Mediation, a factor of sustainability for family businesses?

By Valérie Tandeau de Marsac

Lawyer and founder of VTM Conseil FamilyBusinessLaw Member of JeantetFamily expertise center

Professor at the Edhec Family Business Center

Family businesses have become a hot topic all over Europe, probably because they appear as an interesting model compared to widely held firms. Indeed, they seem to have specific characteristics that are answers to what a wide consensus today recognizes as the reasons for the crisis the occidental economies are going through.

Yet media frequently report dramatic conflicts which sometimes lead to a strengthening of the family shareholding, but more often than not to muddled sales which seal the end of the family business as such.

The conflicts are indeed more numerous in family businesses because of the interdependence of the members of the family, bound between them by deep emotional links, what increases the risk of occurrence of the conflicts, as well as their intensity.

The nature and quality of conflict management in family owned companies is studied and recognized by research as a key factor in the successful achievement of the generational transition, as important as the consideration of the new generation’s expectations.

It is frequently highlighted that the method chosen to resolve conflicts can be seen as a factor of improvement of the performance, provided that the process chosen allows the confrontation of different opinions during the course of its implementation. Only such a confrontation can generate a new way of envisaging the stakes which are at the heart of the conflict, and thus enable the parties to overcome them and find a solution.

Three main types of answers to the conflicts are possible: the denial, the dispute or the conciliation.

Denial is dangerous because it will generate sooner or later irrational behaviors. Latent unresolved conflicts can have

destructive effects on the company, especially as the protagonists often have access to sensitive information and have important decision-making powers.

Litigation is to be banned, because it triggers a process of great psychological violence, which ends inevitably with a winner and a looser. Yet, in the circle of the family, there cannot be a “winner”, because any trial leaves emotional wounds so deep that they risk to impact painfully on the following generations.

That’s why, in family businesses, more than anywhere else, it is suitable to consider the recourse to alternative dispute resolution (ADR) methods.

The methods most frequently used to prevent and/or solve conflicts in family businesses are the establishment of a family council, usually composed of older members of the family, whose authority is more likely to be respected, the implementation of a family charter and the drafting of a shareholders’ agreement, along with mediation.

Mediation considered here is the conventional mediation as opposed to judicial mediation, a process conducted by the judge in the context of a legal dispute underway. Mediation is a voluntary and confidential process by which the parties resort to an independent and impartial third party, the mediator.

Unlike the judge, the mediator does not decide on the merit of the case. His role is not to judge, but to help the parties to bring to the foreground a solution which collects their common approval. This process of appropriation of the solution by each of the parties is the best guarantee of the pacifying of tensions.

The mediator may be a third party or a family member. It is not necessary that it has a technical expertise on the stake in the dispute, because its role is not to propose a solution, but to help the parties to bring out one, through the listening and the conciliation.

In every case, it will be careful to clearly stipulate in the shareholders’ agreement or in the family charter who is going to act as mediator or, at the very least and in case it is not yet possible to agree on a name, the process to be followed to allow its designation. Failing that, there is a risk that the choice of the mediator becomes an issue in itself if and when the conflict arises. It is easier to disagree on the name of a mediator than to address the true emotional issues at stake in a family conflict …