There are many ways to avoid or mitigate conflict within a family business. More often than not however, disagreements between family members have devastating effects. Sometimes conflicts originate during a previous family generation and in time present a horrible ripple effect which overwhelms succeeding generations into conceding that a business’ legacy cannot be carried on. These cases are unfortunately frequent and as a result painful, yet they provide a valuable learning opportunity and serve as cautionary tales for families in business.
Debora Marino, a non-family business employee based in Argentina, knows what it is like to watch a family business fall apart. For nearly a decade she worked for an Argentinian firm managed and owned by a family of Italian descent. She tells the harrowing story of how both the family and the business fell victim to internal strife and just what stakeholders were faced with consequently.
The family business involved in this case wishes to remain nameless. Alternate names have been used, however the narrative is accurate in terms of its timeline and facts.
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My introduction to the B-family
I had been living in Argentina for about a decade when I joined the B-family business. I was hired in an administrative capacity, working closely with the family and was in the unfortunate position of watching the following story unfold.
The B-family is a third generation family business. Started by Carlo B. in the 1950s, the family – Carlo together with his three sons, Giuseppe, Alfonzo, and Giancarlo – founded a very successful company in the fruit trade. Guided by their father, Alonzo, Giuseppe and Giancarlo assumed the varying management roles appointed to them.
Carlo B. was a patriarch in the most traditional sense of the word. Determined to build a legacy that would stay in the family, he decided that only male heirs bearing the B-family name would be considered owners of the business. Daughters and wives would be supplied with financial support but would possess no decision-making abilities. That this would leave the female descendants at a disadvantage and in turn frustrate the family would eventually be discovered most regretfully.
After the founder Carlo B. died, the three brothers of the second generation ran the family business successfully. They were soon joined by their own sons, who came aboard during the 1980s. During the 1990s, the family delved into international trade, exporting their fruit stock beyond Argentina’s borders for the first time.
Giuseppe’s only son Martino joined the family business as soon as he was of age. Soon followed Alfonzo’s two sons Bernardo and Luigi, though in line with the family’s protocol, Alfonzo’s daughters Maria and Carlotta gained financial compensation but no shares in the company. Giancarlo’s son Niccolo having studied to be an architect had no intention of joining the family business. In an effort to create a common link between Alfonzo, Giuseppe and Giancarlo’s children, the family founded a real estate company, which Niccolo would manage.
The fruit industry in Argentina is one that knows many shades of gray. A large portion of companies involved in the industry quite frequently engage in unrecorded “off the books” sales. The B-family was no different.
Within a six months period in 2009 both Giuseppe and Alfonzo died, leaving the youngest brother of the second generation Giancarlo in charge. This sudden loss of leadership was the beginning of the unraveling of several dormant family conflicts. Things started to go wrong within the family business largely because the female members of the family felt that there was an imbalance between the company’s income and the dividends they received. Ignoring frequent complaints from both Maria and Carlotta proved fatal for the B-family as a lawsuit ensued and in effect triggered the family business’ demise.
Carlotta sued her family for malpractice and the following legal proceeding revealed some of the business’ illicit deals, which in turn lent credence to her claims. As a result, the real estate company, which had miserably failed to become profitable was dissolved first and Niccolo left the family business for good. The remaining members of the third generation lost interest almost simultaneously. This order of mass defection left Martino, now the General Manger, and his uncle Alfonzo, current chairman, to fend for themselves whilst facing the difficult task of rebuilding the business’ reputation.
The role of the non-family member
To assist Martino in his new role I was promoted to sales manager. The family business’ mentality operated for generations under the tutelage of male family members, making it impossible for me attain the necessary authority to carry out my role. The business soon downsized and this year might be confronted with its first year of loss.
The most unfortunate aspect of the story is that the family is no longer on speaking terms. After years of conflict and the resulting lawsuit it seems unlikely that reconciliation will occur any time soon. With the fourth generation now reaching the age to contribute to the business, the family’s addled state preventing their input is made to appear even more troubling. A famed legacy was dismantled by corrosive conflict, a lack of transparency and the loss of trust between family members.
The lessons learned
While the company hopes to recover for the sake of its shareholders, it has suffered an extensive emotional and organisational trauma that will almost certainly prevent it from realising the levels of greatness it once reached. With the forced removal of family involvement, once a key selling point in the community, the B-family business faces uncertain years ahead.
It is clear that many mistakes were made due to the family’s failed approach to ownership management. Granting the female members of the family a greater role within the company may have prevented feelings of resentment and the resultant lawsuit. By addressing communication problems internally the family would have given themselves a better chance of employing effective conflict resolution and most importantly may today still be on speaking terms.
It is of course easier for an outsider to provide such advice than for a family business to actually implement it. Yet it must be considered by families to take their internal conflicts very seriously as the ramifications of an escalation do not only concern themselves but affect the lives of employees, shareholders, future generations and the community at large.
Tharawat Magazine, Issue 21, 2014