to make it successful. Internal conflicts can shatter a family business more than
all competitors combined. In today's world a business is not likely to be around for long,
when family members spend more time fighting and blaming each other than working
together and coming out with creative ideas.” [Leone, G. Resolving conflict in a family
business]
The conflicts are the „spice“ of ordinary life of every firm. But what to do, when the wrangles
affect the family business? “Conflict is a normal part of any family relationship. But when
you combine standard sibling rivalries or parent-child conflicts with business disputes over
money, management, and ownership, both family and business relationships can suffer a
terrible beating.” [Matthew McKenzie - Resolving Family Business Conflicts]
1 THE AIM OF THE PAPER AND METHODOLOGY
The aim of the paper is to analyze the actual know edge in the field of family businesses,
pinpoint the main causes of conflicts affecting the family business, and last but not least –
describe the possible solutions of avoiding the situations causing the “family wars”.

The paper was elaborated in the form of foreign background research (the sources were
gathering from the databases such as Proques, ScienceDirect and Emerald) and enriched with
own experiences gathered as a part of three family firms. The paper a part of set of papers
dealing with problems connected to management of family firms. These papers are supposed
to be a theoretical background of my dissertation thesis.
2 FAMILY BUSINESS DEFINITION
“Family firms are one of the oldest forms of entrepreneurial organizations and nowadays are
considered to be very important factors of world economy” [Bowman-Upton 1991].
There exist many definitions of family business. In a comprehensive study of family
businesses, Chua, Chrisman, and Sharma cited 21 different definitions of family business
found in their review of 250 research articles. Ernesto J. Poza tried to make synthesis of main
characteristics of family businesses.
“A family business is a unique synthesis of the following:
• Ownership control (15 percent or higher) by two or more members of a family or a
partnership of families
• Strategic influence by family members on the management of the firm, whether by being
active in management, by continuing to shape the culture, or by serving as advisors or
board members
• Concern for family relationship
• The dream (or possibility) of continuity across generations
The following characteristics define the essence of the distinctiveness of family firms:
• The presence of the family
• The owner’s dream of keeping the business in the family (the objective of business
continuity from generation to generation)
• The overlap of family, management, and ownership, with its zero –sum (win-lose)
propensities, which render family businesses particularly vulnerable during succession
• The unique sources of competitive advantage derived from the interaction of family,
management, and ownership, especially when family unity is high” [E.J. Poza, Family
Business. Mason: South-Western, 2004]

3 NEPOTISM AS A CAUSE OF CONFLICT
Family firms has to deal with two (sometimes opposite) tasks: the first one is to find the
proper human resources with required knowledge and experience to ensure smooth run of the
firm; second task is to integrate family members into the firm. Sometimes it is very difficult to
hire relatives and keep on mind that for the company’s good we need well educated,
experienced and skilled employees (and managers). Very often owners of the family firms
employ family members who are not qualified for the work in the firm and their activities hurt
the family firm and destroys the human relations while other employees may feel
disadvantaged – simply, enter of a new relative to the family firm may be a cause of conflict.
The situation, when the employees from family members are “protected” or favouring prior to
the “non-family” employees is called nepotism.
The nepotism may be (under certain circumstances) in family firm very useful tool for
effective governing of family business, when it is uses as a rational form of remuneration of
all employees for the success of the firm. The emotional bonds among the family members
may have very positive impact on execution of some individuals and also on firm’s outcome.
Moreover, hiring of relatives may solve all the requirements for new crew by loyal and
excited employees.
There are some other very specific problems connected to human resource management that
owners (founders) of the family firms must face to eliminate (or at least reduce) the conflict
situations within the family firm: they have to set entry standards for family members who
want to work for the family business.
These entry standards and guidelines including following steps (valid for family members and
non-family employees):
• Make clear to all, that family members are welcomed to join the company;
• Present the firm to the children as a place for suitable and inspiring career;
• Unify the rules of common game concerning career opportunities before even next
generation will be ready to enter the company;
• Ensure fair play for everybody – same pay, the possibility for career growth, etc.
• Formalize the “job duties” – it is necessary the family members would not get
responsibility before they “prove” their qualities;

• Ensure that family members keep their set of knowledge (which would be properly
developed);
• Do not let relatives to enter the company without proper education. Everybody should
also see the “big world”, before she/he enters the company – work for another
company in the field of interest of the family firm (for example for the firm’s
customer, supplier, etc.);
The owner must not only set the rules for common cooperation of “ordinary” employees and
family members, but with time allowance start to plan the succession. Succession plan is
necessary for the future existence of the firm and it is very important part of family firm
human resource management. The expectant successor must be properly educated and trained
to be able to enter the family business and – later – become its leader.
4 SOLVING FAMILY BUSINESS CONFLICTS AND CONFLICT MANAGEMENT
“Even if your family business is a model of harmony, it's a good idea to think about how
you'll deal with conflicts before they arise. The more open your family is about handling
conflict, the more likely your business will succeed because of disagreements, rather than in
spite of them.”
To protect family firm against conflicts and wars, each firm must set up strategic guidelines.
The family firm must hold regular family meetings to discuss business issues and settle
disagreements (all the relatives who own stock or play substantial role in the business must be
invited. Also, the formal, written policy which would govern family participation in the
business must be created (eg. set up salaries and equity guidelines, succession rules, dispute
resolution, etc.). Another very important thing which can avoid the future conflicts, is setting-
up the performance evaluations. It is necessary to develop formal, structured evaluation
process. [Matthew McKenzie - Resolving Family Business Conflicts]
“A conflict management system should outline the process for the identification and
management conflict. Whenever possible, the smaller disputes can be resolved using such a
system. Some needs to be responsible for identifying conflicts. Once identified, the parties
should have a “cooling-off” period in which the conflict is not discussed and the parties
attempt civil behavior or try to avoid one another. A mediated conversation can be the next
step, and if unsuccessful, some type of arbitration or adjudication may be called for. This can
involve family or non-family members. Finally, all conflicts management systems ensure that

parties are acting in accordance with whatever decision was reached.”[Ward, J. and
Rouvinez, D. Family Key Issues, 2005]
Most families just cannot solve their business troubles alone. Then external help is the
best solution. It necessarily does not have to be a consultant company, but for example a
external person in a board of directors or non-family employee. “As neutral third party,
the mediator doesn't tell family members "what" to do, but "how" they can best decide
what to do. During joint and private meetings with all family members and other
professionals whom they trust (attorneys, accountants, management consultants), the
mediator applies several problem solving strategies and techniques.”[Leone, G.
Resolving conflict in a family business]
5 CASE STUDIES – CONFLICTS WITHIN 2 EXAMINED SMALL FAMILY
BUSINESSES
I interviewed two Czech small family firms, asking them whether they have any conflicts
within the business. The managers of both firms replied, they had never had any strategy for
avoiding conflicts. Their stories are subscribed below.
5.1 HMT Ltd.
HMT Ltd. (I changed the real name of the company due to protection of the firm’s activities)
is the family firm producing working clothes and domestics for hospitals. HMT Ltd. was
established in 1996 by married couple – Mr. and Mrs. “Z”. During the last 13 years the
company became the notable supplier for hospitals (such as Faculty hospital Bohunice, St.
Ann’s hospital), children’s homes, retirements homes, etc. The firm has its customers also in
abroad – in Austria, Germany, Slovakia and Africa.
Nowadays, the firm employs three to six sewers (depends on orders) and one trimmer. The
only relatives working for HMT Ltd. are nowadays Mr. and Mrs. “Z”. But it couple years ago
the company was “full of relatives”.
In the beginning of existence of HMT Ltd. Mrs. “Z” asked her mother and sister for help with
production. Both were employed as sewers.
As the customers were requiring the best quality and the conflicts among the owners on one
side and mother and sister on other side were graduating, after 6 month Mr. and Mrs. “Z”
fired both women.
From the very beginning, the firm also employed both owners’ sons. One was working there
as sales representative, the other one was taking care for accounting and taxes. In 2003 one of

the son’s has entered the business as bookkeeper. During the time, both sons got their
business shares.
In 2007 both sons unexpectedly left the company – and with the good knowledge of all the
firm’s customers and suppliers, found a new company with similar line of business.
5.2 AMDZ
The firm was established in 1992 by Mrs. “Z” as a store with auto parts. In 1994 Mrs. “Z”´s
sister has entered the store to help with the business. From the very beginning both sisters had
personal conflicts (Mrs. “Z”´s sister was not appropriate shop assistant, she made just
mistakes and the store lost its customers and value), which affected other employees. Even if
Mrs. “Z” had known her sister harmed the business and relations among other employees, she
had not courage to fire the sister to save the business. During the last 17 years, the company
had more than 20 employees (the average employee relation lasted one year). The relationship
between two sisters destroyed the healthy working climate – the store has no suitable and
qualified shop assistant, but the owner’s sister, who (after 15 years of working for AMDZ
company, did not understand the essentials of the business).
During the last 12 years, both owner’s daughters have entered the company. But the
relationships between the owner and her sister discouraged them from planning the real future
in the store – both has their own stores and do not want to lead AMDZ company.
CONCLUSION
The potential for conflict in family businesses can be greater than for many other businesses -
usually due to a clash between commercial and emotional concerns.
“Family business is a complex, dual system consisting of two components – family and
business; family members drag into business are part of the system “business” and at the
same time part of the system “family”. The two systems overlap. In the overlaps may rise the
conflicts, because each of the system has its own rules of the game, requirements and divided
roles. For example, the “family system” is very emotional one, it rewards loyalty and care.
Into that system one can enter by birth and the membership is everlasting. The role, which has
a person within the family – father/husband, wife/mother, child/brother, sister – brings
expectations and responsibility. Moreover, families have their own communication style and
conflicts treatment, which have been improving for years. These styles may be good for
treatment the situations within the family, but not very good solution for conflicts merging in
the business.” [Bowman-Upton 1991]

Both interviewed firms just ignored the signs of starting problems in communication. They
did not remembered that a little conflict can be just as destructive as too much conflict.
Constructive criticism and debate are essential for growth. They “managed” the conflicts by
avoiding it or pretending that it doesn't exist. The two firms lost on both sides – on one side,
the conflicts destroyed their “family” bonds, on other side, the conflicts affected pretty much
the business and relations with other employees.
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