Does Blood Run Thicker Than Business?
Family-owned businesses have been called the backbone of the Australian economy but what happens when conflict within the business sparks a family rift?
When start-up businessman (let’s call him Tony) went to his wife with the idea of getting into small business with his brother, she thought it was fabulous. Running a restaurant was always a dream and her husband had pedigree business skills from his previous years in corporate management.
“What’s the worst that could happen?” his wife (let’s call her Grace) asked. We could lose a lot of money which would be a huge set back, but we are young enough to start over if we have to. How wrong she came to be.
The worst was not the money loss, in fact the business went on to become a success and a leader in the industry. But what unravelled was a minefield of entitlement among the familial partners. It’s like a disease.
Its starts slow and so subtle that you don’t really notice it. One of the partners starts doing a little less, with a promise to make up for it. They order food on the business tab or claim a few personal expenses, and before you know it someone is barely contributing to regular part-time hours while taking home an inflated full-time wage.
Tony was struggling to stay on top of everything. He was working 70 hours a week just in the store as well as juggling all the mounting paperwork. So Grace stepped in to help and for the first 12 months she worked, without pay, to set up the backend operation of the business. The role became so big that eventually she left her own corporate career behind to join the family business permanently and build ‘the dream’ - a sustainable business for their future.
Tony & Grace were both family-oriented people with strong family values, and despite the growing annoyance with the under-performing sibling, Tony remained bound to his inner family code and instead, focussed on building the family food empire. He was often asked what the secret to partnership success was and at the time it was clear – a heirarchy with everyone having a defined role and the CEO having final say over every business decision.
And it worked. For several years.
The business grew exponentially to include multiple stores but as the lack of contribution continued, the original sibling-operation seemed to have morphed into more of a husband and wife team. During this time the business became more enmeshed with several other family members joining the payroll including a third sibling, who was also a silent partner in the business as a gesture of sibling inclusion.
Confrontations started slowly too. It was usually a delicate nudge or a gentle discussion between siblings about performance and commitment issues. But it wasn’t just the lack of contribution that bothered Grace. It was the entitlement that started to emerge, such as the increased demands on what people thought they deserved ‘as family’, and the scrutiny over what people thought others were contributing by comparison.
In short, it was people taking advantage of the business for personal gain and then calling it ‘our family way’ or ‘love’. Tensions and resentment grew in the following months and eventually Grace lost her filter. The delicate approach had seen no effect so she led a more abrupt, truth-bomb communication style, which culminated into a confrontation that severed her in-law relationship permanently. As the only ‘outsider’ within the management team of the business, the battle continued beyond that confrontation resulting in an all-in family war.
Everyone retreated to their corners and continued to work despite the estrangement of Grace from the rest of the family. Grace was often reminded that she was an outsider and an ‘employee’ at best, despite her instrumental contribution to the very existence of the business the siblings were living off. Not to mention the fact that she had been married into this ‘family’ for over 15 years. The strain of all the conflict had taken its toll on both Tony & Grace.
Their dream was to create a prosperous & sustainable business for everyone in the family and someday pass it down as a legacy to their children. Tony valued family most in life and he felt it all slipping away. He didn’t agree with his siblings actions, but he remained stuck on this self-imposed family code. He was still the CEO but had relinquished much of his power so other family members stepped up their own terms.
The lines of position blurred and the formula that had worked for so many years was disintegrating. Changes to salaries and plans for time off work were being announced without consultation, blatant lies were told about how many hours were being worked and alleged ‘accidental’ overpayments were being made to family members. One of the family members even payed themselves dividends from a completely independent project of the initial business.
The unified strategy that once drove the success of the business was being replaced by entitlement and greed. Greed breeds and money can bring out the worst in people, and that was certainly the case in this family story.
This story isn’t unique
A Family Business Australia (FBA) study revealed that around 70% of Australia’s 2.1 million businesses are family- owned whilst (according to FINH) only 30% survive the transition from first to second generation. This drops to just 12% with the third generation.
The CEO (David Harland) of FINH, who provide consulting services to family businesses, states that one of the key reasons why family businesses fail is a culture of nepotism. “Families who continue to (overlook issues) simply because they are members of the founding family are on a fast-track to failure”, he says.
In 2018 KPMG partnered with the FBA and the University of Adelaide to conduct the most comprehensive family business survey in existance, which showed that the top issue for families in business was communication between family members, as it always involves some level of conflict.
There are several key sources of conflict within a family business, but opposing opinions often leads to eventual handing over to new non-family owners or at worst, the closure of the business altogether.
What will happen with Tony’s family business is uncertain although it will likely rest on the reinstatement of the unified strategy and hierarchical business structure, and the CEO choosing business over nepotism.
Mina iacono, author, writer and small business owner