Resolving conflict

in a growing business

Resolving conflict in a growing business

Growth leads to change, and change can lead to conflict. But when handled right, disagreements between shareholders, founders and senior leadership teams can be resolved and may even lead to positive outcomes.

Emma Gibson, Corporate Deals & Structuring

Conflict is a strong word, particularly within business. But it’s natural; just as lions fight to defend their pack, humans fight to defend what they believe to be the way forward to success.

There’s no textbook example when it comes to growing a business. As it transitions from a start-up to whatever its aspirational end point is – be that a sale, listing or move to next generational ownership – some form of conflict is bound to happen. With growth comes change, and change can be difficult for people to handle.

People are the crucial ingredient to conflict. Often in business, issues arise between shareholders, founders, and the leadership teams appointed by them. But people are also the ones who can resolve conflicts, leading through the tough times to emerge in the throes of innovation and personal development. Where does conflict often occur, and how can it be handled correctly?

Founders versus senior management

In most new businesses, it can take time to find the ‘right’ senior leadership team, which can lead to bumps along the way. It requires careful thought and a rigorous application process to hire the right people for your business.

Conflicts between business owners and senior management can be ‘negotiated’, but in a lot of instances the power tends to be in the hands of the owners rather than being a negotiation between equals. One solution is to bring in a non-exec to work with the management team, although finding the right person is crucial. Both the owners and the senior leaders need to trust them.

Sometimes, it can be just a case of a mismatched expectations. I have regularly heard complaints from management who say that they were brought in to run the business and that the owners keep undermining them. Similarly, founders may feel that the management they’ve brought in are not delivering what is needed. Thoughtful communication may, in this case, be sufficient to recalibrate the relationship and achieve positive changes.

But other times, it might be that the management are just the wrong fit altogether and the most effective remedy is to dismiss them.

In these circumstances, swift action is required – as conflict, a disincentivised management team and a toxic atmosphere will eventually impact the success of the business. The ripple effect of doing this needs to be carefully thought through as it can unsettle not only other members of senior management but also those juniors working with them.

Of course, there are two sides to each coin in a situation like this. It’s not always the leadership team who are at ‘fault.’ Sometimes, founders need to look in the mirror and ask themselves: Am I being fair? Am I reluctant to let go of the reins and trust someone else with something that means so very much to me?

Clashing horns between co-founders

Even more difficult to deal with, and perhaps even more common, are disagreements between co-founders.

At the earlier stages, most companies don’t yet have a shareholder’s agreement that sets out who, what, and how a business is to be run. Most companies founded with multiple shareholders tend to have ‘equal’ shareholdings and as a result, in scenarios of true conflict, have created a deadlock situation.

As a result, tensions arise, just as they do in any close relationship. Such tensions are not necessarily a bad thing as it gives founders a key opportunity to establish their roles and understand each other’s strengths and weaknesses in ways they may not have previously experienced.

After 25 years of working with businesses, I’ve certainly seen several of these situations play out.

Recently, I was asked for advice by a founder who was no longer even speaking to their co-founder. We discovered that there was nothing that could be done legally to govern the situation due to the absence of a shareholder’s agreement.

The Companies Act does not cover shareholder disputes, and a typical set of early stage company articles of association similarly don’t cover the point.

Most companies founded with multiple shareholders tend to have ‘equal’ shareholdings and as a result, in scenarios of true conflict, have created a deadlock situation.

Communication is key

In this case, the only way forward was mediation – a bit like marriage counselling. We worked through their issues and suggested a framework for resolution. Incidentally, I’ve found over the years that very rarely is anyone actually blameless in these types of situations.

The real key to resolving this issue was talking. They kept communication channels open, and when they were unable to resolve it themselves, they sought help from outside sources. Afterall, often you can’t see the wood for the trees when you are in the heat of the situation.

Resolution came when all sides acknowledged that they couldn’t ‘do it all’; and therefore, each person had to let go of some aspects and learn to trust each other. The co-founders ultimately still valued each other, and both wanted to stay involved in the business – they just hadn’t talked about how they were going to run things going forward while it was growing.

A harder case is where the relationship has broken down altogether. At this point, very regularly, the solution is for someone to exit – either fully, or at the very least as an executive director – and accept that the other is going to run the show.

Whether they maintain an equity interest at this point also needs to be discussed. This is a very difficult situation to manage and usually ends up requiring an injection of cash to buy the other out, or for one party to accept defeat. The absolute worst case is where even this can’t be achieved, and the business needs to be wound up or dies as a result. In those circumstances where co-founders are ‘family’, the situation really does call for an impartial arbitrator.

Of course, it’s best to avoid the worst-case scenarios and prepare for any conflict that may arise. These are very stressful situations and I would wholeheartedly recommend asking for help to negotiate well before the relationship sours to this kind of extent.

Make the right precautions

I would urge all businesses to draft a shareholder’s agreement when everyone is amicable.

Work through the potential stress point early, identify roles at the outset and agree what needs to happen if agreement cannot be reached. Make these decisions as partners, or even friends, and it’ll help you to look forward and visualise how you may deal with things if or when they come up.

The sign of a perfect shareholders agreement is when it gets drafted (argued about and sulked over) and then put in a drawer and never looked at again. If it’s done when a conflict has already arisen, it’s often too late.