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November 26, 2013updated 11 Jan 2016 5:46pm

How do family businesses survive betrayal?

By Spear's


The spirit and attachments that make a family business great can also be the very things that cause its downfall. Giulia Cambieri looks at how familiarity breeds contempt

If Peter Thornton had to describe his time at his family’s confectionary firm as one of their products, he’d probably say it was a bitter chocolate with a hard centre. A member of that family’s third generation, Peter was chairman of Thorntons but came back from a holiday to find his fellow directors — all family members — had put him in a position where he had to resign. With their majority control of the shares, he had no choice but to leave.

‘It was a wonderful business and I had a very rewarding job. The constant conflict was the only problem,’ he says. He had wanted to bring in non-family directors and some specialist advisers, but his family opposed the idea.

Read more on family business from Spear’s

He should probably be glad he was only ousted — other family conflicts have taken a bloody turn. Gurdeep Singh Chadha, called Ponty, and his brother Hardeep were second-generation co-owners of Wave, a conglomerate based in India with interests ranging from sugar mills to drinks and real estate. They both died in a shootout in 2012, reportedly over a dispute regarding the family’s assets.

The stakes in any business are high, but family firms tend to live everything in an exaggerated, often overdramatic way. ‘Family businesses are always emotional,’ says Ken McCracken, co-founder and managing director of Withers Consulting Group. ‘They’re in for an emotional return of the investment, not just for a financial return, and that’s what makes them strong.’

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The downside, however, is that conflicts, disappointments and betrayals are likely to be more intense. JoAnne Norton, from the Family Business Consulting Group, agrees: ‘Breaking a promise in a family business — whether it’s explicit or implicit — can bring bigger troubles.’ These are bonds of blood which are broken.

So what happens when this loyalty breaks down? Can this type of business and the families behind it survive a betrayal? According to family business consultant Peter Leach they are better equipped to do so than other companies. ‘They can use time as a healer — an incentive and a privilege people involved in non-family betrayals don’t have,’ he says. ‘Families have the capability of being more resilient and of coming back from the brink.’

Depending on how serious the betrayal is, the family members involved will tend to react in three different ways: they may want to make up, they may need to make up or they may want to walk away. As Leach suggests, most of the time they will try to make things work because it’s in everybody’s best interests. ‘If the shares in the family business are held in a trust, for example, it may be difficult for some of them to leave the company,’ says Ken McCracken. ‘Or you need to be ready to deal with
the consequences.’

Read more on business disputes from Spear’s

Fortunately, he adds, you don’t necessarily need to be best friends — it’s about being able to have a good enough relationship that ensures the business can operate. ‘Families that are in business together have to be able to function as responsible owners in order for the business to have access to capital,’ he says. ‘Even if you can’t speak to each other, you can still be co-owner of the business.’

If they do decide to walk away, there are positive precedents. Many successful companies were started as spin-offs of family businesses — think of Adidas and Puma, which were established when brothers Adolf and Rudolf Dassler, who were working at their family shoe business, decided to split up after the Second World War. More recently, Wallace McCain took over Maple Leaf Foods after being forced out of the management of his family’s business, McCain Foods. (Interestingly, both the Dassler brothers and McCain passed their respective companies to their children.)

Ties that bind

The final option — making up — is not just healthy for that generation of the family. ‘In psychology, a hurt is known to potentially affect three generations,’ says JoAnne Norton. If the children of two family members drink poison at the dinner table every night, chances are the grandchildren are going to hate each other. She reckons, however, that it takes an emotionally mature person to understand this and that often it is useful to bring in an independent adviser and to consider writing a family constitution or a set of rules that make it clear what it is expected from every family member.

There are situations, however, where one or both family members involved in the feud may be better off leaving the family business. When somebody crosses the ethical line — for example, sleeping with their sibling’s spouse or stealing money from the family — there may not be much left to be saved and one or both of the parties involved should leave the family business. In Managing Conflict in the Family Business, Kent Rhodes and David Lansky argue that when family members feel contempt towards each other, an exit is also the best option. ‘You need to make sure this happens at the least emotional and financial cost,’ adds McCracken.

Peter Thornton wanted to avoid an emotional breach that endured and never thought of taking revenge, he says: ‘It’s a very stupid thing to do. It never leads to a solution but brings you into further and further mess.’

Instead, you should take a break and then put your energies into something else. ‘Allow your mind to go for a while. The mind is an amazing thing and will find the answer without you forcing it.’ It can also arrive many years later, if Thornton’s experience is anything to go by: he has recently launched a new company, Dermatuff, that manufactures socks to prevent skin tears.

Thornton seems to have had the happiest resolution possible. As JoAnne Norton says, ‘You can always start a new business, but you can’t get a new family.’


Sumner Redstone, patriarch of the dynasty that owns CBS and Viacom, originally agreed that his daughter Shari could take over from him, but he prompted a feud when he changed his mind. For a while, the pair only spoke through their lawyers and faxes.

Gina Rinehart, the world’s fifth-wealthiest woman, whose fortune comes from mining, was accused by three of her four children of having abused her role as the only trustee of the family trust. She says they are ‘manifestly unsuited’ to managing it.

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