Gridlock Can Lead to War or Peace -
Lessons from a Family Business
By Stuart Morley
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
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 Samâ€™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.
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
The family took
the strategistâ€™s advice and used the following steps to remove their
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
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
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
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.
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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