Enrique Soriano

Inside Family Business

“There is only one sin, only one. And that is theft. Every other sin is a variation of theft. When you kill a man, you steal a life. You steal his wife’s right to a husband; rob his children of a father. When you tell a lie, you steal someone’s right to the truth. When you cheat, you steal the right to fairness.”

Khaled Hosseini

The powerful quote is found in the foreword of my book on family business. I draw inspiration from this quote as it serves as a beacon and a constant reminder for family members to do what is right. Conflict of interest in family businesses does not refer to conflicts between two people.

Instead, it refers to situations where a family member’s own private interests conflict with his or her interests and responsibilities.

In the absence of properly articulated rules on governance and business protocol, disagreements descend to the level of conflict, and conflict within or surrounding a family-owned company is almost always wasteful, destabilizing and destructive.

As the family transitions into the sibling partinership and cousin consortium stage, emotions take center stage and dominate and form an overarching role over other goals.

This is where conflict of interest escalates and becomes a clear and present danger.

Some common examples of conflicts of interest in a family business setting are:

Self-dealing: Self-dealing occurs when a family member enters into a transaction with another organization that benefits the officer to the detriment of the family business.

Issues with gifts: Many family businesses prohibit family managers from receiving gifts from persons with whom the company does business.

Outside employment conflicts: If a family member is employed with more than one company, their interests in one job can’t conflict with those of the other.

Nepotism: This is where a child, spouse, or other close relative is hired based on their relation to the director or officer.

The family’s emotional stability is one element of succession planning that can’t be planned for. Don Schwerzler, a family business expert says that every family business is unique and complex in its own way, so boiler plate solutions don’t always work.

There are some common rules of engagement for handling employees who are related by blood or marriage.

•Don’t confuse family and business decisions like when you allow family members to borrow company vehicles for weekend family trips or permit them to use the services of the IT employee to set up their home offices.

•Don’t pass off personal expenses as business expenditures.

•Don’t create two classes of employees—family vs. non-family. Special favors given to family members and friends de-motivate employees and set a bad example.

•Don’t put family members on the payroll if they’re not working in the company or can’t make a real contribution to the business.

•In a startup or family business, everybody does everything. Make sure that everyone has roles and responsibilities that are spelled out and are very clear. Establish each person’s title, job function, and compensation.

•Think twice about offering a contract to a supplier who is a relative. Award contracts based on merit.

•Use family councils to address family matters. Some family members will share the same values but not the same vision. One sibling may want to grow the business and keep it privately-owned while another sibling may want to sell it or take it public.

•Establish healthy boundaries between family and business. This especially applies to co-preneuers (husband-and-wife teams). Running a business together with your spouse is a balancing act. Agree and adhere to some kind of system.

•Seek out a mediator or family business advisor—family business therapists much like a marriage counselor—to help deal with family feuds, clashes about business strategy, and decisions about succession. By understanding the family dynamics, this person can act as a negotiator and devise productive resolutions.

In an increasingly complex marketplace, businesses have complex needs, and administering to them can take a lot of time and energy. But families have needs too, resulting in inevitable conflicts of interest.

It’s important that you develop your strategies and organize your day to day life so as to minimize these conflicts. After all, it’s in your interest to keep both your business and your family doing well and to work to help them complement rather than undermine each other.