Family Business Dispute Resolution
Submitted by Patrick C. Coughlan, Esq.
Conflict Solutions has a long and successful history of assisting family businesses in resolving their litigation with family shareholders and employees. Patrick has been mediating such disputes since 1989, Devon since 2006, and they settle over 90% of the matters that come to them for mediation. Their focus is in finding compromise in an era where people are too motivated by their individual points of view, and less so on what is best for the company.
Pat and Devon are sought after to mediate throughout the United States. As a father and son team, they understand the frame of reference of different generations. They work with participants and their advisors to find solutions to serious differences that negatively impact or have the potential to destroy a family business.
Family business disputes are some of the most contentious and difficult challenges undertaken by Conflict Solutions. In addition to the expected financial and management issues involved in such disputes, there often exists a long history of sibling rivalries, perceptions, and sensitivities. Resolving such issues takes time, patience, and an appreciation of family dynamics. Since Pat Coughlan (father) and Devon Coughlan (son) operate two family businesses, they bring a unique perspective to their mediations. Both are attorneys who also have extensive backgrounds in finance and human resources. They understand and respect stakeholders and their roles.
Following are two examples of recent case histories that clearly illustrate the forces at work in family business disputes; the unfolding of the mediation process; the emergence and recognition of solutions; and the successful resolution that was realized in each case.
Recently, Patrick and Devon helped resolve serious differences that arose in a multigenerational business that ran an extremely successful wholesale importing and domestic marketing business. The company was started by an immigrant couple, who figured out how to import and distribute a fragile agricultural product. Careful attention had to be paid to packaging and rapid shipping at the foreign points of origin. Two sons and a daughter grew up helping their parents manage the operation.
When the parents decided to retire, they felt that their children were capable and sufficiently experienced to run the business, grow sales to a level where the business would support the three children and their families, and eventually also support the grandchildren. One son became president of the company with primary marketing responsibilities, the other son ran the import and shipping side of the operations, and the daughter became the CFO.
Initially, all siblings received equal salaries and distributions. Over time, differences arose over both salaries and division of profits. The two brothers each felt that they were the key to the business’s growth, and they felt unappreciated by the other. All siblings felt that they “knew” what the parents wanted. Litigation ensued to gain control of the company.
The CFO daughter was frustrated with both brothers and felt that the business could be destroyed if things continued to deteriorate. Nothing destroys relationships faster than a lawsuit, and statistics have shown that even people who are not related cannot work together after a court fight. Even those who prevail in litigation are seldom satisfied with the result. About twenty-five percent of companies and individuals who lose a lawsuit NEVER comply with the judgment. In addition, in today’s business world, the transactional costs of a lawsuit are seldom worth the pursuit. Add to those costs the loss of productivity that naturally occurs from officers, employees, and individuals focusing on the litigation, rather than on their roles in operating the business, and it is safe to say that NO litigation is worth it.
Patrick and Devon met with the two brothers and sister individually, as well as with the parents who started the company. Their goal was to listen to what the parties said the dispute was about, and to try to uncover and understand the hidden issues. After meeting with everyone individually, they then held a gathering at a suitable neutral location where they could explore individually and jointly the potential various paths to resolution.
Ground rules were established to identify such matters as who would attend; how confidential the process would be from spouses and children; how much time would be set aside for the process; and to elicit a commitment from everyone that the mediation would be the sole focus of their attention (no cell phones or emails during mediation sessions.)
It quickly became apparent that the siblings were reliving childhood issues. Solving the business financial matters was the easy part. After three sets of meetings lasting two days each, Patrick and Devon helped facilitate an agreement that resolved past issues with current ones, and also provided a path to resolve future differences.
Today the company is more profitable than ever, and each sibling has gained an appreciation of the talents brought to the table by other family members.
Another problem that can arise in a family business is one that develops from the hiring of a consultant who becomes an employee and who then feels that he/she should be running the business. That person’s unquestioned skills can bring new energy and direction to an enterprise. Unfortunately, that person can also become a polarizing influence.
Last year Patrick and Devon were involved in a matter where such an individual was destroying family relationships by pitting various family members against each other. It turned out that this person was extremely selective in what he told each family member owner. In addition, some information that he conveyed was distorted and even fabricated. This situation resulted in some shareholders suing the company and its management.
The challenge for the mediators was to get everyone in the same room to talk about the company and the disparate information that each person was receiving. Since the individual in question was felt to be invaluable by some family members, and a traitor by others, a consensus had to be developed to either manage or terminate this employee. Once again, individual meetings occurred before any group gathering. Perspectives had to be understood, interests explored, and facts discovered.
Joint problem solving by family owners generally brings understanding of another’s interests and ultimately brings everyone closer. Within a few months, the employee was terminated, and with the help of a new consultant, a comprehensive job description with reporting requirements was developed. In addition, the new consultant helped set out goals and objectives for the business. This process helped establish expectations for both owners and employees.
Resolving v. Prolonging the Dispute is the single goal with which Conflict Solutions enters the mediation process.
Expertise absent emotional entanglement: Patrick and Devon are the seasoned family business mediators who will uncover the true foundational issues that gave rise to the dispute and present them clearly to the parties.
Understanding the issues instills the confidence and energy that helps drive the parties to a successful resolution of their differences.