Personal familial conflicts and feuds can often undermine a family-owned business

The perils sometimes posed when family members involved in a joint business venture engage in family conflict or turmoil was well illustrated in last year's drama involving the Market Basket supermarket chain. As commonly reported, a dispute between two warring factions of the Demoulas family led to company-wide distress, employee protests and a customer boycott. In addition, the dispute resulted in the hours for part-time employees being slashed and empty store shelves as deliveries to stores were halted by suppliers. Ultimately, the business and the stores ceased to operate for a number of weeks. Fortunately, the intervention of the Governors of Massachusetts and New Hampshire helped facilitate a buy-out by one of the warring factions.

Entrepreneur magazine observes that business partnerships owned by members of one family are often highly successful. However, it is also true that, if personal conflicts occur among family members, those conflicts all too often tend to "get mixed up with business decisions." The director of the UMass Family Business Center was quoted as saying that business partners who are family members frequently end up making unwise and unprofitable business decisions primarily due to existing personal conflicts.

According to a publication of the American Bar Association, the truth is that while business values and family values often overlap, "they do not necessarily align." The expectation that one should always put family interests first sometimes conflicts with the goal of running a business in the most efficient way in order to maximize the economic return. Unfortunately, the overlap of family and business can enable conflict to rapidly spread from one domain to the other. The ABA notes that, although unfortunate, the long-standing family grievances that tore asunder the Demoulas family-and threatened to destroy the Market Basket supermarket chain-are not uncommon with regard to family-owned businesses.

Minimizing conflicts

Family members who are the partners in a small business need a well-designed partnership agreement that can help ensure that everyone understands their rights, duties and obligations to both the business and to each other. For that reason, a comprehensive family partnership agreement should include: (1) rules regarding how the business is to be managed including the specific duties and responsibilities of each officer or manager and board members; (2) restrictions on the transfer of shares due to divorce or death; (3) buy-sell provisions; and (4) employment contracts for the particular family member/employee. In addition, the employment agreements should contain specific descriptions of the roles, duties and responsibilities that family members will play in the business in order to minimize possible familial conflict over each person's responsibilities.

The partnership agreement should also include a detailed procedure for resolving disputes between and among family members. The goal of such a provision would be to prevent open warfare between factions which may threaten the viability of the company. However, since a conflict-resolution provision could prove inadequate in reducing conflict, the partnership agreement should also contain a provision addressing how a dissolution of the business will be handled if the family members reach the point where it becomes counterproductive to continue to operate the business together.

Seek legal counsel

If you are thinking about going into business with family members, you should contact a Massachusetts attorney who can help you devise a strategy and construct to protect your financial interests in the event of subsequent conflict with your family members/partners. If you are already partners in a family-owned business, and conflicts are resulting in reduced productivity and increased turmoil and strife, you should consult an attorney to discuss a legal resolution or an exit strategy.