A High Court judge recently urged family-owned Wrights of Howth, a Dublin-based luxury hamper, food and hospitality brand to engage in mediation to resolve a dispute between family members, and former directors, which had been brewing for a long period of time.
The case, which saw two members of the Wright family who were no longer part of the business be accused of wrongfully blocking access to a key storage unit prior to Christmas 2019, impeding Wright’s ability to fulfil demand in the run-up the busy festive period, had grown increasingly acrimonious, causing major divisions across the business which was first launched by the Wrights in 1893.
And whilst disputes will arise within all kinds of businesses, disputes of this nature within family-owned businesses have several additional challenges.
It is often said that the interplay between family and commercial dynamics makes family businesses unique. However, when it comes to dealing with such disputes, the law does not make any distinction between a family and a non-family business. When trying to deal with a complex family business dispute, it can often feel like the legal system is trying to push a square peg through a round hole.
Mediation is most often the preferred method for working through such complexities, as was the Judge’s recommendation in the case of the Wrights. With it, a light can be shone on complicated business and familial relationships in an attempt to achieve a less financially and personally destructive resolution.
But how does mediating disputes in family businesses work? Let’s discuss;
What types of conflict typically happen within family businesses?
There are many disputes that can arise in family businesses. In most cases, these disputes have both a commercial context but also a family dynamic. There might be a dispute about the direction that the business should take, with some family members wanting to increase the income generated by the business, whilst others might be looking at trying to exit the business. There might be disputes about how much each family member is actively contributing to the business, and how that contribution should be recognised in terms of shares or salary. There may also be intergenerational conflict or sibling rivalry that impacts upon the running of the business.
If a conflict cannot be resolved between the parties, then often the only remedy left to the aggrieved party is to issue court proceedings and to seek a decision from a court. That remedy could include the purchase of the aggrieved party’s shares, an order that money is returned to the business (if it has been taken out unlawfully) or if the business is entirely deadlocked, the nuclear option of winding the business up.
What is mediation, and how does it differ from litigation?
There are myriad disadvantages to formal litigation, and it should always be seen as a last resort. Court proceedings are expensive and lengthy, and engaging in an adversarial process rarely assists with resolving the underlying family issues. Proceedings are also public, and there is a risk that the business and the family ends up airing its dirty laundry in public.
The mediation process can be extremely helpful in resolving family business disputes without the need to become embroiled in litigation. Mediation is a voluntary form of alternative dispute resolution where a neutral third party assists the parties to work towards a negotiated settlement of their dispute. The mediator does not act as a judge or arbiter in imposing a result, but instead facilitates discussions, with the parties retaining control of whether or not to settle the dispute and on what terms.
What are the benefits of using mediation to resolve family business disputes?
- Mediation is flexible. A court process is constrained to answering questions about who is right and wrong legally, and the remedies a court can order are quite limited. In contrast, mediation can get under the skin of the dispute and tackle the family/psychological issues that might be driving the dispute.
- Mediations can be creative. A settlement of a family business dispute often has many aspects, some of which are not necessarily directly linked to the business dispute itself. Creative settlements can help in ensuring that both parties feel they achieved their objectives and are happy with the outcome.
- Mediation can preserve relationships. Even though parties may be in dispute, in a family business it is important to try to resolve those disputes in a way that allows the parties to move on and continue to have a relationship going forward.
- Mediation is confidential. If a resolution is achieved, the parties can agree on how that is communicated to other stakeholders and employees within the business.
- Mediation is quicker and less expensive than court proceedings.
- Mediation is habit-forming. Once a dispute has been resolved successfully by mediation, if a subsequent dispute arises, parties are more likely to consider adopting a co-operative approach such as mediation than to pursue an adversarial approach.
When should you consider using a mediator in a family business conflict?
It is highly recommended to try mediation before your case progresses too far. This way, you can save time and money while still fostering an open dialogue with the other party in the dispute. Additionally, if a court claim has already been initiated then it may be possible for the judge to pause proceedings so that both parties are able to make use of this form of alternative dispute resolution without their conversations or offers being disclosed by anyone involved throughout these processes.
How to avoid conflict in family businesses
By formulating a family-business constitution, you can ensure that everyone involved – from employees to family members alike – understands the goals and values of your enterprise. Such an agreement not only clearly sets out expectations for communication within the company but serves as an invaluable guide in order to avoid conflicts between those affiliated with it. A well thought-out document helps foster a collaborative work environment while at once providing structure around key issues such as ownership rights, decision-making processes and business objectives
Establishing a family-business constitution is an essential step in managing the business, providing not only direction and structure but also serving as a platform to address latent tensions that could otherwise flare up when left unaddressed. Creating such a document must be accomplished through inclusive collaboration among those with skin in the game; it’s equally important to review this blueprint periodically so that everyone stays on the same page.
A family business constitution should be much more than the mere sum of its parts. It will provide a framework for ensuring long-term stability, sustainability and success through clearly defined goals, vision and values that guide leadership decisions.
It should include formalised agreements on entry principles for family members, criteria for succession and exit policies to protect shareholders’ rights as well as mandating remuneration plans both within the company itself as well payouts outside it. The document must also articulate clear roles and responsibilities including those of non-family executives/employees while setting forth communication channels to handle disputes expeditiously in order to establish continuity across generations.
Why choose Buckles for family business dispute mediation?
The team at Buckles can help you consider different options to resolve the dispute and facilitate a conversation between you and the other side.
Conflicts within family businesses can be extremely stressful, and while mediation can be difficult, we can help you through this difficult time by assisting you with communication and emotion management, helping you to make your points calmly and clearly, and listening to the other side without interrupting or becoming angry.
Should you want advice on how to move forward with mediation to resolve a family business dispute, contact us now for an impartial consultation.
