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Woodbury-Farm Family Business 06/26 07:43

   A Big Reason for Family Business Conflict

   Lance Woodbury points out that family and business conflicts are usually 
about money on the surface, but usually other issues are just out of sight. 

By Lance Woodbury
DTN Farm Business Adviser

   I've recently been listening to the audio version of Daniel Schulman's new 
book, "Sons of Wichita: How the Koch Brothers Became America's Most Powerful 
and Private Dynasty," which chronicles the history, growth, politics and 
especially inter-family conflicts of the Koch family from Wichita, Kan., some 
of whom are owners of one of the largest family businesses in world, Koch 
Industries, Inc.

   No amount of financial success prevents family conflict. In fact, business 
success can be a contributor to family squabbling. While the evidence of 
success -- money -- is a tangible item over which to argue, many family 
business conflicts are actually rooted in things other than money, such as 
decision-making authority, sibling rivalry or inadequate feelings of love, 
respect or inclusion. The money, especially when there is plenty of it, gives 
people an easily quantifiable target on which to focus their attention. 

   But the conflicts over money often represent something else at work in the 
psyche of family members and business partners. In the case of the four Koch 
brothers, who flung lawsuits at one another over several years after two of the 
brothers sold their ownership, Schulman suggests that some of the more 
substantive business decisions around company strategy, shareholder liquidity 
and support of charitable (chiefly political) causes were made without key 
shareholder participation. A family pattern of disagreement may have been set 
in childhood: The Koch brothers' father would force his twin sons David and 
Bill to resolve disputes by fighting each other in boxing gloves until they 
were exhausted.

   Effective decision-making in a family-owned enterprise honors the balance 
between individual autonomy and group process. It recognizes both the 
independent thoughts of each person as well as the way that independent people 
come together to discuss their different ideas and concerns. In this column I'd 
like to introduce a decision-making process that, if followed, tends to produce 
less conflict. Conversely, when there is family business trouble, I can usually 
find a point in the process that was missed and thus became a jumping-off point 
for family wrangling.

   PHASE ONE: ENCOURAGE INDIVIDUAL REFLECTION

   Any decision-making process usually starts with the parties involved 
reflecting on the choice at hand. Some people simply think about the issues 
they face. Others might write down their thoughts. The point is, we each go 
through some sort of process where we analyze the issues, think about pros and 
cons, shape our opinions and form our position. 

   Consider, for example, the decision to purchase new tractor. You might 
reflect on your current equipment fleet, your plans for growth or expansion, 
the cost of a new tractor versus the likely repairs and maintenance of your 
current tractor, the current agriculture economy, and the demand for new and 
the market for used equipment. 

   PHASE TWO: CULTIVATE MUTUAL EDUCATION

   In a family business, the next step in the process involves educating your 
business partners, and having them educate you, about the considerations that 
inform everyone's thinking. It is where you turn individual perspective, what I 
call "I knowledge," into a group perspective, or "we knowledge." It is the 
chance to get on the same page about how you see the problem or challenges you 
are facing.

   This is a critical step that many family businesses take for granted. 
Because family members often feel like they know each other well, fully 
explaining one's thinking can seem inefficient and time-consuming. We make 
assumptions about how our parents, siblings, cousins or adult children will 
feel about our decisions. We presume they will see the logic in our thinking. 
We believe they will grasp the purity of our intentions. Unfortunately, those 
assumptions and beliefs often turn out to be wrong.

   In the tractor example mentioned earlier, if one family member decides to 
make a $300,000 purchase without consulting other owners, conflicts can quickly 
emerge. Who gave that family member the right to commit the family's capital? 
What other business priorities should have been considered? If the business is 
owned jointly, does anyone else's opinion matter? Alternatively, surfacing each 
owner's perspective, or developing "we knowledge," might have prevented those 
difficult and conflict-oriented questions from arising. 

   PHASE THREE: PARTICIPATE IN JOINT PLANNING

   Once participants in the decision-making process have a chance to share 
their opinions and arrive at some consensus about the challenge they face 
(which can take a long time and several rounds of discussion if the issue is 
significant), they can begin to strategize together, in effect creating a 
jointly-defined game plan for how they will move forward. 

   Back to the tractor example, this might involve planning for how best to use 
a trade-in, determining the timing of the transaction, developing a negotiation 
strategy with the dealer, how the purchase might be leveraged into a multiple 
unit discount (MUD), how the transaction might be financed or whether it is 
leased or purchased. In this phase of the process, having business partners 
participate in the discussion helps everyone understand the implications of the 
plan.

   PHASE FOUR: EXECUTE THE PLAN

   This phase simply involves implementing the decision and strategy developed 
in the prior two stages. If family business partners have done a good job with 
phases two and three, the implementation should be uneventful from a 
perspective of family dynamics. But if your partners don't know about the 
conclusion, or didn't have a part in developing the plan, there is some 
likelihood conflict will emerge. 

   After the decision is made and the plan is executed, the process will begin 
again. People will reflect on how it is working out, and if following the 
process, will take time to educate one another about their feelings and 
perspectives. Then they will plan for the next round of implementation. 

   Working through each of the four phases of group decision-making will not 
eliminate disagreements, as there will always be differences of opinion. But 
giving your family business partners a chance to fully participate in the 
decision-making process on key business issues increases the odds that those 
determinations won't become fodder for the kind of significant conflict that 
can destroy family relationships. 

   Koch Industries, Inc. is extremely successful from a financial perspective, 
but it has apparently come with no small amount of relational toil and 
emotional pain. How will you define success in your family business?

   Editor's Note: Lance Woodbury writes for both DTN and our sister 
publication, The Progressive Farmer. He is a Garden City, Kan., author, 
consultant and professional mediator specializing in agriculture and 
closely-held businesses. Over his two-decade career, he has guided many 
families through inter-generational farm transfers as well as mentored 
successors. Email questions for this column to lance@lancewoodbury.com. 


(MT\SK)

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