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Murray Beith Murray is a leading Scottish private client law firm.

For over 170 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.

6 minutes reading time (1255 words)

The Scotsman: Plan ahead and avoid family business disputes ruining the brand

peterPeter Shand, Murray Beith Murray Partner and experienced family business lawyer, speaks in The Scotsman’s business magazine, Vision, this month (published 26 March 2020).

To avoid an out-of-the-blue ‘Harry and Meghan’ moment, family businesses are strongly advised to make provision for such surprises well in advance, writes Sandra Dick.

It’s known as “The Firm”, one of the oldest and best-known family dynasties. And when something happens that’s as cataclysmic as a key member deciding to sever ties and set up what some may consider to be a branch office across the Atlantic, there are bound to be ramifications, headlines, upset and conjecture.

Which is precisely what happened when Harry, the Duke of Sussex, and his wife, Meghan, revealed – seemingly out of the Royal blue – their plans to disengage from their roles as senior members of The Firm and strike out alone.

Their decision to become independent of the House of Windsor and to earn their own income led to urgent talks aimed at smoothing over what threatened to be a tidal wave of bad publicity and easing the emotional upset and potentially serious damage to ‘the brand’.

While all seems to have ended amicably enough, the issue still made international headlines and rocked the monarchy. So, is there anything this right royal bust-up could possibly teach Scotland’s family businesses?

According to Peter Shand, a partner at Edinburgh-based private client law firm Murray Beith Murray, there are parallels between the Duke and Duchess’s departure from The Firm and behind-the-scenes movements in family-led businesses right across the country.

He points out that they, too, face similar issues as members opt to move on, look to secure a greater – or lesser – involvement in how things are run, seek better remuneration for their efforts, or look to involve in-laws and children in the family business.

Often, he says, it’s the arrival of a spouse – such as was the case for the newly-wed Prince Harry – that brings deep-rooted issues to the surface. “In-laws coming into a family business can be a major trigger for change,” he says. “In some cases, they will see things from a different perspective. They may be influential in creating disruption.

“Whereas family members will accept quite a lot of unhappiness before disturbing the family etiquette, a spouse is not as restricted by bloodlines. Meghan’s arrival in the family business may have meant she saw things from a different perspective and that may have led to conflict and tension.”

Of course, no-one can really know what went on behind closed palace doors. However, the royal couple’s announcement that they wanted to extract themselves from traditional royal roles and gain financial independence certainly created a panicked response from Buckingham Palace.

Within days a meeting had been organised, the issues thrashed out and a settlement reached. And while on the one hand, the Palace’s speedy response in the face of a mounting crisis was to be admired, experts who deal with family businesses, succession planning and mediation may well suggest that it could have been avoided had plans been laid down well in advance to tackle just such a departure.

“Sometimes tensions can be left to breed and multiply, and over years they can build up. The royal family was forced to tackle this issue very promptly because of the public scrutiny,” notes Shand.

“But for non-royal family businesses, there’s not the same public scrutiny. A family can often tolerate a significant amount of unhappiness for quite some time without addressing it.

“Often they don’t come to mediation and don’t ask questions about long-term strategy, ownership, employment of family members and so on until some trigger comes along and they are forced to tackle them.”

Leaving issues to fester can have implications on the business as well as individuals’ emotions and stress levels, he adds.

“Businesses that fail to address these problems may come to an end, or eventually end up not being passed on to the next generation – it may be that the business will be sold at under its value because the owners feel forced into it by a difficult situation. Businesses may fail to be as profitable as they should be because they’ve not dealt with family issues.

“You can’t measure the emotional impact in the same way, but you do see families that are in a difficult or impossible work-life situation.”

While the Sussexes’ request seemed relatively simple – to leave behind their role as senior royals and make their own, independent living – it was, of course, highly complex and raised questions not just of what happens in the immediate future, but also much further down the line when it comes to inheritance. And there are similar issues for family businesses, Shand adds. “Sometimes there may be two children in a business, one wants to be involved and the other wants to plough their own furrow.

“Should both be rewarded evenly? Should assets pass to one sibling, or to both?

“The royal family was traditionally driven by primogeniture, where the firstborn son takes over. That’s not dissimilar to some business families in Scotland and particularly the farming community.

“But should it instead be about rewarding those who put in the most work?

“That raises a sense of entitlement, that the business is a family asset, and even though someone doesn’t work in it, they may feel entitled to benefit from it. That can lead to rifts and conflicts, especially where one feels because of their efforts they deserve more than an equal share.”

Solutions can come from mediation chaired by a neutral party such as a lawyer used to dealing with issues affecting family businesses – and Murray Beith Murray has more than 170 years’ experience of precisely that. “No-one wants to be in conflict,” says Shand. “And it’s likely that mediation will bring out some of the emotions.

“But the definition of mediation is to help parties to negotiate and resolve disputes. The mediator’s job is to help parties work out their own solutions, not to judge or decide things for them.”

One way of prompting entrenched parties to compromise is to ask them to consider the implications of not reaching a mutually acceptable agreement – the fear of potentially losing everything can focus minds.

“In some larger family businesses a family council may be established,” he continues. “There’ll be a chair of the board and a constitution that spells out how it runs and how decisions are made.

“It depends on everyone signing up to it and then sticking to the rules, and it can lay down who can own shares and what happens if someone wants to leave.”

While the royal drama may appear resolved, the lesson to Scottish family businesses is to make sure situations don’t spiral out of control, to develop a succession plan and to make use of the benefits mediation can bring.

“Mediation is all about conflict resolution, helping people to communicate what they are feeling in a more effective way,” Peter concludes. “The mediator’s job is to help parties work out their own solutions.”

Family Business Lawyers, Edinburgh

Peter Shand is an experienced family business lawyer and authoritative voice on delivering bespoke and integrated advice to business families. If this article has raised any questions or you would like to talk about a family business issue then please get in touch using the enquiry form or call on 0131 225 1200 .

Find out more about Murray Beith Murray and read our most recent family business Insight blogs here.

 

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