Endogenous Conflicts, Its Mitigation and Resolution in a Closely Held Family Business

Abstract

Family business is considered to be the oldest form of an enterprise, existing globally. Family is emotions and business is economics. There are some possibilities that some family members may not be the owners but then they must be involved in the operations of the family business. Family businesses are taken care of by generations to generations. The best may combine values, ethics, dedication and discrete potential of each family member. The worst is when hostile family members have to work together, where self-interest is first. The case becomes challenging when the business transfers from generation to generation for example Tata, Bajaj, GVK, Birla, Hero, Wipro, Reliance group etc etc. Similar to large family businesses, even smaller family firms like Microlit, DK Exports, Metal Seam, PAL etc based at Lucknow, capital of state of Uttar Pradesh, India, exhibit typical characteristics within a family owned and family run business.A closely held family business is a business where one or more members within a family are owners of the business. In a closely held family business, the owners are the members of one family only. The decisions are taken by the owners but the operations of the business may involve the outsiders such as manager, staff, etc. The linkage between the family and business has a mutual influence on the firm’s working and on its objectives and interest of the family.Conflicts are very obvious phenomenon within family businesses. They are endogenous by nature. In family business, conflicts arise when there is a disagreement on certain decisions such as succession planning, personality differences, differences in interests, in laws, etc. Conflict is inevitable in any business and often it is constructive. Conflict management is the process of limiting the negative aspects of conflict, while increasing the positive aspect of it.Conflicts can be resolved either by self or by the concern of others. Conflict resolution is necessary for any family business to leverage growth and sustainability. At times, unsolved conflicts in a family business are not professional conflicts rather they become personal conflicts leading to bigger unresolved issues such as personal issues within the family members, loss in business, finally leading to closure of family business, etc.Family business is a business governed and/or managed with the intention to shape and pursue the vision of the business held by the dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families (Chua, Chrisman & Sharma, 1999). Rosenblatt, et al (1985, pp.4) define a family business as any business in which majority ownership or control lies within a single family and in which two or more family members are or at some time were directly involved in the business.There are 3 overlapping systems in a family business: the family, the business and the ownership/governance systems (Federer, 2012). To lead a family business successfully, it mandates managing the different systems of the family and business. Balancing the family business interests and the business interests is of paramount importance. Thus conflict management is must.