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When Family Dysfunction Disrupts the Board

When Family Dysfunction Disrupts the Board

I have come to understand the quintessential truth about family business conflict. Whatever the family is fighting about, it’s not the actual issue. Most family business issues are about feeling loved or valued, whereas most fights are about money and power.

I recently spoke with Sue (not her real name), a Chairman of a 4th generation family-owned business. Sue became Chairman when her father died unexpectedly. She was named successor in her father’s will, which was of great surprise to her siblings, many of whom worked in the company. Her father didn’t inform the family of his emergency succession plans. He also didn’t notify the family that she had the sole right to purchase his stock and not the other children. He may have had business reasons for this, given that Sue, after the stock purchase, had a controlling interest in the company. With a majority stock position, Sue could make the right decisions for the organization without getting buy-in from the other 40 shareholders. Regardless of his reasons, his other children felt slighted. In their minds, the new Chairman was the preferred daughter; he loved/trusted/cared about her more than them.

Family Dysfunction Bleeds into the Boardroom
In protest, siblings on the board used their voting power to block Sue’s decisions; they challenged her every move, they scrutinized everything she said. Every question that they asked her, she answered. Every concern they shared, she responded. And yet, each year of consistency and care on her part did not change the dynamic.

The outside directors started choosing sides and would get embroiled in the family dynamic, too. Sue couldn’t move a muscle or make a decision that didn’t draw fire in the boardroom. Luckily, with her voting control, she had the ultimate weapon and asked all of the directors, even those few who could still bring value, to step off the board.

She then slowly built the board back up with the right outside directors to focus on what mattered – maximizing shareholder value and being a strategic asset for the management team.

The Pivot Out of Dysfunction
After many years of family conflict, Sue finally decided she couldn’t stand this dynamic anymore with her siblings. She arranged for a conversation in a neutral place to try to get to the bottom of the issue. Predictably, her siblings were not upset about the financial presentation that she made last month or her inability to recall the smallest detail. When they were finally honest, it was the fact that their father chose her as Chairman. The conversation lasted for hours, but in the end, there were hugs and a commitment to have honest and forthright discussions in the future. In reflection, Sue shared that she learned a great deal about board and family dysfunction. She believes that the high-level scrutiny made her a better Chairman, but the stress and isolation she felt while under attack year after year took its toll.

How Governance Can Help
Corporate governance is only as effective as the family’s governance. If there isn’t a robust family governance program, the family issues will leak into the board room. Time spent focusing on family issues reduces the board’s effectiveness and profoundly impacts how much value a board can bring to the company and shareholders.

How to Handle Dysfunction
Difficult conversations are the hallmark of a functional family and board. There is one significant difference, however, between the board and family. In the boardroom, the Chairman can ask a recalcitrant or non-productive director to step off the board. In the family, however, this isn’t an option. For better or worse, the family is stuck together. If a family is facing severe conflict or dysfunction, there is no way out but through. Families have to take the dysfunction seriously and do whatever they can to address the dysfunction, including hiring a licensed family business therapist to address the underlying issues. If not, you’ll end up in a challenging situation like Sue’s family.

Invest in family governance
Establish policies, agreements, and programs to help your family make decisions in an orderly fashion. This investment will reduce the chaos and conflict that can arise. Make sure there is time for fun and relationship building.  Try to find a time to get together to talk about anything except the business. Build working relationships, and even friendships, if you are lucky. Lastly, do everything you possibly can to reduce the likelihood that generational conflict does not get passed on to the youngest generation. Ensure they have lots of time to have fun together, hire an outdoor educator to help build leadership and team-building skills, and make them aware that carrying on generational conflict is not a sign of loyalty to the family or branch.

It’s only with deliberate actions can a family address dysfunction. Many families find it too challenging to address and either decide to live with it or sell the company. If a family is courageous and willing to have the many difficult conversations required to resolve generations of conflict, if a family can get to that vulnerable place and talk honestly about their feelings, it’s the noblest pursuit. Sue and her family learned a valuable lesson about honesty, gratitude, love, and forgiveness and have set the next generation up for future success. Although challenging to do and requiring so much courage, difficult conversations are the ultimate act of love.



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Meghan Juday Advisory – Learn more about her work helping families establish or refine family or corporate governance

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Advocacy – Learn more about Meghan’s work with women in family business leadership, including her work with The Lodis Forum