The Top Six Family Business Feuds
- the haptic investor
- 2. Aug. 2024
- 7 Min. Lesezeit
The most common feuds in family businesses in my experience and how to recognize and prevent them.
In the family business world, tensions are simmering hotter than a good steak on a grill.
As part of two family branches with generationally succesfull family businesses in two entirely different indsutries and sizes, I am very familiar with family business feuds and am used to drama in the own, or befriended families. Harmony often ends where it is suspected that even a hint of the inheritance or company is unfairly distributed.
In my work as a lawyer and part of Private Client Services - where, as part of the target group, I am of course also particularly close to the action - I repeatedly come across current disputes or great potential for future disputes. Be it due to missing or inadequate wills, a lack of family or corporate governance, or for other reasons.
As this is an excellent topic, I have decided to talk today about the 6 typical and often most dangerous disputes within family businesses.
1. Daddy-O vs. Junior (and vice versa)
I don't want to generalize, but at least in my family it was highly competitive. Whether in sports, games or discussions, there were cross-generational competitions and tests of strength from a very early age. Grandfather against father, father against sons and we all had one thing in common: we were incredibly bad losers. A defeat must inevitably be followed by revenge. After all, you don't want to let anything get to you.
When entrepreneurs spawn offspring, they often dream of dynasty, hoping their progeny will one day inherit the family business. A majority of familiy business owners wants the business to remain in family hands and be led by a scion.
In many cases it's sort of an ancestral rite for many patriarchs to pass the baton to one (or more) of their kids, aiming for immortality or at least a decent monument.
But risks abound. In practice, many entrepreneurs secretly doubt their kids’ ability to lead the company as successfully as they have. Often for good reason! Many heirs lack the grit, tenacity, and motivation to take on the 60-70 hour (if that is sufficient) workweeks their parents endured. Our family business has always been very time consuming. Although my grandfather was already a workhorse - especially in the start-up phase - my father topped this many times over. Working hours that only investment bankers in the M&A department or M&A lawyers in the deal phase could keep up with were not uncommon. I was also taught from an early age that hard work is completely normal as a business owner. Anyone who has enormous responsibility for hundreds or thousands of employees usually realizes that every mistake can cost precious jobs and have an impact on the family behind them.
That’s why many aspirants prefer the cushy supervisory board gig, which conveniently touts greater strategic influence to the outside world. This can lead to dispute. Examples are aplenty! Tory and Chris Burch, Mukesh and Anil Mbani, the Kochs, the Gucci family and many more.
(Top-notch) entrepreneurs and businessmen also love clinging to their seats, reigning until potential heirs catch the "Prince Charles Syndrome." They reluctantly relinquish power, often continuing to pull strings behind the scenes long after formally stepping down, until the once eagerly awaited successor throws in the towel, worn down.
Conversely, many from the "next generation" balk at stepping into their (grand-) parents' shoes. They were too irked by the eternal "Family first!" mantra that strained family life, too determined not to "end up" like their own parents, who sometimes sacrificed not just their marriages but also their health for the company. Divorce is a very common phenomenon in these spheres.
Many heirs prefer to sell the company as soon as mom and dad are in the ground. Today, many scions from family firms prefer careers far from the homestead, much to their parents' chagrin, who'd rather see them as successors. Often, they simply want to step out of the shadow of their ancestors and create their own legacy, independent of the family business.
2. Succession Conflict
Serious ruptures can arise when multiple candidates vie for succession but only one can take the helm. Even before the hit series "Succession" with Jeremy Strong, this was a familiar pattern. Such diadochi struggles often leave traumatized losers who remain involved in the company despite their defeat.
Thus, the battle for the patriarch's favor among siblings or other potential successors in the extended family continues for years: Everyone wants to shine to claim pole position. Once the decision is irreversible, the losers often try to trip up the victor. Decades later, old scores are settled to avenge past humiliations.
3. Uncle / Aunt vs. Nephew
A particularly perilous situation arises when uncles and nephews each hold a fifty percent stake in a company.
The logic of these family feuds goes something like this: Two siblings build a business together or carry on their shared legacy as a congenial duo. They get along, respecting each other within the division of tasks and roles. Friction arises, however, when one of the siblings exits the management, whether due to an early death, old age, or by choice. The shares, usually exactly fifty percent, then pass on to the children of the departing sibling. But de facto control of the company now lies with the uncle/aunt, who knows the business inside out, has led it to its current size, and is usually unwilling to share power with his/her nephews. However, if these feel like entrepreneurial heirs and insist on equality, conflict with the uncle/aunt is programmed.
4. Tribal Feuds
Conflicts become more complex when entire shareholder groups collide in old and successful family firms. It's enough for there to be two clans, each holding half of the company, to turn the original sibling conflict into a tribal feud in the next generation. The perennial disagreements between the German Porsche and Piëch clans over the direction and leadership personnel at Volkswagen may serve as a cautionary example here. Tribal feuds sometimes also arise because a patriarch leaves behind children from different marriages.
5. Generational Conflicts in Large Shareholder Circles
The shareholder circle of large older family firms can grow over time to include several dozen or even several hundred owners. The company then belongs to a group of people, who come from a colorful mix of generations, professions, and characters, often scattered far across the globe. Family ties aren't as tight, but they've usually found proven methods to bundle and hold together family interests through family days or special bodies like a shareholder committee.
Conflicts in these family firms usually arise from dissatisfaction with dividends, which many rely on, the lack of liquidity of the shares, and the feudal airs of many of the managing shareholders. Imbalance is also brought into the fragmented structure by well-educated spouses of the heirs: in-laws or inbred investment bankers or lawyers deride alleged management errors or have other ideas about the right corporate strategy.
Here, too, I can speak from first-hand experience. Despite years of experience in the areas of finance, consulting and entrepreneurship, as well as having completed a demanding law degree, followed by work as a lawyer and years of working in our family office, it is always a challenge to push through your own ideas in the face of previous generations.
Far be it from me, but I can understand why younger clan members can no longer identify with the company's traditional values of sacrifice, order, and discipline.
6. Wills and testaments
An age-old (and not confined solely to family businesses) predicament is the unveiling of wills before and after the demise of the testator. Disputes often erupt as an heir feels unjustly treated. While A inherits the company and its associated prestige, B receives "only" wealth. In their eyes, this wealth may be perceived as less valuable than the company, thus sparking contention. Battles ensue over company shares, plots of land earmarked for the business, positions in committees, and so forth. I've encountered instances in my social circles where this not only raises moral concerns but also significantly harms the company.
My two cents
Fortunately, the most violent disputes only occur in the rarest of cases, but I have rarely experienced absolutely smooth transitions in large family businesses. At some point or other, someone always gets offended. This makes it all the more important to be transparent about the future and involve the family in the planning as early as possible. In this way, the pieces of the cake can ideally be distributed without disputes and without anyone being bothered by missed crumbs.
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