Problems that arise in running a family business sometimes manifest themselves as legal claims. That seems obvious when the company gets sued by an employee or vendor or customer, but can also occur when the other owners choose to invoke the courts when they suspect another family member of financial improprieties or mismanagement. Anger at the alleged offender can then fuel the fires of litigation, turning the conflict into a costly experience that can not only destroy the business, but can also destroy the family. And litigation may never resolve the underlying causes of the conflict, which could stem from sibling rivalry, parental favoritism, or some form of abuse. Those underlying causes of conflict can’t always be resolved, but they should at least be identified, so that the parties understand that they either need to deal with them, or perhaps dissolve or re-structure their business relationships.
The importance of identifying underlying causes of conflicts can perhaps best be appreciated in situations where problems arising in a family business don’t naturally appear as a “cause of action.” For example, one partner is not seen as pulling their weight. Or the owners simply have different strategies for running the business. If the parties can’t construe these problems as breaches of contract or torts, they are precluded from resorting to the legal system to resolve them, and that can be a blessing. Family businesses usually deal with these kinds of problems by informal means, or they allow them to fester.
That’s when business owners should look for attorneys who can help them negotiate a buy-out of the interests of a disgruntled partner, or reassign the owners’ roles in the company. Mediation may also be invoked to help families work through the underlying causes of their conflicts. Family businesses should also consider using informal, negotiated processes for resolving problems that seem to raise legal claims. Why treat a conflict raising legal claims differently from a conflict that only creates problems for the business? Both may be driven by the same sorts of personal issues, and confronting those issues may be necessary to solve both kinds of cases. Litigation may only create new problems for the business without touching any of the underlying grievances, allowing them to reappear later in another context. That would suggest that families should resist the urge to “make a federal case” out of every claim arising from a partner’s alleged dereliction of duty, but instead to try to understood the root causes of those actions. The challenge is to overcome a natural reluctance to confront difficult underlying issues, even when those issues may be poisoning the parties’ relationships or harming the successful operation of the business.
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