What is a family business? It is any business where family and business relationships have significant impact on each other. It is that interdependence and business dynamics that actually make a business a “family business.” The most important point is the dynamics present in these relationships, which cause family members to be economically dependent upon each other, while the business is linked strategically to family relationships. 

Conflicts between family and business members can be varied, sometimes they are apparent and sometimes hidden, but they are always present. Poor communication is often the cause of much of the conflict and are often patterns learned at home before the sibling or spouse enters the business. Some conflicts occur because of misunderstanding and/or misinterpretations, while others occur due to lack of communication. Communication triangles are very common in families and are activated when anxiety, conflict, and/or tension develop between two people within the business who have an emotional relationship. This anxiety and tension can spread through the family in an undercurrent of talking and complaining behind each others’ backs, but can heat up to the point of hostility. Symptoms of this may be the illness of a family member or someone threatening to quit the family business or someone being fired because of an unwillingness to go along with other family members. 

Compensation of family members is another rich source of conflict. While many people believe that family members are highly compensated when they work in family businesses, research indicates that while the owner is highly compensated other family members working in the business are under compensated. In many family businesses, compensation is not tied to performance but is based on “family equality,” and the compensation standards have no correlation with the real market value of a position. Siblings employed by the business want to increase their compensation and benefits, which places extreme pressure on the ability of the business to pay out dividends to the inactive family member shareholders. Minority shares of stock in a closely held business are difficult to value or sell and often perceived as a liability, not an asset. This creates conflict between those family members employed and not employed by the business. 

Succession is a difficult process for most family businesses. The failure to face and plan for succession can result in extreme stress and conflict, not only during the lifetime of the owner but also after death. There are many reasons family businesses do not have a formal succession plan, most of which reflect avoidance. If a succession plan has been created, its selection process can also be a source of conflict. Siblings can become competitive and combative as it becomes time to choose a successor, even to the point of undermining each other. Another potential conflict of succession is “the marshmallow effect,” when heirs drift into a career and do not experience professional satisfaction. This, coupled with the lack of confidence, because they are unsure if their position is a product of their efforts or their name, can lead to low morale and family conflict. These individuals usually blame the relatives or the business for their lack of happiness. 

There are three key relationship building tools a family business must address to balance and maintain a healthy relationship in the family, business, and ownership of the business: Communication, Issue Management, and Change Management. Small business family members must create an understanding with each other in order to minimize relationship management costs. The more the family invests time, energy, and resources into a family member, the stronger the relationship and bond will be with that person. Family members should establish a forum for dealing with problems, both internally and externally. Issue management should address how to deal with conflicts, resolve matters away from employees, and create a practice and procedure for dealing with conflict. Outside neutral, mediators should be utilized when communication ceases. Change management must address future issues and concerns that a family member may be having within the business. These issues include how the company will deal with change, how spouses of family members should enter the business, how to address new competition in the market place, and any other matters effecting the business. By properly addressing these primary areas, the family’s relationship skill and relationship paradigm may strengthen, and a stronger, healthier family and business relationship may emerge.