Sometimes bloodlines blur business lines. There’s a potent blend of emotion and finance in family businesses. I’ve been in the trenches, witnessing brothers at odds with brothers, sons challenging fathers, and sibling rivalries taken to the extreme. A wise judge once confided in me that sibling feuds often seem rooted in who got the better bicycle for Christmas in their childhood. While this may seem overly simplistic, there is an element of truth in the echoes of past rivalry.
Over the years, I’ve represented both minority and majority family business owners (and 50-50 owners). When the family fabric unravels in such contexts, it can feel like a scene from a Greek tragedy. The bitter truth is that those you love the most can sometimes hurt you the deepest. Not too long ago, I negotiated a settlement for a client – a stockholder-employee dismissed by his aging father after three decades of service in their family-owned company. The case, which ended in a $1.4 million agreement for judgment in my client’s favor, was featured in Massachusetts Lawyers Weekly as one of the largest settlements that year.
In any private enterprise, the question of integrating family members into the business is inevitable. Sometimes, your business evolves into a family; sometimes, your family evolves into your business. The more prosperous the enterprise, the more the pressure to onboard family members mounts. Hiring family may seem like a good idea, and it often starts off smoothly. But, as time passes, personal emotions, and family dynamics can disrupt the business balance.
Family members in a business may perceive themselves differently than other employees. They might feel exempt from certain rules or overestimate their contribution to the company. They may even see themselves as an owner when they’re not, or harbor jealousy toward the owner. Conversely, a family member-employee may be undervalued or taken for granted. Jealousy can also arise when one family member vastly outperforms others, as was the case in the legal dispute referenced above.
These disputes arise in limited liability companies (LLC’s), close corporations, partnerships and even joint ventures. The same issues may arise when close friends start or join a business. If you decide to tread the familial waters in your business, here are a few tips to keep the ship steady:
- Treat family members as you would any other employee, holding them to the same standards.
- Strive to separate personal sentiments from business matters.
- Be prudent about issues of stock ownership. This includes considering buy-sell provisions, which warrant their own separate discussion.
- Implement clear, written employment agreements and always abide by the law. Remember, family members can and will sue for wage violations.
- Ensure transparent communication about salary and future ownership expectations. Misaligned expectations can turn into ticking time bombs.
- Don’t let issues fester. Even family members can become rogue employees.
- Consider including arbitration clauses in contracts. Although arbitration isn’t always the best solution, it may save you from airing your family’s dirty laundry in court.
- By following these guidelines, you can hopefully navigate the stormy seas of family business disputes with a steady hand and a clear mind.
The above is not legal advice.
By Adam P. Whitney; [email protected]; 617.338.7000