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Families in Business: Conflict in a Dynamical System

 

Author:  Karen LaRose

 

Abstract

 

Family businesses make up 80-90% of businesses in the US economy, account for 64% of US GDP, and employ 62% of US workers (Astrachan & Shanker, 2003).  Family conflict in a family business can have a devastating impact on a company’s viability.  In a family business setting, family members are challenged with multiple identities.  This narrative study explores the question, In a family business context, when conflicts arise, is the family identity salient?  How do emotions impact this type of conflict? How can task, process and relationship conflicts be managed effectively? Can increasing emotional and social intelligence of the actors help in the management of these types of conflicts and produce more sustainable outcomes than other types of conflict management?  The narrative study was conducted interviewing a member of a fourth generation family business about his experience with task, process and relationship conflict.  The data was coded and organized around the themes of task, process, relationship and identity conflict, differing narratives, and family culture and nature of relationships.  The study finds in the subject’s business, elements of family relationships, family identity salience, family culture and business interact to support conflict in a dynamical system that has evolved and continues to evolve over time. 

Keywords: family business, conflict, emotional intelligence, social intelligence, identity salience, family business mediation

 

 

Chapter One – The Nature of the Conflict

US owned family businesses (FB) account for somewhere between 80% and 90% of all businesses in the United States (Astrachan, J.H. & Shanker, M.C., 2003).  These family businesses contribute 64% of our nation’s total GDP, and they employ approximately 62% of the nations workforce (Astrachan & Shanker, 2003).  Family businesses play an important role in our economy, in the lives of the people who are employed by them, and in the lives of the family members (FM) who depend on them for economic security.

            In a FB, relationships between family members are placed in a complex system of family dynamics and the business system, each presenting unique challenges and opportunities.  When conflict arises within this context, it is impossible to separate the two components:  the family relationships and the business relationships.  They inform each other in a circular fashion, as if the separate fabric of each was fused together.  Although there are those who claim that in a family business dispute the interpersonal family relationship dynamic should be severed from the business conflict such that everyone leaves their baggage at the entrance door, it is improbable to assume this is possible (Sharma, Chrisman & Chua, 1997, p.4). 

            We are a product of our experiences and interactions, and family culture is embedded in our being.  Family culture might be described as concepts of culture are defined.  Early suggests that “culture consists of patterned ways of thinking, feeling, and reacting to various situations and actions” (Early, 2003, p. 63).  Hofstede refers to culture as the “software of the mind” (Hofstede, 1991).  Kimmel describes culture as “the basis of social reality for all of its members” (Kimmel, 2006, p. 627).  We learn our own culture by being socialized as we grow up within it, we cannot not be molded into our culture (p. 627).  Faure suggests, “What is it that cannot quite be seen but follows us around constantly?  And what remains when all else is forgotten…culture.  In this way culture hides itself in the most unsuspected places and leaves its invisible trail” (Faure, G.O., 1995, p. 40).  He goes on to say, “in the same way that space influences colors, context has an effect on the object itself…culture affects both perception and understanding” (p. 45).  Based on the previous definitions of culture, one could argue that family culture is embedded within the context of FBs, and thus highly unlikely that it could be detached from this family business context. 

            Businesses are complex and dynamic organisms providing fertile ground for conflict to develop over a range of both issues and players within the organism.  A business with family adds unique complexities to an already complicated system.  Elements of FBs that distinguish them from other businesses are also the elements that rest at the core of classic FB disputes.  FB conflict (FBC) can be categorized into the following categories: task, process, and relationship conflict, which all have the potential to be tied to identity related conflict (Gordon & Nicholson, 2006).         

            Task related issues refer to issues that arise out of disagreeing about a task, wanting incompatible things, or competing for the same thing (Gordon & Nicholson, 2006, p. 10).  The conflicts arising from these issues tend to be about substantive issues, and can take on a win/lose or distributive orientation, especially when resources are scarce.  A resource driven task issue may lead to relationship conflict when one sibling finds out that another is earning a higher salary, causing conflict between the two family members.  This can lead to or amplify a lack of trust, which in turn, can escalate the conflict.  These resource driven issues are issues that can often be solved by writing a check, and taking the pay differential for example, off the table.  Value driven task issues, issues surrounding “matters of ethics, values and principal,” can be more difficult to resolve, and have the possibility of becoming intractable (p. 10).  They can turn into issues of fairness and procedural justice.  In the example cited above, the lower paid FM might ask, “Why did he/she get a higher salary than me?  On what basis was the decision made?  It is not fair!” 

Gordon and Nicholson explain process related issues in the following way, “disagreement about the rules, norms and procedures the group uses to conduct its tasks” (p. 245).  They add, “one of the simplest ways of igniting conflict is to set up incompatible goals for people and then force them to share the resources necessary for achieving them” (p. 11).  A FM might ask, “why did he/she get that promotion over me?”  This can also happen when a process is not in place that allows family members the ability to achieve what they want to achieve.  The McCain brothers from Canada parted ways when one brother assigned his son to run the company’s US operations over the other brother’s candidate.  The Gucci family engaged in a protracted battle of lawsuits as family members pursed their own creative interests.

Gordon and Nicholson refer to relationship conflict as disputes about family member’s contributions or their value to the FB.  For example, a sibling might be assigned a role in the management structure of a business for which he or she is not capable of fulfilling.  One sibling may spend longer hours working in the business than another, yet be compensated in the same way.  Two family members may feel another family member is overcompensated based on their education or perceived contribution to the business. 

Identity related conflict could play a part in task, process and relationship conflicts.  Identity is defined as “a set of meanings that define who one is when one is an occupant of a particular role in society, a member of a particular group” (Burke & Stets, 2009, p. 3).  Of particular interest in FB systems, is the concept of identity salience, or “the probability that a given identity will be invoked in a variety of situations” (Stryker, 2001, p. 1255).  If the family role identity becomes salient in FBC, the resulting emotions and conflict can become destructive.  Psychological factors such as personality and trust, and historical family relationships and dynamics can all play a part in this type of conflict.  Gordon and Nicholson refer to identity conflict as the worst type, “emotion heats up when the resources somehow symbolize a person’s intrinsic worth” and refer to the issue of money, which can represent all sorts of things to family members including how much one is valued or loved (Gordon & Nicholson, 2008, p. 11).

The “biogenetic nature” of the conflict in families as related to task, process, relationship and identity issues can make family business conflict complex (p. 19).  The essence of this biogenetic nature of conflict is “shared genes [that] make us love each other and fight for each other, especially against the competing claims of unrelated people and other families” (p. 16).  I can say what I want about my FM, but when someone unrelated does, it feels different.  This positive aspect of the biogenetic nature of conflict contrasts with the darker side, where family history, family dynamics, family roles (marriages, parent/child, sibling, gender), individual and group identities all can conspire to fuel emotions and escalate or perpetuate conflict.

 Harvey and Evans (1994) discuss several classic instances of conflict that can arise within these contexts.  First consider the issue of capability.  A FM may be given a position within a family business where he or she is not yet capable of performing the required duties.  Second, a FM may be groomed for a position that they do not want, but cannot decline.  This can result in the FM as a part of the management team, who has no interest in being a part of that team.  This has an impact on everyone around that person, both FMs (employed in the business and not) and non-FMs employed in the business (Harvey & Evans, 1994, p. 335). 

            Second, consider the issue of succession (Ibrahim, A.B., Soufani, K. & Lam, J., 2001, p. 245).  This conflict exists on three levels: capability of FMs, primogeniture and/or sibling rivalry caused by the selection of a specific FM over others, or the founder’s reluctance to transfer leadership responsibilities.  The issue of capability may be one of the candidates being insufficiently trained for or not capable of holding a leadership role, or could be a function of the company’s management team or stockholders believing that the chosen candidate is not the best choice for the leadership role.  The issue of selection of a specific FM over another can put siblings or other FMs in conflict. Primogeniture refers to male leadership succession, even when there may be a more qualified female candidate ((Ibrahim, A.B., Soufani, K. & Lam, J., 2001).  There may be no clear organizational structure, which could result in a battle between players for control of certain positions.  The vying for position and the ensuing conflict can have a negative impact on the day-to-day functioning of a business, impacting family and non-family member employees alike.

The third issue of succession, the founder’s reluctance can cause conflict between the founder and potential candidates for the leadership position.  A business school professor of mine, and consultant, Dr. David Deeds commented he sometimes could not get the founders out the back door fast enough.  The skills one develops as an entrepreneur, and the mindset of a founder, are not always enough to take a business to the next level of success and are often not conducive to handing over the reigns of control.  This can create “growing pains” masked as control issues, or control issues masked as “growing pains” and facilitate and amplify conflict, especially when family culture and dynamics are part of the mix.

            Another critical issue for FB is what Harvey and Evans refer to as “time and capital concerns.”  This refers to the first developmental stage of a business as it struggles with the scarcity of these resources.  The scarcity of time and capital can lead to tension, which in turn can result in conflict (Harvey & Evans, 1994, p339).  They discuss founders taking “too much of the ‘build the business’ on…{and} extend themselves beyond their expertise” (p. 339). 

            Other issues that may arise in FBs include “management, power struggles, arguments over the payment of dividends versus reinvestment, disagreements over the future direction for the company, severance pay disputes, and problems brought on by the divorce of one of the principals” (Haynes & Usdin, 1997, p. 117).  Some of these classic FBCs are conflicts that could arise in any business.  This leads to a deeper discussion of how the family system dynamic impacts the business system.  What is the core difference between a FB and other businesses?

            There are many thoughts regarding the pros and cons of FBs.  Gordon and Nicholson refer to a concept of familiness as a competitive advantage in part specifically because of the love, trust and shared history of “people who know each other almost telepathically” (Gordon & Nicholson, 2006, p. 8).  This sense of familiness cuts in both directions.  When the family system dynamic is healthy and good, there is evidence that family businesses outperform their large and small non-family competitors (p. 8).  Conversely, if the family system dynamic is negative, the “spillover” can be dangerous to the success of the business (p. 8).   As a former CEO of a FB I know firsthand how negative family business dynamics can be painful to individuals involved in family business conflict on an intrapersonal and interpersonal level and destructive to the ongoing nature of the business and the family as individuals become stuck due to the dynamics. 

 

 

To learn more about this topic, contact Karen at kll2134@columbia.edu.