Family businesses consist of two different worlds. The first sphere of influence is the family and usually involves personal relationships and emotions. The second world is the business, one that must honour a myriad of interests which are beholden to market rules. The overlap between these two worlds frequently produces a broad range of interests which often enough expose sensitivities, potentially resulting in personal and professional conflicts. A family business dispute can either be of a vertical nature such as exhibited during the trials of succession amongst heirs, or one horizontal as in a relationship conflict amongst members of the family working alongside one another. Carol Khouzami, mediator and manager of the International Finance Corporation (IFC) Alternative Dispute Resolution (ADR) project in Lebanon, explains how both types of disputes can be efficiently resolved through mediation, which serves to uncover the miscommunication that often lies at the root of family business conflicts.
Mediation in the Family Business
A family business dispute is typically characterized by a number of features. The most obvious driver to family business disputes is the emotionally charged interaction that often appears. The second feature commonly found is the reluctance of family members to resort to the legal system to solve a business dispute in order to avoid bad publicity and the consequences such a move will have on family relationships. A third feature is the inclusion of hidden grievances, often emotionally driven in nature, which are masked with a business concern and are allowed to fester due to a lack of proper communication channels. All of these key features of family business disputes combine to create a long-term challenge. Hidden personal problems that arise in a family and are left untreated will remain dormant yet be transmitted to the next generation. Bequeathing disputes runs a detrimental risk of growing amplified and in turn jeopardising the survival of the enterprise. Mediation has proven to be a worthy remedy as continued dialogue makes it easier for family members to do business together. By reaffirming lines of communication which address all parties’ interests, the preservation of both business and personal relationships is made possible.
Mediation is not only a palatable alternative to court, but also to arbitration, providing a cost effective means to solve business disputes. It is a flexible process conducted confidentially in which a neutral person actively assists parties in working towards a negotiated agreement to resolve a dispute or difference. Parties remain throughout the mediation process in control of the final terms of resolution. Mediation is recommended when direct negotiations are ineffective, when a quicker and cheaper resolution is required and when publicity is best avoided in order to protect the reputation of the family business. Moreover, mediation allows the preservation of relationships between involved parties. As an interest-based process, a mediator is able to assist in broadening the scope of a dispute in an effort to discover and mend the most deeply rooted of complications.
Mediation is usually composed of four phases: opening, exploration, bargaining and conclusion. A crucial impediment to family business, concealed concerns, are targeted during the exploration phase of mediation. By asking questions to the parties involved and encouraging an open forum for expressing grievances and identify long-term interests, resolution is given a platform for action. The expertise and skills that mediators bring to uprooting a family business’ conflict drivers is at the crux of the advantages of such an intervention.
A Case Study
The following case study illustrates just how mediation can help improve communication within a family business, thus leading to a less cumbersome solution to any internal dispute: Suppose two sisters are partners in a law firm that is founded by their father. When the father passes away, the sisters decide that they are uninterested in partnering with one another, but would rather split the firm’s assets. They are able to agree on the fate of all assets, except for an antique table bought previously by the youngest sister to be used in the firm’s conference room. The eldest sister makes a claim based on previously investing in a costly refurbishment of the table having not deemed it worthy for display. When dividing the firm’s assets, both sisters claim a right over the table. Initially, it seems that this is a straightforward dispute over a moveable asset. To resolve this dispute, three options are available:
The first is the “attack option”, made possible by a legal proceeding. This option will likely ruin the sisters’ personal relationship as their respective lawyers will typically fight for what they believe is in the best interest of their clients. Lawyers will focus on the material asset (e.g. the table) with no other consideration. The solution will likely result in the table’s allocation but the sister’s relationship may not survive the judgment.
The second option is “escape or avoidance”. The sisters will avoid the legal system but will fail to find a solution to their table dispute. Direct negotiations failed due to the inability of the sisters to sincerely explain to one another why the table was of such importance. The conflict is not solved and the underlying causes are not addressed.
The third solution is mediation. As explained above, as a third neutral party, the mediator will meet jointly or separately with the sisters, with sights on enhancing communication and reaching a win-win solution. The mediator’s role is most beneficial due to the possession of specific skills related directly to relationships (developing communication and interaction with the parties), processes (establishing and maintaining an effective working structure) and content (facilitating momentum and progress through active engagement with the parties and the content). The mediator’s role is thus to facilitate communication between the sisters through building confidence and trust. Participants of mediation feel comfortable to talk as all are bounded by confidentiality. Once an environment conducive to mediation has been erected, the mediator will widen the perspective by gaining a better understanding of the sisters’ underlying needs and requests. Most likely, information of an emotional nature will surface, uncovering the disputed table as a symbol of old frustrations and grudges, sometimes dating back to their childhood or more recently to the dynamics between the sisters and the father while working together in the law firm. The mediation phase will end when the root of the conflict between the sisters is clarified and both feel relieved now having the chance to reveal what they were not able to express during direct discussions. The claim over the table will then be put in perspective, the relationship and their reputation preserved, consequently allowing the sisters all latitude to agree on the most suitable solution to end the case.
As illustrated by the case study above, mediation is a tool that can be applied to family businesses that are interested in getting to the root of conflicts. In order for mediation to work, families have to be willing to face the issues that might surface during the process and deal with the consequences. Mediation is without a doubt an effective way through which the underlying miscommunications that cause most conflicts in family businesses can be addressed without the risk of adding more problems through loss of reputation or painful litigation.
Tharawat Magazine, Issue 17, 2013