There is no family business story that doesn't involve some degree of conflict. My family was not exempt from problems. Conflict between our two sons arose early in their careers. I took the position that their salaries at ScrubaDub Auto Wash Centers should be based on their job performance. My older son, Bob, felt he should have a higher salary because he'd been part of the business longer and therefore had seniority. Dan felt they should have equal salaries if they were going to be equal partners someday. Holding to my own point of view, I challenged them to defend their salaries on the basis of their job performance. They did this very well. Bob, who supervised operations for the entire chain, argued that if he didn't satisfy customer quality expectations, all his brother's efforts to train employees and market our services wouldn't mean anything. Dan responded that well-trained employees perform to higher standards, and therefore make a significant contribution to satisfying customer quality expectations. He pointed out that without his marketing and advertising skills, we wouldn't have many customers in the first place.

This conflict came to a head around the question of work habits. Bob, who was married without children, spent many more hours on the job. Dan, who had gone through a divorce and had an infant son whom he saw on a limited basis, was sensitive to his parental obligations and was able to spend less time at work than Bob chose to spend. He felt he was capable of doing adequate work in fewer hours. Bob thought the bottom line was that he worked harder than his brother. Their mother and I were caught in the middle.

Is Conflict Healthy?

How to set a standard that applies equally to everyone and that everyone can agree with? Business consultants recommend copying corporate America. Make the difference between job performance and company ownership clear from the start. Hew to a policy that pays every employee, even your favorite child, for current performance of the job he or she has been assigned to do. Develop objective and clearly defined job descriptions for every post. Make sure that compensation stays competitive with pay for similar jobs in similar industries. Insist that the most qualified -- not the most closely related -- people fill open positions within the company, and require annual peer reviews to ensure that everyone continues to perform to the highest standards. All of these policies will help head off conflict and provide a basis for settling disputes when they do arise.

My sons' dispute about compensation was a classic second-stage conflict. One partner, Bob, was a workaholic; the other, Dan, wanted every other weekend off to be with his infant son. This difference in their working styles not only had an impact on the relationship between them, it had an impact on their wives and families. I tried giving them both performance reviews on a quarterly basis. But I found it difficult to excessively criticize them, and in any case I was pleased with their performance. As I puzzled about the problem, I realized that the best solution would be for someone other than me to do their performance appraisals. Exploring ways to make this happen led to a companywide system in which someone below each employee being appraised rates that person's performance. This worked beautifully. Not only did the new system move us further into management by consensus, but it actually improved performance at all managerial levels. Human nature is a powerful force, and no one wants to think that their subordinate does not think much of the boss.

Bob and Dan were pleased with this solution, since it seemed entirely fair and unbiased; their wives were satisfied; my wife, who had feared a rupture in the family, was delighted; and our nonfamily employees were happy. I was relieved, since I was convinced that if we hadn't found a way to bring the conflict to the surface and resolve it, this issue would have begun to intrude on our business. Whichever of my sons was more unhappy would have continued fretting over a situation that he felt was unfair. At some point, his feelings would have interfered with his work; this would have created a new problem, masking the original problem. The relationship between the brothers would have begun to deteriorate, they might have lost respect for each other, and eventually they could have been forced into a major confrontation. The performance review procedure helped us resolve the compensation discussion.

Bringing It to the Table

Protecting second and future generations from these scenarios and others like them starts with a family culture that encourages all members to bring problems relating to the business to the table as soon as possible. In my experience, a great format for this is a weekly meeting for all members of the family working in the business. Instituting a time and place for the family to meet each week creates a regular forum for the airing of grievances and the working out of disagreements. Unlike a typical corporate meeting, at a family meeting both family and business issues can be discussed. Everyone has a chance to express concern for other's troubles and enthusiasm for the successes. After the CEO presents an update on current activities, each person can report on the progress of his or her work or special projects. In this way, everyone knows who is doing what, no one feels shut out of the loop, and everyone has a chance to debate policy changes. When debate does not lead to consensus, majority rules.

I know of one family business employing over a thousand people, Massachusetts Envelope Company, in which three generations meet not just every week but every day. Although a member of the third generation is running this business very successfully, he told a large group of family business owners that his day would not be complete without the daily ritual of meeting his grandfather and father for morning coffee in the conference room.

A second useful device for constructively dealing with conflict is an annual family council meeting. This meeting, which should be run by a professional facilitator and include spouses and family members not in the business, gives all members of the family a chance to voice their ideas and express their feelings. At this meeting, some issues will come out that matter to different people for different reasons or only matter to some members of the family, but nevertheless need to be heard. Only through this kind of open communication will the people who do need to know become aware that these issues even exist.

In addition to these standard family business practices, I recommend instituting four other formal provisions to deal with conflict: (1) assembling a board of outside directors to provide an objective analysis of how the business is being run; (2) developing a system for limiting ownership of the business to family members working in the business; (3) appointing a deadlock trustee to settle disputes that can't be resolved through other means; and (4) writing a standard stock redemption agreement controlling the sale of stock by family members.

Marshall B. Paisner is chairman of the board at ScrubaDub Auto Wash Centers Inc., one of the world's largest car-wash chains, an enterprise he founded in 1965. He is active in many family business organizations and forums.

Reprinted with permission from Sustaining the Family Business: An Insider's Guide to Managing Across Generations by Marshall B. Paisner.
Copyright 1999, by Marshall B. Paisner.
Published by Perseus Books, a member of the Perseus Books Group.
Adapted by permission of the author and Perseus Books.
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