ADR, Mediation

Family-run companies can be crippled by old conflicts

By Staff

Personal histories add layers to legal disputes in family-run businesses, Toronto mediator Bernard Morrow tells

The Globe and Mail recently reported on the tumult between a car-parts magnate and daughter over control of the family fortune and the business he founded. His $500-million lawsuit seeks damages for alleged mismanagement by this daughter, who took over when her father left the country for a short-lived foray into politics.

Morrow, principal of the full-service dispute resolution firm Morrow Mediation, says as part of his practice he often deals with family members who run into difficulty while in business together.

“Often when you’re dealing with these sorts of cases, the issues run much deeper than what you see in public,” says Morrow.

Morrow says the generational division is a classic schism in family businesses.

“The older party typically created the wealth and has trouble handing over the reins. For the younger generation who have benefited from what has been built before them, they will often want to create their own legacy,” he explains.

Another archetypal dispute that arises is the one between siblings: “Rivalries and personal conflict that date back to childhood and are left unresolved can seep into the business,” Morrow says.

He recently mediated a dispute involving two brothers running a lucrative business. On its face, the dispute they had come for help resolving was about corporate governance and business logistics.

“But there were deep-seated issues in their relationship that dated back to their childhood,” Morrow says.

His approach is usually to attempt to get below the surface and have the parties tackle some of the underlying problems in the family dynamic.

“There’s often a temptation to hive off the most pressing and obvious problems blocking progress in the family business through facilitated discussion aimed at structural changes and succession planning,” Morrow says. “But these disputes need to be looked at holistically. Your best bet is to identify all of the conflict triangles and determine which needs attention first.

“Structural change that occurs without rebuilding trust or looking at deeper relationship issues is not going to result in a long-lasting outcome,” he adds.

In the case of the brothers, Morrow found it difficult to convince the parties to come with him on an exploration of their broader relationship.

“It can be challenging and painful to get people to talk about how mom or dad favoured one or the other when it appears to have nothing whatsoever to do with the business,” he says. “But those deeper issues have to be dealt with because they are at the core of the other problems emerging on the surface.”

Morrow says mediation offers families a chance to hash out their differences in private and much more cheaply than a lawsuit. However, he says the extra emotion involved means the parties are even less receptive to reason than typical commercial disputants.

"Money is not always a strong inducement,” Morrow says. “Once the nuclear button has been pushed, and a lawsuit is launched, it can be hard to turn the clock back.”

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