Clear management structures make for a healthy family business.
Disagreements are more likely to erupt in businesses that have not established clear management rules at the outset and do not review them at regular intervals. The rules need to define the differing roles of family members, either as managers, shareholders or simply 'relations'.
They should be agreed rather than imposed.
Common sources of conflict include questions about who can be a director or shareholder, dividends, strategy, putting capital in or taking it out, and rewarding management. Good communication between the board, shareholders and other family members is a must.
Family dynamics are important too. Do family members embrace the business or is the family culture fragmenting? How well does the family separate business from personal issues?
Turning to the family board, businesses need to determine each executive's ability. There should be an open process to review the performance of every executive or non-executive. Plan ahead. Shareholder agreements should be documented, agreed and updated. Shareholder aspirations must be distinguished from those of management, especially where there is a crossover. If the business is not going to meet the aspirations of certain members of the family, it will need flexible and affordable exit routes.
Stuart Makings is a partner at Pricewaterhouse-Coopers
0116 285 3000.