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The Best Hedge Against Family Business Risk: Not Policies but Family Relationships

The Best Hedge Against Family Business Risk Not Policies but Family Relationships

Family businesses are full of risks. There’s the risk that the board won’t have the proper directors in place to support the business strategy. There’s the risk that the business doesn’t have the right strategy. And then there are the risks involved in maintaining family ownership. There’s always the risk that the family won’t be a good partner with the business, or that the dividend policy won’t allow the business to grow. There’s a risk that the family will see the business as their personal checking account. And there’s an ever-present risk that family conflicts will escalate into huge problems, resulting in lawsuits between family members or against the business itself.

When family conflicts escalate to that degree, they create the kind of environment where the family is a distraction to the business. When the family is dueling with each other, the board and the management are forced to focus on the family, rather than on the business. They can’t think strategically when they’re spending all their time putting out fires that the family has created.

Most family councils are aware of these risks, and they spend years putting together policies to protect against them. The family council thinks that’s the focus of their work because best practices show that’s where they should put their effort. But those policies are not going to prevent conflict. They may protect you in the event of a conflict, but they don’t prevent it.

Preventing conflict is far better than using policies to manage it. I have worked with and spoken to many families whose conflict has resulted in lawsuits. Many of these families find it difficult to recover from the emotional and financial toll that lawsuits bring and the lawsuits and their burdens become part of the family legacy that gets passed down to future generations.

One of the best preventive measures is to put time and effort into the relationships between family members. This is easier if you’re operating the business with an eye toward the core values of inclusiveness, transparency, and stewardship. You can build good relationships through working together, but you shouldn’t expect the working relationship to be enough by itself. Successful families take every opportunity to spend time together as a family. Strong relationships will make it much easier for your family to make difficult decisions, and manage any conflict quickly before it blows up out of control. Those family relationships step in line first before the policies have to.



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