MGT 4550 - Family Business Management CONFLICT MANAGEMENT Chapter 4 Family Business Management, Concepts and Practice by A. Bakr Ibrahim & Willard H. Ellis Instructor: Dr. Irene Duhaime

Class Schedule - Week 4 CONFLICT MANAGEMENT IN FAMILY BUSINESS Reading: Chapter 4 Cases: Precista Tools AG (A), p.157 FBM Northern Construction Inc., p.203 FBM Questions 9, 24, 70, 77, 85, 86,90 FBAB PROJECT TOPICS DUE Dr. Irene M. Duhaime

Contents The Traditional Vs. The Behavioral View Causes of Conflict in the Family Business Common Sources of Conflict Father-Son/Daughter Rivalry Rivalries Between Brothers: the Favorite Son Syndrome continued …. Dr. Irene M. Duhaime

Contents Conflict Between Other Members of the Family …. continued Conflict Between Other Members of the Family Conflict between Family and Non-family members Managing Conflict Other Conflict Resolution Methods Dr. Irene M. Duhaime

The Traditional Vs. The Behavioral View Traditional View “..conflict is unhealthy for organizations and must be avoided” Contemporary or Behavioral View Functional / Positive innovation, creativity, energy and enhanced performance Dysfunctional / Negative must be avoided or managed to minimize damage Dr. Irene M. Duhaime

Causes of Conflict in the Family Business The Overlap Between the Family and Business Systems Dr. Irene M. Duhaime

Causes of Conflict in the Family Business Ambiguity of roles Differences in power and status among family and non-family members Hasty and /or unfair succession process Rivalries among family members Favorite Son/daughter syndrome …continued Dr. Irene M. Duhaime

Causes of Conflict in the Family Business .. continued Lack of clear and coherent policies regarding career development, compensation and hiring Lack of code of conduct Lack of proper job descriptions and clear boundaries Dr. Irene M. Duhaime

Common Sources of Conflict Father-Son/Daughter Rivalry Rivalries between offspring Conflict between other members of the family Conflict between family and non-family members Dr. Irene M. Duhaime

Father-Son/Daughter Rivalry Founder’s Psychological Make-up Strong sense of attachment Reluctance to give up control and power Unwillingness to delegate Son/daughter has a need for independence and grows impatient Conflict leads to strained relationships, rivalry and power struggle Dr. Irene M. Duhaime

Father-Son/Daughter Rivalry Value Difference Between Generations Differences in values, vision and management styles Leads to increased tension Dr. Irene M. Duhaime

Father-Son/Daughter Rivalry The Path to Self-Validation Drive to equal or outdo father Feeling the he/she cannot measure up to father Offspring should Do his/her own thing and make own choices Understand own feelings and own motivation Understand father’s feelings Prevent father from playing off against other offspring Source: Levinson: “Conflicts that Plague the Family Business”, Harvard Business Review Dr. Irene M. Duhaime

Father-Son/Daughter Rivalry Mechanisms to Resolve Conflict Succession plan Third-party intervention Peacemaker Wise man/woman in the family Consultant/lawyer, accountant Dr. Irene M. Duhaime

Rivalries Between Offspring: the Favorite Son Syndrome Father playing off offspring against one another An elder Son/daughter not being selected as a successor Ambiguity or uncertainty concerning career path, promotion and compensation An emotional involvement with one of the offspring, as in Favorite Son Syndrome Using age rather than competence as a basis for promoting or compensating family member. Dr. Irene M. Duhaime

Rivalries Between Offspring: Mechanisms to Resolve Conflict Succession plan CEO intervention Job descriptions Introducing professional management Confrontation meeting Communication - weekly supper Restructuring - creating zone of comfort/territories Dr. Irene M. Duhaime

Conflict Between Other Members of the Family Caused by Lack of, or unfair succession process Value differences between generations Ineffective communication Unclear definition of roles and responsibilities Undefined or poorly defined policies on division of labor, career development and business procedures Dr. Irene M. Duhaime

Conflict Between Other Members of the Family Mechanisms to Resolve Conflict Job descriptions CEO intervention Confrontation meeting Code of conduct Communication - weekly supper Dr. Irene M. Duhaime

Conflict between Family and Non-family members Initiated by conflict between family members Nepotism Son of the boss (SOB) Syndrome Non-consultation in decision-making The Weekly Family Supper Undefined or poorly defined policies on division of labor, career development and business procedures Dr. Irene M. Duhaime

Conflict between Family and Non-family members Mechanisms to Resolve Conflict Clear policies concerning career development Job descriptions Communications Introducing professional management Dr. Irene M. Duhaime

Managing Conflict Setting Clear Guidelines Jurisdiction, compensation, career development, code of conduct, objectives, performance assessment criteria Remove ambiguity Set clear expectations Dr. Irene M. Duhaime

Managing Conflict Managing confrontation Face-to-face meetings One-on-one meetings with CEO/Founder and employees involved in conflict Group meetings Breaking deadlocks Act early Dr. Irene M. Duhaime

Managing Conflict The CEO/Founder as Chief Arbiter Avoid enlisting allies in conflict situations Avoid taking sides in conflict situations Allow expression of feelings Set aside time to resolve dispute and reduce tension Develop appropriate mechanisms for resolving conflict Create a healthy business environment Dr. Irene M. Duhaime

Managing Conflict The Peacemaker The Family Wise man/woman A neutral relative Non-family third party (lawyer, accountant, family friend) Helps to reconcile varying points of view Respected by all parties Dr. Irene M. Duhaime

Managing Conflict Communication The Weekly Family Supper Relaxed atmosphere Family members freely express feelings Discuss working relationships Share points of view Resolve personal issues Other Weekly Meetings to accommodate non-family members Dr. Irene M. Duhaime

Managing Conflict Introducing Professional Management Non-family member Provide objectivity Encourage professional attitudes in family members Dr. Irene M. Duhaime

Other Conflict Resolution Methods Expansion of Resources avoid win-lose disagreements Avoidance Non-serious problems, provide a cooling off period Smoothing minimize differences, focus on sharing, provide reassurance; not a long-term solution; serious problems can remain and fester Dr. Irene M. Duhaime

Other Conflict Resolution Methods Compromise win-win situations middle ground over extremes parties make concessions may not be the ‘best’ solution Dr. Irene M. Duhaime

Other Conflict Resolution Methods Forcing Use of formal or positional authority Issuing of directives Win-lose situation Tendency towards dominance and cohesion Often creates negative feelings Dr. Irene M. Duhaime

Other Conflict Resolution Methods Redesigning the Structure of the Family Business Introduce a reporting hierarchy Separation of roles and responsibilities Clear delineation of mandates Definition of jurisdiction and boundaries Reassignment of conflicting parties Dr. Irene M. Duhaime

Cases CONFLICT MANAGEMENT IN FAMILY BUSINESSES Cases: Northern Construction Inc., p.203 FBM Questions 9, 24, 70, 77, 85, 86,90 FBAB Dr. Irene M. Duhaime

Question 9 Should a rocky relationship with a child, parent, sibling while growing up be a deterrent to entering the business? It it possible to repair these relationship? Dr. Irene M. Duhaime

Question 24 How does a woman deal with patronizing behavior, including a lower salary Dr. Irene M. Duhaime

Question 59 What guidelines can you offer to help siblings or cousins working together? Dr. Irene M. Duhaime

Question 70 Are there some positive benefits to a dispute among family members? What are the best methods of conflict resolution? Dr. Irene M. Duhaime

Question 77 If trouble brews, should you seek outside help? And from whom? Dr. Irene M. Duhaime

Question 85 Can power struggles between siblings and other family factions create a bad business climate? How can such struggles be defused so they don’t undermine the business? Dr. Irene M. Duhaime

Question 86 How can you handle theft or substance abuse in a family business? Dr. Irene M. Duhaime

Question 90 What are the different types of company cultures that can exist in a family business and does it matter for family harmony and good business ? What can you do to emphasize more, the culture’s good points and change its negative ones? Dr. Irene M. Duhaime

Class Schedule - Next Week SUCCESSION - SENIOR GENERATION’S PERSPECTIVE Reading: Chapter 5 Questions 3, 5, 7, 19, 21, 27-31, 33-35, 52, 75, 76, 80 FBAB Case: Baker, Inc. p. 287 FBM Dr. Irene M. Duhaime