Around 75 percent of businesses in the European Union and an impressive 90 percent in the United States are family-owned. Similarly, family businesses play an essential role in the world economy, contributing to approximately 50-90 percent of the global Gross Domestic Product (GDP). This positive trend further extends to the performance of family businesses as whole, shining through their domination of the Fortune 100 list by 75 percent.
Despite research proving that family-owned businesses outperformed other types of businesses , a study in the US suggested that 67 percent of family businesses normally split after the second generation takes over, due to the new owners’ lack of skills, experience and knowledge in business management. By the time the third generation takes over, this proportion rises to 90 percent .
Data from other countries indicates the same sustainability issue once the business hits the third generation mark. Developing countries are no exception, as they experience more serious problems with the longevity of family businesses throughout the different generations and transitions. .
The main problem in family businesses is the lack of balance between business matters and family matters . Striking the balance between business needs and family needs is the main factor for achieving long-term success in family businesses. This is done through aligning business and family goals. Failing to achieve this balance will lead to big family conflicts.
It is important to focus on the different sources of conflict that result from the interaction between the three circles in family business: ownership, management, and family. We can look at it that way, conflicts arise as a result because of the fact that family members perform multiple roles. This role overlap is the trigger that causes conflicts in any family business, propagated by contradictions in attitude, perspectives, understandings and objectives.
Role overlaps can result in various types of conflicts that family members should be vigilant towards:
Circumstantial conflicts:
Starting with circumstantial conflicts, which stems from specific situations, where there is a mismatch between the role of a family member and context. This is usually a result of misunderstanding among family members who are part of the situation, causing conflict over their different interpretations.
Conflict of Interest:
These conflicts are classic, given that they arise when family members have conflicting interests that contradict their role in the family or in the business.
Conflicts of values:
Conflicts of values appear when there are contradicting principles among family members due to the difference of their roles in the family as well as the business itself. These happen frequently among different generations participating in the business. Each generation of family members has a different perception of values which can result in disagreements between them .
Structural conflicts:
Lastly, structural conflicts appear at the group level when roles, and objectives of one of the three circles, (family, management,ownership), contradicts with another circle’s roles, and objectives.
Conflict management is a very important practice for family business leaders to ensure quick conflict resolution without further escalation . There are five approaches for managing conflicts, which are the avoiding approach, collaborating approach, competing approach, accommodating approach, and compromising approach.
Avoiding approach:
Starting off with the avoiding approach, which happens when family members are aware that there is a conflict, yet try to avoid it. Family members in this case try to skip any kind of confrontation hoping that the conflict will disappear by itself. The avoiding approach is not recommended in most of the cases because avoiding confrontation can increase the conflict over time. Nevertheless, this approach can be used to avoid individuals’ first reactions and postpone any encounter before conflicted parties are calmer and ready to communicate.
Collaborating approach:
This happens when family members work on solving the conflict by trying to satisfy all conflicted parties by searching for solutions that can please everyone. The collaborating approach is very important for long-term family bonds, specifically in the type of family business where family conflicts can affect the family business negatively .
Competing approach:
This third approach occurs when one of the family members in the conflict is only concerned about their point of view and is not willing to compromise what they want even if it will affect the family bonds, or the business performance .
Accommodating approach:
This approach happens when conflicting family members acknowledge the point of view of each other and are willing to abide by it to preserve family ties .
Compromising approach:
Lastly, the compromising approach, which occurs when family members work together to solve the conflict by reaching a middle ground for both sides. The main objective of this approach is to partially satisfy both parties in a way that helps in ending the conflict and maintaining the good relationship .
