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Several weeks ago, I met with two key members of the management team of a second generation family-owned and operated sporting goods business. Each of the two individuals were the sons of the founder of the family business and owned a significant, but non-controlling, shareholding interest in the family business.

The issue that dominated the discussion at the meeting was a proposal by one of the brothers to expand the business beyond its traditional focus to include both the sale of sporting goods and equipment, as well as the sale of casual apparel to be worn by customers in their sports and general leisure time activity.

The proposal had generated considerable discussion, debate and friction between the two brothers, as well as among other family members allied with one brother or the other. Those favoring the proposal considered it to be a long overdue expansion of the business model into one that allowed for a broader revenue base. Those opposing the proposal feared that the business’s foray into the combined sporting goods/apparel business would take the “neighborhood family sporting goods stores” and place them in direct competition with major discount retailing chains like Sports Chalet and Big 5. The discussions had become very contentious. Certain family members were calling for arbitration and one key family member threatened litigation.

Arbitration and litigation are nearly identical processes these days. Neither is designed to address the nuances of the relationships among members of a family who own and operate a business. Taking a family member to arbitration or court over a family business issue is almost guaranteed to inflame the issue, irreparably damage family relations and threaten the stability and future viability of the family business.

I was brought in by referral to meet with the brothers and a representative of their respective “camps”. The meeting and discussion were intended to surface some of the current, as well as historical, roots of the conflicts between the two opposing groups, and to assist each camp in considering various alternative methods for managing the conflict and resolving the dispute.

Though a number of dispute resolution mechanisms were considered, the two that generated the greatest appeal were as follows:
  • Traditional Mediation Format in which one or more mediators would play the primary role in attempting to facilitate an “at-the-table” set of negotiations between representatives of the two opposing camps. While often very effective, under the current circumstances, mediation formatted in this manner (i.e., with only two representatives of each of the opposing groups of thought) is not necessarily designed to allow for an open, honest and inclusive airing of the concerns of all family members, most or many of whom might be interested in participating in a free flow of ideas about the perceived strength, weaknesses, opportunities and threats posed by the competing business models. 
  • Family Business Forum that places the family members from opposing schools of thought at the “center” of a discussion based on an agenda prepared by a mediator/facilitator and agreed upon by the family members in advance. Under this model, the mediator/facilitator (in this case, me, and sometimes an additional co-facilitator, e.g., my organizational psychologist partner in our family business consulting practice) take more of a “back seat” role, in which we listen and periodically interject ourselves into the discussion where it appears that a misunderstanding of positions has occurred, or where certain alternatives that might have been considered, have not been.

The ultimate objectives of both of the above approaches is to (i) clarify opposing positions; (ii) make available to the participants expert information about current trends in the industry category, and whether diversification of the original business model might lead to a strengthening or weakening of the family business’s position in the relevant market place; (iii) find and reinforce points of agreement between the two “camps”; (iv) openly and earnestly negotiate points of disagreement; and (v) ultimately come to a set of agreements that are memorialized in an amended strategic plan or other form of written agreement.

The two groups of family members involved in the dispute selected the Family Business Forum approach and have asked for co-facilitators. The agenda is being prepared and the forum is in the process of being scheduled.

 

Joel Fishman has worked almost four decades as a business lawyer and mediator of business disputes. Representing large, middle market, and entrepreneurial businesses in a broad range of industries including entertainment, communications, new media, and technology, Fishman represents clients in the formation, financing, operation, and expansion of businesses, as well as with the leasing, purchase, development, financing, and sale of all types of real estate. Fishman is active in the Southern California community, and he frequently writes for the Los Angeles Daily Journal on mediation as well as corporate and real estate legal topics.