Roaring Success Part 3: Creating Defined Roles to Reduce Family Conflict

For a family-owned business, the transition of ownership from one generation to the next is a critical step. This pivotal moment is not just about passing the reins of leadership but also represents a shift in the dynamics of the business and the family. A business in transition is at risk of losing its identity, culture, employees, and potentially its revenue pipeline if the customer base is strongly tied to the identity and personal brand of the founder. However, if managed with care and thoughtful decision-making, a business transition can weather the challenges and avoid the potentially fatal risks, while setting up the next generation for long-term strength and prosperity. This series will identify and discuss several legal and management tools to aid in the transition process, with an eye toward their impact on your business’s long-term success, financial stability, and legacy.

This article continues our series on the transition of ownership of family-owned businesses. Each article will focus on a different aspect of the business transition, resulting in a broad overview of the challenges commonly faced by business owners who leave their companies in the care of the next generation. We invite you to review the series in its entirety.

Create Defined Roles to Prevent Family Conflicts

Personal and professional boundaries are often blurry in a family business, making them especially prone to conflicts among family members who are co-workers or co-owners. These disputes are easily magnified during the succession process, as family members deal with differing visions and roles. ?Each decision during the succession process can feel “existential” to those involved, making each new issue a potential flashpoint for family members who are trying their best to help the company succeed.

Managing the tensions between family members, and their respective roles as stakeholders in the family-owned business, is essential to ensure a smooth transition of control, and the continued success of the business.

Disagreements among family members can frequently stem from having ambiguous roles or positions, an unclear line of accountability and decision-making authority, and vague expectations from management or the company owner. We commonly encounter family-owned businesses that treat some family members as “floaters,” who are expected to take on any task or responsibility that is important for the business to succeed, but do not have an actual defined role in the company. Additionally, employees who are part of the family are more likely to graft the existing family structure onto the business, even where that may not make sense in terms of education, experience, or skillsets.

Another important issue in family business dynamics involves the age and generational differences between the current owner(s), and the younger family member who will succeed them. Often the current business owner is given the respect and loyalty of the family members who work for them due to both their decades building the business and their position as the patriarch or matriarch of the family. While control of the business may transition to a younger successor, the position of elder statesman in the family does not. This generational difference in leadership can pose challenges in the workplace, as the family employees may be resistant to the new leader, seeing him or her as a peer instead of a boss.

It is therefore important to create a defined set of responsibilities and authority for each family member. Leaders should take a hard look at the governing documents for the business, the job descriptions and employment agreements for all family members, and the accountability chart or organizational chart. Setting clear expectations and boundaries – especially in situations where those items were enforced by trust or relationships instead of documented agreements and processes – can prevent many potential disputes among family members. Instead of family dynamics ruling the decision-making process for a business, the right people are empowered in the right way to take advantage of their unique skills and experience.

Why It Matters for Long-Term Success: The balance between personal relationships and professional growth can be delicate to maintain, especially in a transition. Challenges or potential trouble spots must be met head-on, to ensure that the business operates smoothly, no matter who is at the helm. Proactively avoiding disputes in the workplace not only positions the business for success, but it also fosters harmony within the family.

ABOUT THE AUTHOR: Kieran B. Wheeler?is a shareholder at Rapp & Krock, PC in the Business Transactions group advising clients on corporate governance matters as well as mergers and acquisitions and other business transactions.

DISCLAIMER

Rapp & Krock, PC presents the information in this article for general education purposes only. Although this article discusses legal issues, it is not legal advice. The law and the content of any linked website may have changed since this article was written, and Rapp & Krock, PC makes no warranty or guarantee about the continuing accuracy of the information presented. Use of this article does not create an attorney-client relationship, and Rapp & Krock, PC does not represent you unless and until we are expressly retained in writing.

Copyright ? 2024 by Kieran B. Wheeler. All rights reserved.