Last week I had the privilege of presenting a panel discussion with Justice Elizabeth H. Emerson and my Farrell Fritz colleague, Matthew Donovan, at the Annual Conference of the Greater New York Chapter of the Association for Conflict Resolution, held at The Cardozo School of Law. The title of our presentation: Every Unhappy Family Business Is Unhappy In Its Own Way.

Aficionados of 19th century Russian literature will no doubt recognize our title as being not-so-subtly cribbed from the famous first line of Tolstoy’s Anna Karenina. Literary irreverence aside, the title unfortunately is fitting, at least with respect to the unique characteristics and problems associated with the family businesses that I deal with in my business-divorce practice.

The distinctiveness of family businesses, as well as the distinctiveness of the disputes that arise within them, derive in large part from a fundamental, inherent conflict that lies within each family business owner – namely, the conflict of whether to allow one’s obligations to the family or to the business to take priority (and under what circumstances).  This inherent conflict, for example, can cause family-business owners to bring their family-related “baggage” to work and disrupt the corporate structure; to neglect critical corporate formalities and fail to make for themselves a sufficient record of ownership and key corporate transactions; and to discount the importance of arm’s-length negotiation and fail to procure for themselves essential contractual protections.   

Our audience included an interesting mix of lawyers and non-lawyers who work primarily in the field of alternative dispute resolution, hence our discussion focused less on the mechanics and legal framework of business divorce litigation and more on how the professionals involved at various stages — lawyers, mediators, accountants, judges — can guide family business owners toward amicable resolution of family conflict or avoid such conflict before it happens. Many in our audience offered their own insights based on their mediation experiences both in commercial and non-commercial family dispute resolution.     

Our panel discussion echoed many of these themes and offered experiential insights into this fascinating field during Thursday’s program. Some of the highlights included:

• Justice Emerson’s observations that family business disputes often have less to do with the legal issues being litigated before her than with the familial hang-ups that plague the parties’ history, and that getting to the true source or sources of the dispute goes a long way toward resolving it;
• Matt’s historical anecdotes and statistical data on the prominence of the family-owned business in our economy and the failure rate of family-owned businesses over successive generations;  
• My observations that mediation lends itself better than litigation to a more inclusive approach to issue identification and resolution, such as when inheritance issues cloud the immediate dispute between sibling co-owners of the family business.

For those who’d like to learn more, Matt prepared an informative outline for the program, available here.