Conflict Resolution for Family Businesses

Conflict Resolution for Family BusinessesNortheastern University

Family Business Quarterly
by Philip R. Rosenblatt, Esq.
and Leonard H. Freiman, Esq

Dad had built the business from scratch into a major U.S. producer and worldwide distributor of specialty textile products. His dream had come true 15 years ago when both his sons entered the business. At his death, he was satisfied knowing that Cain had a firm grasp of operational manufacturing issues in the factories and that Abel was responsible for the explosion of the company’s worldwide distribution.

After worrying a great deal about who would inherit the business, Dad thought he had found the perfect solution: the two, with their compatible niches, would each inherit 50% of the company’s stock. Now, following Dad’s death, it seemed clear that the glue that had held the business together had been respect for or fear of him. Forty years of animosities, jealousies and hard feelings between the brothers had fueled business disputes that were threatening to destroy the company that had always been the repository of the family’s wealth and much of its history.

Facing Family Conflict

Faced with situations as compelling as this, family businesses all too frequently find themselves battling with what seem to be, and all too often are, insurmountable conflicts. Understanding the range of possibilities for resolving these disputes may offer the best hope for finding a resolution that will satisfy both the family members’ and the business’ interests to the greatest possible extent.

When relationships have thoroughly broken down as suggested in our hypothetical example, the power of the painful emotions involved may drive family members to ignore the conflict until the relationships have been destroyed and the only alternative seems to be the expensive and time-consuming process of going to court. In some instances, that may be the only vehicle to force a resolution of the problem. Unfortunately, sometimes a judgment will formally declare one party the winner on paper while, in fact, nobody really comes away feeling as though all his/her interests were well served.

Most disagreements day in and day out are resolved through discussions and people working together to find agreements that the parties perceive as maximizing their self-interest. In fact, this form of conflict resolution, known as negotiation, can be the best method of resolving many disputes in a way that each of the parties will feel has credibility and legitimacy.

Conflict Resolution Alternatives

In situations where relationships have deteriorated to such an extent, or where the dispute is sufficiently complex or difficult as to render face-to-face negotiations unproductive, parties may still be able to reach a consensual agreement by entering into non-binding mediation with an unbiased third party that both sides can trust. The greatest strengths of mediation lie in (i) preserving or improving important ongoing interpersonal relationships, (ii) creating a consensual resolution each party will respect, and (iii) resolving disputes at a much lower cost than hard-fought litigation.

In situations where consensus cannot be reached even with a mediator, sometimes the dispute must be resolved by an independent decision maker. Short of going to court, parties may turn to arbitration. Arbitration is a process in which the parties agree to allow an independent third party to hear each side state its case and render a binding decision. The advantages of this process include the opportunity to agree upon a “judge” who may be particularly sophisticated in the area in dispute, or to tailor a process to streamline the costs and delays of “trial” with expedited discovery or methods of admitting evidence.

If all else fails, conflicts in our society may be resolved by a trial in court. Where the relationship between the parties has deteriorated to the point that it is impossible to agree upon a consensual dispute resolution process or even an arbitrator, or in instances where the parties have a legitimate dispute over an unsettled legal issue, court may be the only means by which to bring closure to the situation.

Family Ties

Unfortunately, in family businesses, there is usually a great deal more at stake than simply resolving business issues. Close family ties can be torn apart irreparably in the course of these disputes. By contrast, a consensual process, like mediation, can give the warring factions an opportunity to work through problems and preserve or even resurrect relationships. If such a process is not practical, the efficiencies of arbitration may permit a resolution to be reached quickly so that wounds can begin to heal sooner.

Competent legal or other family business professionals are aware of the variety of alternative methods of conflict resolution and can provide valuable insights into the best way to handle a particular situation.

Philip R. Rosenblatt, Esq., and Leonard H. Freiman, Esq., are Vice Presidents and Directors of the Boston law firm of Goulston & Storrs, P.C. Mr. Rosenblatt is a member of the firm’s Business Group. He has provided legal representation to a number of family businesses and has served as a mediator with the Middlesex Multi-Door Courthouse. Mr. Freiman is a member of the firm’s Litigation Group. He focuses his practice primarily in the areas of civil litigation and dispute resolution for a wide range of companies, including family businesses.