Published in Walla in June 2014
By Moshe Kahn
While a family business stands a very good chance of being successful, it nevertheless has explosive potential as challenges from home could be brought into the business. Moshe Kahn, a business attorney from Tel Aviv, sets out a map for navigating through the minefield that could destroy a family business.
“It all stays in the family” is a good slogan to be used by the family while sitting around the dinner table. However, when the family also runs a successful business in which family members work, the rules for managing the business and the role of the family members in the business, need to be clear. Family businesses have a very good chance to succeed and prosper, however, the proper functioning of this type of business requires awareness of the existence of a potential minefield, which can lead the family to a family feud and the business to paralysis and possibly worse. Moshe Kahn, an Israeli lawyer who specializes in handling conflicts in family businesses in Israel, provides the outline necessary for overcoming obstacles in a business of this kind.
“The conflicts that take place in a family business having several family members are most concerned with powers, remuneration and status”, explains Moshe Kahn. “The difference between a family business and other businesses is that the parties have known each other for many years and may carry baggage even from childhood.
In family businesses in Israel, there are usually three types of conflicts. Firstly, between family members who work in the business and who make a living from it, and between family members who do not work in the business but feel a sense of entitlement to the business and expect to receive remuneration. The second conflict takes place among those who work in the business. The conflicts here focus mainly on the division of powers, differences of status, amount of salary, and even the model of their vehicle and the like. The third conflict, which is also common, is when the business passes from generation to generation. The younger generation wants to replace the older generation and then we have fathers versus sons and vice versa. The challenge in a family business is to always maintain both business success and family harmony”.
How can you avoid these types of conflicts?
“The optimal way is to prepare for such possibilities in advance, even before the crisis erupts. The preferred way of doing so is through agreement. It is recommended to prepare a “family protocol” or “family agreement” in advance. The family members should jointly agree on all matters beforehand. For example, what will be the remuneration of those working in the business and what will family members not working in the business receive. Also, the various responsibilities and authorities of each of the family members in the business need to be determined in advance; even in regular businesses, there is a managerial pyramid and not everyone is a decision-maker. It is also sometimes advised to discuss in advance the succession plan – passing on the managerial helm from the older generation to the younger generation. This way, everyone knows their place, and a lot of conflict and family feuding is avoided. It should be noted that also when a family protocol is prepared, it is not always so simple. Often tensions and challenges arise, but after an agreement is reached and signed, things become clearer”.
What happens when there is no such protocol and a crisis occurs?
This is a very unhealthy situation for the family business. Tensions begin between the parties, both on the business and on the family front. The other employees obviously sense what is happening and do not know which side to take. I have seen cases where managers stopped signing checks and payment orders to suppliers and employees, and the business went into a tailspin. The crisis must be resolved immediately, and preferable discreetly, otherwise the situation becomes intolerable. In large and well-known companies in Israel, these disputes immediately reach the media and cause damage. Therefore, if a dispute has arisen, it is desirable to find a responsible adult to restore peace in the business. It is highly recommended to do this through mediation or arbitration since the parties need to know that if conflicts of this kind come before the Israeli courts, the judges will usually not take the family aspects into consideration, but will mainly consider the best interest of the customers, employees, suppliers, and creditors. It is therefore recommended to mend these bonds urgently in order to minimize the damage to the family business and the family”.
Adv. Moshe Kahn is a commercial lawyer from Tel Aviv, Israel, who specializes in conflicts in family businesses.
