Gridlock Can Lead to War or Peace - Lessons from a Family Business

By Stuart Morley

Big Family Manufacturing Inc. had been struggling for some time to find the best direction to take for its mid-market, family manufacturing business with close to 100 employees. Sam, the founder, was in poor health and the other two brothers, as fellow shareholders, were struggling with what to do next. Due to differing financial situations between the brothers and the founder, the company was in gridlock.

The family had done all the textbook things: hired an advisory board, brought in two retired senior executives from large companies in the industry, and hired a consultant who recommended Sam retire immediately, given his health issues, and have the younger brother take over the business. Unfortunately, when Sam’s wife found out, she presumed the worst and started a family war! They could not break the gridlock.

In the corporate world the gridlock issue is often more straightforward. Common gridlock situations include: deciding on a direction, new approaches to revenue growth and creative ways to refinance a business. Often, the other shareholders get a valuation for the business and buy out the founder or get the founder to buy them out. In a family-run business, the normal reaction to conflict, especially amongst family shareholders, is to do nothing and avoid the issue.

The family decided to discuss the challenge with some other families who were in business together. They are members of an association for families in business that has a peer group they joined to discuss the issues, in confidence, with families in business from other industries. The group convinced them to hire a strategist who specialized in mid-market family business issues.

The strategist distilled directly the issues at hand in a brief series of interviews with the principals of the company; not an easy task when you consider the business and family issues involved. Then the family was able to use the process to help members of senior management change roles and facilitate a smooth succession in the business. Thankfully, this new strategy worked.

The family took the strategist’s advice and used the following steps to remove their gridlock:

Call each of the participants ahead of time to get their advice and insight. People will say things in confidence, especially on the phone that they would not say in an open meeting or even in a face-to-face meeting. Make sure to take careful notes and summarize the comments.

Figure out the most important issue for each key shareholder. When reviewing the notes from the interviews, look for comments that give a clue as to an overlap of ideas. In the case of Big Family Manufacturing Inc. Sam wanted to grow the business so he could sell his shares at higher than the current value. The middle brother, Bob, really wanted to add more equipment to realize significant cost savings in the business and the younger brother did not want to grow the business unless this could be done in a way that made the business more profitable. The overlap was that all three brothers would stay if a plan could be developed to grow the business and be more profitable.

Design a strategy day that starts with a presentation of the common issues. The strategy day needs careful planning. For the Big Family Manufacturing Inc. it was important to invite the brothers, the advisors and key managers. Another feature was to get the key issues on the table in a way that was positive so participants did not become defensive. The presentation of the issues works well when they are introduced anonymously. The participants can then focus on the merits of the issues and resolving the issues, rather than worrying about who raised the issues or issues which should be raised.

Be optimistic and up beat. One of the ways to make a group feel like they are making progress and reduce the impact of negative discussion, is to focus on building a plan for the future that can be done quickly (i.e. before the end of the day). Ideally, the plan should be in a format that fits on one page and is action oriented.

Finish the day with a take away for each participant. Many people have difficulty connecting the dots between a great plan for the business and how they should change. Sam really appreciated having some discussion at the end of the day on how he could work half days and how the other managers could take on more responsibilities.

Remind the participants that if the gridlock was easy to solve, it would not have required such a strong approach. Even with a great plan, the first three to six months of a multi-year plan can be very stressful, as it takes longer and it is expensive to make changes. Therefore, it is important to close the session with a warning that unwinding gridlock is tough, especially in a family business. Things often seem to get worse before the benefits of the changes show up.

Six months later… After some time, the strategist followed up with the family to see how they were getting along. They replied, “The best news is the brothers and their families keep coming to the family reunions, and the wives are now at least talking to each other. The business is in good hands and recovering well. However, Sam and the oldest brother both have sons in the business…”

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