Jack Johnson had a problem. As chairman of Vital Enterprises, a health food wholesaler, he had never been close to the business, always content to let his founder-brother Dave run things. when Dave died suddenly, Jack recruited an experienced manager from outside the company, Phil Bevan, to serve as the CEO. The mandate was two-fold: to instill financial discipline, and to preserve the integrity and social consciousness of the business.
Phil Bevan had a reputation as a no-nonsense, disciplined manager. During the first months of his tenure at Vital, he got to work quickly. He reduced accounts receivable, rationalised inventories, pared product lines down to the winners, and implemented a more effective cash management system. He also rationalised the organisation structure, setting up clearer cost and revenue targets, and tying employee incentives – and punishments — to their ability to meet these targets. Although sales remained flat, profits began to improve dramatically.
Jack was delighted by these results. Unfortunately, his nephew Bill, founder Dave's son, was not. Bill and Jack were now the only two family members on the board, and both controlled about an equal number of shares. Nine months into Phil Bevan's tenure, things came to a head. The meeting was heated as Jack and Bill had rarely communicated, Bill had only spoken to Phil twice, and neither Jack nor Bill had appointed any strong independent directors.
Bill, with great emotion, presented his case to Jack. "This company was never just about making money. It is about helping people live healthier lives. Phil's emphasis on the bottom line has begun to rob the company of its soul. We have alienated some of our oldest clients with more aggressive collection techniques and a spottier product line. We've put some of our most loyal employees under pressure to meet standards that, with their talents, are unrealistic. And we've dropped some products that, although less popular, are exactly in tune with our mission and what this company stands for."
Bill concluded that the company was going in the wrong direction. That although short-term profits might increase, customer loyalty, and relations with the community would suffer, as would the legacy of his dad. But Bill was not ready to take over, nor was Jack willing to let him. Now in his 40s, Bill had his own business to run, in a related but non-competing field. So he proposed a number of options to his uncle. 1) Tell Phil Bevan to back off his "bottom-line" obsession, reverse some of his key initiatives, and immerse himself in the "spirit and traditional mission of this company". 2) Sell some of his shares to Bill and pass the chairmanship to him – so he could "instill more balance within the company". 3) Buy Bill out. Jack, aged 69 and childless, did not like any of these options. He was pleased to finally have a chance to help "make this into a 'real' high-performance business" and was reluctant to let go.
This case illustrates a classic theme in family business: the substantial advantages that firms enjoy can be destroyed if parties are not able to overcome the conflict that occurs among family members. For owner-managed firms, succession is the most critical event relative to firm survival. This firm is at a crossroads.
A sudden death required that a leadership void be filled on short notice. Furthermore, the death of the owner-founder created a new set of dynamics and a new group of decision-makers. People with little history of collaboration are now required to work together. Existing levels of trust and communication – key pillars of strategic advantage for family firms – are inadequate. Although these key stakeholders have not had time to devise an adequate means of firm governance, a new CEO had to be hired. Ideally a firm should have reasonable clarity about its business, products, services, markets, competitive strategy, and governance before choosing a CEO.
If the existing conflict is allowed to continue, or escalate, everybody loses. (If an agreement cannot be forged only then would the next option would be a buy-out or sale to a third party.)
How to do it? Jack and Bill must find a more effective means of communicating and arriving at a consensus. As a first step they simply have to work at getting together more often in forums where they are able to talk about the business. Given their propensity to disagree, they might wish to involve a third party professional such as a family business consultant or mediator. They should also consider creating an outside board of directors. Finally, once they have forged a clearer vision for the firm, they should involve the CEO in the strategy making process.
Lloyd Steier is a professor of strategic management, University of Alberta School of Business and academic director of the Centre for Entrepreneurship and Family Enterprise and the Alberta Business Family Institute.
In the business, Jack and Bill have rarely crossed paths. The immediate question to be answered is not "whose way will win", but rather "how do we learn to communicate effectively in order to resolve conflict?". The short-term objective should be to come to the table, each willing to explain his vision for Vital Enterprises in specific detail, and each willing to listen and hear the other. Because productive communication is a learned skill and requires continual practice, Jack and Bill will find initial attempts to understand awkward and frustrating.
One method for improving the communication process would be as follows: Be willing to meet for possible positive resolve of the conflict. Agree on a specific time and place to meet when there will be time to complete the process without interruption. Before meeting, each write as clearly and precisely as possible, his own vision and goals for the company. At the meeting, each must listen, take notes if desired, until the other has completed reading what he has written. Questions can then be asked, providing additional clarity. The roles are then reversed. It would be helpful to use a communication/conflict resolution specialist to help keep discussions focused and tempers in check.
As each man has the opportunity to speak, be heard, and ask and answer questions, productive communication will be happening. Mutually agreeable solutions can only be found when each man's vision and goal is understood and respected.
The best chance for finding solutions to conflict will be found when both Jack and Bill can speak without threat of hostility. Each success will make the next conflict easier to resolve. Without effective communication, Jack and Bill will move from one conflict to the next, without resolution, each one becoming more explosive and causing irreversible harm to Vital Enterprises.
Jane Whitt, MS, LPC., is in private practice at Care Counselling Services. Tulsa, Oklahoma, USA. Member FFI.