BCG Henderson Institute

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Their importance as commercial enterprises does not change their essential character. At their core, they remain families, a fact that has implications for how these businesses are managed. All families are different, but each has a common bloodline. And even as bloodlines thin, their underlying nature often prevails.

Managing a family business is complex. In addition to managing the business, the family needs to manage itself. In other types of commercial organizations, regulatory structures, rules, and roles are firmly in place. Similar guardrails and guidance do not exist for families. At a minimum, the family needs a mechanism for aligning the views of its members and communicating those views to management. As the size of the family grows, alignment becomes much harder to achieve without guidelines and processes.

In its ideal form, a family is about love, affection, fairness, respect, and trust. And yet every family member understands that frustrations and fights can arise. In interviewing the members of 25 family businesses, we found that seemingly trivial issues can lead to major eruptions. People get hurt. They stop talking to one another, let alone working together.

Conflicts arising from hurt feelings are rarely about right and wrong. Usually they can’t even be reduced to material issues like money or other matters of self-interest. Those “hard” issues are easier to identify and resolve rationally. In contrast, our interviews revealed that conflicts often spring from a well of “soft” issues. Once the resulting injury occurs, it is difficult to heal. Dislike, distrust, and disrespect take hold. Family ties are often irreparably damaged.

The importance of soft issues in the context of family businesses is often misunderstood but cannot be overstated. The fact that so many conflicts originate in soft issues tends to be overlooked, because it is difficult for nonfamily members, external observers, and advisors to detect, let alone solve, these problems.

Families have created governance structures, such as family assemblies, family councils, and family charters, for managing critical business issues around succession, distribution of dividends, and management. They need an analogous framework and processes to address the more subterranean soft issues that do not get the attention they deserve.

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