Family businesses are the backbone of Asian economies, contributing to about half of the total number of listed companies here. In a 2011 report on Asian Family Businesses, Credit Suisse found that most family businesses are first-generation firms at an early stage in their life cycle.
As Asian family businesses continue to evolve and go through generational transitions, they continue to face a multitude of issues, from those faced by businesses in general, to special challenges that include governance, family conflicts, wealth succession and preservation, and the passing down of values between generations. Each of these issues can pose challenges to the sustainability of the family business. Throw in a combination of these factors, and the potential for conflict and stress is amplified dramatically.
This is where mediation can play a powerful role in helping family members resolve conflicts that may arise in a business setting. Here are three ways mediation can help:
- Mediation offers a flexible approach, which is very helpful when family dynamics and business relationships are intertwined. In a 2012 article, Karen LaRose pointed out that in family business conflicts, relationships are embedded in a system of family dynamics and a business system. It is impossible to separate the two components - familial relationships and business relationships - because one informs the other in a circular fashion. Mediation offers a range of strategies to help work through these multi-layered disputes and determine the best course of action.
- Mediation helps family members navigate inter-generational values and attitudes, shoring up trust in the long run. In KPMG Australia’s 2013 Family Business Survey of nearly 600 family businesses, it was found that two of the primary causes of conflict boiled down to differing ‘vision, goals and strategy’ and unequal ‘competence of family members’. Add to this the sobering fact that in the USA, only about 30% of family businesses survive into the second generation - with only 3% of all family businesses operating into the fourth generation or beyond - and we can see the crucial need for proactive techniques to ensure that family problems like a lack of communication or trust are resolved quickly and comprehensively.
- Mediation can help family members understand and come to an agreement about decision making processes. The same KPMG survey identified another primary causes of family business conflict, namely how decisions are made. It found that the primary source of conflict for larger family businesses centred around decision-making processes, and “recognising that as firms grow, they also become increasingly complex in structure and operations, with more family and non-family members engaging in decision making”.
All this begs the question that if family acrimony is so pervasive - with some commentators saying it is responsible for the failure of over 60% of family businesses - then why aren’t more family businesses fixing the problem?
While most Asian family businesses are still at the first generation stage, it is important for them to regard family dynamics as a business consideration. With some foresight and planning, proper precautions - including using mediation at crucial junctures in the business’ development - can be woven into the business model. This will help the different family members and business owners work through issues including diverse personalities, emotions, values, attitudes, and feelings of entitlement.
Contact us today to find out how HMG can help family businesses work through their issues and achieve long long term settlement that benefits all parties.
Dora Yip, HMG Research Associate