How to Keep Drama Out of a Family Business

Q&A with Nigel Nicholson, coauthor of Family Wars.

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The story of U-Haul is many entrepreneurs' dream—a business run by the Shoen family grows out of one garage to become a national giant and a leader in its industry. But that dream turned into something nightmarish—the Shoen family split into two rival factions, resulting in lawsuits, physical altercations between brothers, and, in 2003, Chapter 11 bankruptcy for the company.

That is just one of the stories recounted in Family Wars: Classic Conflicts in Family Business and How to Deal With Them, by Grant Gordon, director general of the Institute for Family Business, and Nigel Nicholson, a professor of organizational behavior at London Business School. Nicholson spoke with U.S. News about lessons that entrepreneurs who go into family businesses should learn from the cases where familial squabbling has led to heartache and financial distress. Excerpts:

Why do you think it's important to study family-run firms?

They are the backbone of the economy, and they always will be. Family businesses seem to be able to generate performance on the basis of what you'd call family capital. Other businesses find that very hard to replicate. It's a kind of spirit or culture. [Family members] are prepared to give contribution and effort that they don't give in other firms. Family businesses are quick in their communication and quick to respond. There are a lot of processes that family businesses seem to be able to do easily, when they can get their act together. You've looked at notable instances where family businesses failed to get their acts together. What are the problems?

There's a lot of revenge going on in the book. When people say they put their selfish interests ahead of the family interests, that usually means some pretty serious failing in the family dynamic. [In] most healthy families, you have to make some compromises. We have conflicts in family life, but we get over them. But in businesses, your family needs to be in pretty good shape if you're going to run a business. It's going to add an extra strain on your family. That extra strain can be rewarding when it becomes a source of dynamism for your family. But if your family isn't healthy, then it can create fissures. I talk about the vessel principle in the book. If you put high-pressure water in a vessel, it will find the cracks in that vessel. How have some repaired the fissures?

When I see successful family businesses, they all have family members who want to contribute and can contribute, or want to be sidelined and they go off and do something else. It all works pretty smoothly. They're not trying to force things. They also recognize that family issues need to be dealt with within the family and not in the business. They have mechanisms for dealing with those issues and not overturning the apple cart. What kind of mechanisms?

Having family forums where family issues are discussed separate from business matters is the simplest way to do it. You sit around the kitchen table once a week and try to get issues aired. One of the problems we identified is just a lack of open communication. I remember a firm in the U.K., a beer firm. There was a huge revolt led by a family member. It was because a family member was expecting to be made a head of the company and was passed over. They hadn't had the discussions they should have had, so they enabled that person's expectations. [Another problem] is too much power distance between the leaders of the business and the rest of the family, where the leader is sort of an autocrat. There is stuff underneath that never gets dealt with because the leader ignores the family and they don't tell him anything. You need to have these family forums. If it's a small family, it can be informal, but as you get bigger it needs to be regulated. If conflicts get serious, you should bring in third parties to mediate.

Where would they find third parties?

In some cases, firms already have them—they have a lawyer or accountant. But in some cases those people are too buddyish or too close. It might be better to have friends from another business, who understand the problems you're going through. Another mechanism for small firms is to join an association of small firms—to meet the other family businesses and share problems with them.

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