Jon Lang, The Times Online, 26 May 2011.
Relatives in dispute over their family firm can find innovative and workable solutions without going to court
The feud between Gordon Ramsay and his wife’s family took another unlikely twist this month when his mother-in-law, brother-in-law and nephew all announced their intention to sue him at an employment tribunal for wrongful dismissal. Strip away the celebrity varnish and Gordon Ramsay Holdings is merely going through what scores of family businesses go through each year: a collapse into a heap of mutual recriminations.
It is often said that commercial disputes are always about money, but never only about money. There is always something else going on, causing the parties to take the absolute and extreme (and inconsistent) positions they have. And this is no more so than when tensions arise in family businesses. It seems that the closer the relationship between parties, the greater the level of trust and attachment, the more extreme the behaviour when things go wrong. There is also a desire to punish, and to use the courts to do so to the exclusion of any alternative.
A recent report by Pricewaterhouse Coopers (PwC) based on its Family Business Survey 2010/2011 looks at how family businesses are dealing with the economic downturn and its challenges. It found that the “percentage of family firms experiencing tension has increased significantly during the past three years”. Arguments within family businesses are on the increase yet, as PwC report, fewer than a third of all businesses surveyed have any procedures for dealing with disputes between family members.
Which family members are permitted to work in the business is one source of friction – there may be agreements going back generations imposing restrictions. Other triggers include performance issues, information dissemination and, importantly, division of profits between salary/bonuses for those family shareholders employed in the business on the one hand, and the payment of dividends (i.e. proprietorial reward) to all shareholders, (including those not employed in the business), on the other. If working family members pay themselves huge bonuses, there isn’t going to be much left for distribution by way of dividends!
Family business disputes, if not brought under control, will often end up before the courts as minority shareholder actions. Those with a minority stake will argue that they have been treated unfairly by those controlling the company, and ultimately the court will have to decide who buys who out, and on what terms. What makes these types of disputes so damaging is that the business must continue to run while its owners are at war. Sometimes there is such bad feeling that the alleged “oppressed” minority shareholders (whose source of complaint may go back generations), decide that the only way of getting the attention of those in control of the business (and who arguably have more to lose) is to adopt something of a scorched earth strategy.