Many business owners claim to be blindsided when a co-owner files a lawsuit against them detailing a list of grievances. The truth is that business owners often ignore disagreements with co-owners for years or even decades by focusing on pressing day-to-day business matters.
If your company does not address owner conflicts and succession planning issues, these matters will eventually disrupt, impact or injure the business. But with the right approach — and the right facilitator — these challenges can be identified and resolved.
“Disagreements among co-owners of a business are natural. They come up frequently. The key is how owners address those conflicts. Even a company with one owner eventually has to deal with succession issues to avoid potential tension between family members or others vying to be the next generation of owners,” says Kevin Douglass, shareholder at Babst Calland.
Smart Business spoke with Douglass about conflict resolution among business owners.
What events can trigger an escalation of a disagreement between owners?
The reasons why a disagreement may bubble to the surface are almost endless. One trigger is business financial health. If the company is doing very well, owners may feel entitled to more compensation or at least more input into how additional profits will be invested. If the business is struggling, an owner’s benefits may need to be decreased and tough decisions made about the company’s direction.
Other reasons for conflict include a change in an owner’s level of commitment or job performance, a desire to change the governance structure, conflicting business strategies, and compensation and benefit differences. Personal changes may also spark controversy, such as an owner’s marriage or divorce, owner children who are employed by the business, personal finances or advancing age.
It is surprising how often business partners, including those in the same family, do not openly voice their concerns. If co-owners are not comfortable discussing issues or sharing information, resentment festers and grows.
What are the risks of ignoring owner disagreements?
Owner disagreements, or failing to address succession issues, can spill over into business operations and finances. Employees, lenders, customers, vendors and others can easily become aware of, and even embroiled in, the drama. They may be confused about which owner is in charge. If left unchecked, the reputation and health of the business may be threatened. Just as significantly, relationships on a professional, personal and family level may be destroyed, if not addressed thoughtfully and with sensitivity.
Some owners resort to litigation to obtain the satisfaction they believe they are entitled to — and the expense, stress and distraction of co-owner litigation is never positive.
How can owners resolve their underlying issues more quickly?
An owner willing to address an issue with a co-owner head-on is often in the best position to resolve it. However, given the sensitivity of all the moving parts, including each owner’s legal rights and vested interest in the outcome, it frequently makes sense for owners to separately consult with an attorney for a comprehensive and objective assessment of the issues, risks and alternatives for resolution.
As part of that process, it is important to understand not only why the disgruntled owners are upset, but also what owners hope to achieve and whether their expectations are realistic. After fully vetting an owner’s desires and legal rights, finding a solution may include answering difficult questions. Do the owners want to continue in business together, or separate via a buyout? Do the owners share the same vision for the company’s future? Does the ownership, compensation or governance structure need to be redefined? Are new leaders and investors needed? Should the business be sold? Should a strategic or succession plan be developed, and if so, what should it look like?
Any resolution of issues involving owner conflict or succession should strive to satisfy, or at least account for, the concerns of all owners and interested parties. Unlike a winner-takes-all litigation setting, an opportunity exists to develop workable solutions for owners while preserving and protecting the business. Wise owners take advantage of that opportunity.
Insights Legal Affairs is brought to you by Babst Calland