10 May 2018
By Wright, Johnston & Mackenzie LLP Partner Liam Entwistle
Imagine this scenario - An Employer has a Sales Manager who is about to leave his employment and set up on their own, taking business and employees with them. Normally an employment lawyer would consider the relevant employment legislation, and give advice through the lens of their specialism.
Perhaps they need an Injunction? If this is a Family Business, normal rules won’t apply. Say the Sales Manager is the cousin of the owner and a Shareholder? Actually, the real question is why the second generation are thinking of setting up on their own, to the detriment of the Family Business. Advisers must understand where each part of the Family Business is now and will go over time. This will allow them to identify the different interests and needs that are competing, causing employment problems.
The Tagiuri & Davis Family Business ‘Three Circle Model’(1) allows advisers to identify the self-interests contained in Family Business systems. The model shows the Family Business made up of three independent, overlapping sub-systems – ownership, management and family.
Anyone within a Family Business can be put in one of the seven segments created by the intersection of the subsystems. This allows advisers to explain and predict the motivations of those individuals, and understands what individuals fear, expect and need. The cousin who may leave the business and take employees and customers may already be a minority shareholder in the business, placing him in the family/owner/business sector. If they are uncertain about the future – ownership, promotion – one can see why they want to leave, with ‘assets’. Addressing ownership and succession issues has a better chance of preserving the family and the business, rather than seeking injunctions.
When an Adviser is faced with a conflict in a Family Business, the first thing they should do is to gather information about the Family Business and everyone in it. Advisers must remember that succession issues are not as important in non-family businesses. Being able to spot family dynamic problems when faced with what appears to be a straightforward employment issue will help to ensure that when employment advice is given it will be a real solution.
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1) [Tagiuri R and Davis JA (1982) Bivalent Attributes of a family firm; Family Business Review; Vol 1 X2 PP199-208].