Few of us deliberately seek conflict, but clashes are always possible, whether these are with colleagues or with relatives. When the two combine in a family business, confrontation becomes almost unavoidable. Every board is susceptible to bust-ups, but the frequency, ferocity and complexity of conflicts depend on the personalities of those involved, the interests at stake and the robustness of its conflict-handling process.
This article discusses common causes of boardroom strife, how to avoid it and what to do when it does happen.
A 2017 study of boardroom conflict by the Institute of Company Secretaries and Administrators (Icsa) found that tension is not necessarily harmful, defining it as “disagreement that is often uncomfortable, but which can be resolved by healthy debate”. Conflict, on the other hand, is “aggressive tension that escalates to extreme and unresolvable levels”.
Icsa’s research report concluded that tension is a positive – and indeed necessary – force for all effective boards, while conflict tends to be detrimental.
Mario Rizo, tax partner expert in family business at Grant Thornton Mexico, feels that it’s important to differentiate between two types of tension: cognitive and emotional. Mario, who has many years’ experience advising family firms, says that cognitive tension can occur during discussions about how to improve results, for instance, and may lead to constructive conversations and solutions. Emotional tension tends to focus on personal differences or performance problems, resulting in conflict when the possibility of constructive dialogue vanishes.
According to Mario, an example of a conversation involving cognitive tension would be: “I don’t think that’s the best way to achieve our goal. Can you think of alternatives?” By contrast, one involving emotional tension would sound more like: “That’s a bad idea – you haven’t understood anything. Your proposals always lead us to failure.”
“Emotional discussions are frequent in Mexico, not only at board meetings but in companies in general,” Mario says. “But although they are not as productive as cognitive discussions, we should not disregard emotionally-fuelled arguments. They are vital because a build-up of emotions can contaminate the culture of the whole organisation.”
He advises that two principles of emotional intelligence can help to address this type of conflict: the first is to recognise that emotions lie behind some disagreements; the second is to understand their impact on board members’ thoughts and actions. Once that awareness is there, further steps can be taken.
Daniel Maranhão, managing partner at Grant Thornton Brazil, notes that many family firms in Brazil lack formal corporate governance processes. , notes that many family firms in Brazil lack formal corporate governance processes. One of the factors that stands out is the lack of a succession planning process to protect the values and culture of the organisation. Good corporate governance practices are intended to increase the value of company, facilitate access to capital and contribute to its continuity.
“Poor governance is a big issue in Brazil, one that worries investors. It is driving more family businesses to seek help to implement good practice,” he says. “In many businesses a lot of the conversations take place outside the boardroom, over dinner or lunch. But we are seeing more and more companies, particularly larger ones, wanting to know more about corporate governance. Some now have very good practices in place.”
Having a formal shareholder agreement that sets out rules covering how the business is run, including key issues such as succession-planning, can help to prevent boardroom infighting and protect business value.
Good corporate governance is not only key to the long-term success of a company; it can also help family relationships, according to Daniel. He notes that some firms have even “extended good governance practices beyond the business by establishing a family council,” which meets regularly to discuss both commercial and household matters.
As a business grows, the roles and responsibilities of its board members change – as do their interests. When these clash with the firm’s general strategy, conflicts of interest arise.
If directors cannot see eye to eye at board meetings, or if they aren’t even in a position to speak to each other, they will resort to using alternative communication outlets, including the rumour mill, according to Mario. “Unofficial emails and ‘corridor announcements’ begin to circulate,” he says. “Alliances start forming and then even people who aren’t directly involved will feel the need to take sides.”
Hidden agendas may also start to take effect. These aren’t necessarily malicious. Sometimes they transpire simply because family members – the founder’s children, perhaps – are board members by default, despite having little interest in the business.
One way for the CEO to check whether their fellow directors have ulterior motives is to hold short one-to-one briefings with each board member before meetings to get a better idea of their main concerns. In this way, issues that have the potential to stir up strong emotions can be identified and managed before they escalate into boardroom conflict.
The personality of a firm’s founder/CEO has a big influence on the mood in their boardroom. Autocrats who can’t imagine the business running without them at the helm are often the cause of serious conflict. In contrast, good listeners who take advice are far less likely to cause a bust-up.
Open-minded leaders are more likely to seek help from third parties, such as non-executive directors or advisory firms that can act as the moderators of board discussions.
Daniel recalls the case of one firm where “the founder had everything in place for his children to take over. He stepped down, having put a strong, well-governed board in place. But none of his children wanted to work in the company because they had ambitions elsewhere. His solution was to sell the business. Although this was hard, it was the right thing for him to do.”
The open and honest exchange of views – even where there is disagreement – is the sign of a healthy board. Disruptive conflict is most likely to occur when disagreements are left unaddressed and unresolved. This can also be the case where directors’ disagreements become personal, making it harder for them to find any middle ground. The financial impact of such discord is often significant for the company and exhausting for all concerned. It can cause an irreversible breakdown of boardroom relationships and reduce the value of the business.
Those leaders who seek to build their business on strong governance foundations, improve diversity, take expert guidance and support open dialogue at all levels are more likely to prevent the most damaging bust-ups.
As Mario says: “Throughout my career I have witnessed how many family businesses have dealt with conflicts that threaten their long-term wellbeing. With the right plans in place, it is much easier to be successful.”
For more information on how your organisation can develop an effective board of directors, please contact Mario Rizo or Daniel Maranhão.