FAMILY BUSINESS ENTERPRISE

TEAM OF LECTURERS
UNIVERSITAS PELITA HARAPAN
Family Business Enterprise | Universitas Pelita Harapan 2016
 MEETING 5:
CONFLICT IN FAMILY BUSINESS
Family Business Enterprise | Universitas Pelita Harapan
 TOPICS TO COVER

1. Conflict in Family Business: between family members, between

family members and employees (Susanto 2008, 158-163).

2. Identifying the Causes of Conflict in Family Business (Finch 2005, 1-

12).

3. Addressing the Conflict in Family Business (Susanto 2008, 164-173

and Finch 2005, 13-19).

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1
Conflict in Family Business:
the Occurrence of conflict in Family Business
FAMILY BUSINESS

Outward looking
Inward looking
Emotion based Un-emotion based
Principle = loyalty & equality Principle = cost vs benefit
Care & nurture each other Membership last only as long as
Lifetime membership regardless you perform up to standard
performance Stay working or look work
Aversion to change elsewhere
Embrace to change
CONFLICT
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1 Conflict in Family Business: Family VS Business Values (1)
Issue Family Values Business Values

Recruitment and Selection Provides opportunities for Recruiting only competent

family members that needs individuals whom eligible
jobs regardless of their based on company
capabilities. standards
Compensation and Benefits Depend on family members Depend on market value
needs and work history
(performance)
Performance Appraisal Informal and often based Formal and identifying high
on trust between family performance individual
members

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1 Conflict in Family Business: Family VS Business Values (2)
Issue Family Values Business Values

Human Resources To fulfill the need for To provide training based

Development individual development, not on organization needs
for commercial benefits
Strategy Relentless to change if Continuous improvement
there is no clear needs and improving business and
service to customers and
suppliers

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1 Conflict in Family Business: Between Family Members (1)

There are 4 types of conflict between family members:

1. Goal conflict

2. Lifestyle and work conflict

3. Control over company conflict

4. Leaving the nest conflict

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1 Conflict in Family Business: Between Family Members (2)

Goal conflict happens because there are various goals for business, goal
for immediate family members and goal for one self.

For example:
One of Aunt Elisas goals is to make her son, currently the marketing manager
becomes the next marketing director to replace her brother.
However for the current CEO and COO, which is your father and aunt Elisas younger
brother respectively, you are being prepared to be the next marketing director even
though you are younger and less competent than your cousin.

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1 Conflict in Family Business: Between Family Members (3)

Lifestyle and work conflict happen because changes on both of

these materialize occasionally.

For example:
As younger generation in your family business, you want every single
transactions to be recorded using advanced accounting software. However
the older generation believes this will be too much for the whole company to
handle.

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1 Conflict in Family Business: Between Family Members (4)

Control over company conflict happen because there is

unwillingness to give company control to the next generation.

For example:
The 70 years old CEO of a big family business running the business with his
brothers, sisters, and cousins whom all sit in directors and managerial
position. There is no second generation family members in those position
because he believes they are not ready, and there is no training for these
successors.
Family Business Enterprise | Universitas Pelita Harapan
1 Conflict in Family Business: Between Family Members (5)

Leaving the nest conflict happen because the kids feel they are
constantly under the family microscope. Thus, they are directed to
study and work according to the family business needs.

For example:
Sisca who wants to work in graphic design industry are forced by her family
members to study marketing because the family business need her to be
the next marketing director.

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1
Conflict in Family Business: Between Family Members
and Employees (1)
Conflict between family members and employees often happen
because of professionalism and trust issues.

Family members whom in the family business are pressured to be

professional and have strong competencies which shown in their
works. Their works must be in par with professionals whom being
recruited based on their competencies.

Family Business Enterprise | Universitas Pelita Harapan

1
Conflict in Family Business: Between Family Members
and Employees (1)
This is important to avoid jealousy between professionals and family
members.

Trust from founder is the result of professionalism shown by family

members and professionals.

Professionals must be also fully trusted in order to eliminate their

worries.

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2 Identifying Sources of Conflict in Family Business

Various sources of family business conflicts (Finch 2005, 8-12):

1. The Unique Relationships: Rules, roles and dual relationships
2. Differing vision
3. Succession
4. Jealousy amongst family
5. Poor conflict management skill
6. Introducing a fulltime role for a family member
7. Equality in rewards
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2 Identifying Sources of Conflict in Family Business

Spillover theory (Evans and Bartolome 1984) is used to explain how work
influences family life.
Positive spillover involves the spread of satisfaction and stimulation at work
to high levels of energy and satisfaction at home.
With negative spillover, the problems and conflicts at work drain and
preoccupy the individual, making it difficult to participate in family life.
For women, the family role intrudes into the work role more than the work
role is allowed to intrude into the family role; for men, the opposite is true.
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2 Identifying Sources of Conflict in Family Business

The consequences of conflict in family business can be extreme, resulting in behaviors

destructive to both the firm and the family, and conflict within the family frustrates
adequate planning and rational decision making (Finch 2005 quoted Levinson 1971, 96).

Moreover, Beckhard and Dyer (1983) suggest that the failure to adequately control conflict
may contribute to the high mortality rate of family-owned firms. Family businesses are, in
fact, rather fragile. Roughly two-thirds of family-owned and family-controlled businesses do
not survive the founders' generation (Beckhard and Dyer 1983; Dyer 1986), with only 10 to
15 percent surviving to a third generation (Applegate 1994).

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3 Addressing Conflict in Family Business
Strategy/Outcome Business Outcome Family Outcome

Competition - -

Avoidance - -

Collaboration + +
Compromise + +
Accommodation - +

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3 Addressing Conflict in Family Business

Solving issues promptly

The best time to address the potential causes of family business conflict
is before the actual conflict manifests.
Gascoigne (2003, pp. 16) suggests that the best thing is to tackle family
issues before a crisis, such as the sudden death of a senior family
member, and not to shy away from potentially scary discussions.

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3 Addressing Conflict in Family Business

Effective communication
Ellin (2001) says communication-building is a necessary management
tool and one that is especially important in family business. She says;

It's a real competitive advantage to work through problems the minute

they arise, because it's much easier when times are good and you're
building off everyone's strengths. When family members are quarreling or
making personal decisions, that's a heyday for the competition

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3 Addressing Conflict in Family Business

Separating family and business

This means establishing very clear rules that are respected by the family
members about what are acceptable limits to the crossover between work
and home.
Cole (2000, pp. 356) cites a number of practical examples from
respondents to her survey on this subject. One respondent says:

I made an iron clad rule. We shall not discuss business out of work unless
we're at a business meeting or business luncheon or a dinner. That goes
without exception

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3 Addressing Conflict in Family Business

Succession planning
Sol Elvira Perez (Egade University, Mexico), cites statistics showing that a
third of the world's wealth is expected to change hands within a decade
(Fastag 2002, 2).
Joseph Astrachan (Kennesaw State University) cites research showing
that only 30 percent of such endeavors make the transition from one
generation to the next.

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3 Addressing Conflict in Family Business

Formalising the family business

To help avoid destructive conflict in the family business, some suggest
that family business take a leaf out of the book of non-family business
and formalise roles and procedures. Not only does this clarify
responsibility and decision making, but it also ensures that governance
structures are sustainable in the absence of the dominate founder.

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3 Addressing Conflict in Family Business

Sibling succession teams

To avoid the threat of the firm breaking up because of conflict between
the sibling heirs, Carlock and Ward (2001) suggest that family firms
taking the team succession path should consider;
(i) exit plans for siblings, (ii) board members for outside the family, (iii) a sibling
code of conduct for decision making, (iv) conflict resolution planning, (v)
compensation processes, (vi) plans for the future participation of other family
members, and (vii) a consensus on the role of key non-family executives.
Family Business Enterprise | Universitas Pelita Harapan
3 Addressing Conflict in Family Business

Defined roles
Family members who work closely together should develop written job
descriptions.
By separating work roles (job descriptions) between each other this will
aid in clarifying and separating business roles from spouse/family roles
and help reduce confusion.
If roles lack clear work boundaries then family work colleagues will keep
missing cues from one another and this will be a source of conflict.
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3 Addressing Conflict in Family Business

Third party involvement

Involving a third party in the business planning process can introduce some
independence and remove any bias or conflict of interest from the dominate
shareholder.
Appointing an independent non-executive director to the board will promote a reliable
and sustainable self-governing structure that is independent of the founder.
This non-executive director can play a key role in benchmarking, the performance
review of the business, and determining the remuneration of family employees.

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3 Addressing Conflict in Family Business

Reward systems
By agreeing on defined roles and determining accountability for family
members, a system of rewards can be implemented that fairly reflects the effort
and performance of each member.
This is especially useful for avoiding conflict with siblings who may otherwise be
rewarded equally regardless of their roles.
This process for determining the rewards or remuneration for family employees
could also be extended to fairly distributing equity to family members based on
their contribution and responsibilities.
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3 Addressing Conflict in Family Business

Planning to step down

Developing a succession plan should not simply stop at determining
the next heir apparent. The plan should also include a timetable for
stepping down and this should be communicated throughout the
family and if appropriate the business.

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 THANK YOU
FAMILY BUSINESS ENTERPRISE | UNIVERSITAS PELITA HARAPAN 2016

Family Business Enterprise | Universitas Pelita Harapan