Chapter 4

Anatomy of Conflict Management

History has shown us that many family businesses can last for many generations. For example, in Indonesia, many family businesses have lasted for almost a century. Their leaders possess the strong entrepreneurial spirit that makes them resilient and able to cope with many challenges. Take the herb industry, for example. Many herb companies in Indonesia started their business from a small home industry. At the beginning, they practiced traditional management and used traditional technology. However, as time went by, they were able to combine the ancient philosophy of herbs and medicine with modern science and technology. In anticipating changes in consumer preference, they develop research-based products, supported with money, facility, and professional manpower. Many of these herb companies are owned by Indonesian Chinese.

The existence of family businesses is often threatened by internal instead of external factors, such as bitter family conflict. Bitter family conflict causes disruption to the company’s activities, decreasing performance and causing lower employee morale, physical and mental fatigue, divided attention, and a loss in synergy.

The Story of Nyonya Meneer

Conflict at Nyonya Meneer, one of the biggest herb companies in Indonesia, is widely known. Charles Saerang, the current president director and a third-generation Nyonya Meneer family member, has to deal with three conflicts.

Nyonya Meneer started her herb business to support her family after her husband passed away. The company expanded rapidly and Nyonya Meneer involved her children to help run the company. She passed away in 1978 at the age of 83.

Nyonya Meneer had five children, Nonie, Hans Ramana, Lucie, Marie, and Hans Pangemanan. The three conflicts began soon after the passing of the company’s founder, Nynya Meneer. Two years earlier, Hans Ramana, Charles’s father, who was expected to take over the business, died of cancer. Charles, who had just come back to Indonesia after finishing his studies abroad, and without any experience in managing the family business, had to deal with his uncle and aunt, who had children older than he. However, his uncle and aunt still trusted him, and after he asked to represent his father’s family and to be given a chance, he began handling the marketing department.

Thanks to his marketing programs, by the mid-1980s Nyonya Meneer’s market share, sales, and profits were at record highs. However, not all members of the family were happy. The costs of running advertising campaigns drew heavy criticism from some parts of the family. During this period two clear sides emerged. Hans Pangemanan as president director and Nonie Saerang as commissioner approved Charles’s marketing campaigns, while Marie and Lucie as the other commissioners disapproved the expenditure and wanted a more active role in the management of the company. Charles and Hans Pangemanan secretly met with Sudomo, the Minister of Manpower at that time, and told him of the management problems in the company and that the only way to fix them would be if he would step in. Sudomo agreed to mediate with the shareholders.

After months of mediation, a compromise was reached. Hans Pangemanan would stay as president director, and Marie’s son, Fitzimons Kalalo, would be appointed his deputy. Unfortunately, Hans and Fitzimons Kalalo could not agree on anything and the conflict between the two groups deepened. Decisions were made by both directors that contradicted each other, and thousands of the company’s employees were forced to choose a side. On January 1985, a fight broke out between an employee loyal to Fitzimons and the head of Security, who was loyal to Hans. The long and bitter conflict had seriously affected the company’s production, and 1,300 employees were laid off. On November 28, 1985, Sudomo organized a mediation meeting between the two groups in Jakarta. The differences in management were too great and the only solution was for one party to buy out the other party. Marie and Lucie agreed to sell their 40 percent block of shares to Hans, Nonie, and Charles. According to the agreement at that time, Hans would stay on as the company’s president director, Charles as the marketing director, and Nonie as commissioner.

As the president director since 1985, Hans led the company in a manner similar to his mother. This included living in Semarang, developing strong ties with all the workers, and keeping control of every aspect of the company. He preferred stability to growth, and this led to constant differences of opinion with his nephew. Charles was convinced that in order for the company to thrive in the new millennium they would have to have a reorganization of the management structure.

During the annual shareholders meeting in December 1989, Charles was appointed president director of Nyonya Meneer. For the next ten months, Charles completely restructured and streamlined the executive management and human resources department management. Job descriptions were made transparent. Hans informed Charles that his appointment as president director the previous December was illegal and Hans would resume operational control of the company.

In October 1990, Hans brought evidence that there was a procedural error in the signing of the president director appointment. He claimed that as Gwyneth, Charles’s sister, had taken Australian citizenship, she was forbidden to vote. Charles knew it didn’t matter if one of the commissioners was a foreign national or not. Angrily, he called for an extraordinary meeting of the shareholders to resolve this issue once and for all. The meeting was held in Jakarta on December 14, 1990. Both sides were unwilling to compromise and Charles decided to leave the meeting. After an hour, all sides reconvened in the conference room. Nonie declared that all of Hans’s duties would be immediately suspended and temporarily assigned to the president commissioner. The initial reason for Hans’ suspension was that he failed to report the company’s financial statement to the Board of Commissioners during his entire tenure as president director from 1984 to 1989. Hans rejected the decision and threatened to tell the story of the turmoil at Nyonya Meneer. Because of the deadlock, the meeting would reconvene one month later to decide Hans’s fate.

On January 12, 1991, the meeting was reassembled in the Sahid Jaya Hotel in Jakarta. The main reason for this meeting would be for Hans to explain why he did not report any financial statements during his tenure, but Hans refused to attend. He claimed that on the invitation he was listed as a shareholder and not as the suspended president director.

The remaining shareholders decided that this had gone far enough. They had shown goodwill giving Hans a chance to defend himself and were rebuffed. They decided unanimously that Hans Pangemanan was dismissed as president director effective December 14, 1990. Charles was appointed as the new president director; Nonie resigned from the board of commissioners. Vera Saerang, Charles’s mother, and Nonie’s husband, Oka, would be appointed the new commissioners.

As expected, Hans rejected this decision. He argued that he was not given the opportunity to defend himself. Three days after the vote to dismiss him, he sued the six shareholders (his sister, his sister-in-law, and four nephews) in Semarang Court on January 15, 1991. He demanded the January 12, 1991, meeting be declared illegal, confiscation of all properties and land owned by the company, and damages in the amount of 5 billion rupiahs (about US$2.5 million at the time).

While the court was processing these accusations, Nyonya Meneer continued to have two president directors, and neither of them would give up their positions. Hans refused to vacate the office of the president director, seized corporate and shareholder documents, and continued to use letterhead and sign agreements as president director. Hans’s sons, Finance Director Power Pangemanan and the head of the Delivery Bureau, Linky Pangemanan, refused to follow any instructions issued by Charles and claimed loyalty to their father as president director. Charles tried to reclaim his position as president director by trying to win support from the mayor of Semarang and the chief justice of Semarang’s civil court.

Worrying about the potential devastating impact this conflict could have on the company’s employees, the mayor of Semarang at the time, Soetrisno Soeharto, initiated a meeting of both parties in his official residence. Five agreements were made during that meeting. First, the president director’s office would be left vacant until there was a decision from the court. Second, the president director’s office would be locked and guarded by the police. Third, Hans and Charles would temporarily accept the position of vice president. Fourth, their job descriptions would be determined later in the next meeting. And fifth, the mayor would explain the current situation to all of the company’s employees.

On August 15, 1991, the judge handed down the verdict. The case of Hans was considered legally weak and was thrown out. Charles was to resume his role as president director effective immediately. Hans immediately filed an appeal with the high court of Central Java. On December 22, 1991, the high court of Central Java upheld the lower court decision. Not giving up, Hans filed an appeal with the Supreme Court and on August 31, 1993, the Supreme Court announced they would not hear the appeal and upheld both previous verdicts. The battle for leadership of Nyonya Meneer was officially over.

Hans sold his shares to Charles and Nonie. The mediation was led by Lucie’s son, John. The parties agreed on a price in less than three months. The share transfer agreement was signed on June 1, 1994. With this agreement, Nyonya Meneer was now legally owned by two of the founder’s heirs: her eldest daughter Nonie and her grandson Charles.

Nonie and her husband, Oka, had six children but only three, Peter, Paul, and Tony, had any involvement in the company. From Charles’s side, his mother Vera, and his sisters, Gwyneth and Fiona, were commissioners. Each side owned 50 percent of the company. In the beginning, both sides worked together to manage and build the company. The problem started when Charles and his mother granted some shares to parties outside of the family. While not against the company’s article of associations, Tony objected to this transfer. In the shareholder meeting on August 12, 1995, a resolution nominating Charles and Gwyneth as directors and Vera, Oka, and Fiona as commissioners was passed. Tony filed a lawsuit against Charles in November 1995 in Semarang. Tony’s claim was that Charles had granted shares to an external party, and he felt that only members of the family should hold them. He also wanted Charles to resign as president director. The judge dismissed the case. Like his uncle Hans, Tony appealed to the high court as well as to the Supreme Court but each time the appeal was dismissed.

After Tony’s case was rejected, Nonie filed suit in the District Court of Central Jakarta with the same case. On June 18, 1997, the court bizarrely reversed its previous decision. In the preliminary decision, the court declared the previous board appointment not in line with the shareholders’ agreement. The judge also pronounced Paul, Tony’s brother, to replace Charles as president director.

Charles was stunned. In celebration of the promotion, on June 21, 1997, Paul placed advertisements in major newspapers announcing Charles was no longer president director of Nyonya Meneer and reminded all business parties not to engage in any transactions with him. Paul also mentioned that Lindawaty Suryadinata, Charles’s wife, was appointed to the Board of Commissioners, causing speculation that there were marital troubles between Charles and Lindawaty.

Charles felt that his reputation was tarnished and that he was slandered in public, and he reported the advertisement to the district police of Central Java. Charles’s lawyer claimed that what Paul did was criminal. Furthermore, by announcing that Charles’s wife was appointed to the Board of Commissioners (without her knowledge or approval), Paul himself violated the company’s article of associations as a change in directors can be approved only in a shareholders meeting.

On July 3, 1997, Paul was summoned to the district police headquarters of Central Java to provide testimony. Paul admitted that he had made a mistake in making the announcement. He was found guilty and spent one week in prison. Newspapers around the country published stories of Paul’s imprisonment and the experience changed him forever. Soon after his release, Nonie announced that she had agreed to sell her shares to Charles. For the first time since the death of the founder, all shares were held by one family. There were three shareholders: Charles, Vera, and Gwyneth.

The Story of Yeo Hiap Seng (YHS)

The story of YHS is summarized from the book titled Wealth Doesn’t Last 3 Generations: How Family Businesses Can Maintain Prosperity, by Jean Lee and Hong Li (2008).

Yeo Hiap Seng Limited (YHS) is an investment holding company as well as a drink manufacturer in Singapore and Malaysia. It is a multinational corporation that has offices and market presence in the United States, Europe, Australia, New Zealand, Maldives, Mauritius, Mongolia, the Pacific Islands, China, Hong Kong, Cambodia, Myanmar, Laos, Vietnam, and Japan. It produces its own Asian drinks and has the license from Pepsico to produce Pepsi, 7-Up, Mountain Dew, Mirinda, and Mug Root Beer. In addition, Yeo’s also exclusively manages other international brands such as Red Bull, Gatorade, Evian, Volvic, Uni-President, Allswell, Hain Celestial, and Erika Dairies. The company has operations in over 60 countries, including Thailand, China, Singapore, Malaysia, and the United States, and franchises in Indonesia and Mauritius.

Established in 1901 in Zhangzhou, Fujian Province, by Yeo Keng Lian (Renliu), YHS traded mainly in the sauce industry. Mr. Yeo had eight children, five boys and three girls. In 1935, Yeo Keng Lian, because of poor health, handed over his factory to his eldest son, Yeo Thian In, who was only 22 years of age at that time. Mr. Yeo made the announcement at the celebration of his 60th birthday.

Thian In first worked as a traveling salesman, selling products manufactured in his sauce factory. His hard work eventually paid off. The sauce factory enjoyed a booming business. Soon, YHS products flooded the market in Zhangzhou. Thian In sent his younger brothers and sisters to colleges in inland China and even to Japan.

Having suffered tremendously from the political turbulence of China at that time, the Yeo brothers decided to leave their hometown and settle down in Singapore. The reason for moving to Singapore was its cultural background and climate. And since most of the Chinese in Singapore came from Fujian, they could communicate with each other freely. The hot weather in Singapore also made it easier for soybeans to ferment. The low price of salt was another favorable condition to develop the business of sauce making. In February 1937, Thian In, together with his wife and children, moved to Singapore. In autumn of the same year, the two younger brothers, Thian Kiew and Thian Seng, arrived in the city. They settled down and soon rented a plot of land at Outram Road to build the YHS sauce factory in Singapore.

After their college education, Thian In’s brothers and sisters joined the family enterprise. YHS started from scratch, and over the a period of time witnessed rapid growth in the business. The brothers modernized their food factory through automation, gaining wide recognition from the public. At the same time, the brothers diversified their business by employing the bottled soymilk patent invented by their nephew, Chen Chee De. With their success in Singapore, they set out to conquer the market in Malaysia, thus starting the YHS business venture abroad. As the business grew, the family also expanded. In 1956, the five brothers signed an agreement dividing the estate of YHS into seven parts, shared among the five brothers, the eldest grandson, Chee Ming, and Chee Kiat. The five brothers are Thian In, Thian Kiew, Thian Seng, Thian Hwa, and Thian Soo.

As stated in the agreement, Thian In was recommended to be the permanent chairman and general manager, Thian Soo the vice chairman, and Chee Kiat the permanent finance director. It was also agreed that the number of directors should be five, but with the provision to add two more in the future. In addition, it was also agreed that three of Thian In’s offspring and one each of Thian Soo’s, Thian Kiew’s, and Thian Hwa’s offspring should be directors (by succession). The offspring of Thian In and Thian Soo, if they are interested in the work of the factory, should be given priority in management positions. Offspring of the Yeo families who have no interest in the work of the factory may find other jobs, but they should never borrow the name of YHS or do anything detrimental to the company. In the agreement, it was also prescribed that the board of directors should draw a certain portion of the company’s earnings to set up a scholarship, providing the Yeo offspring with financial assistance for their college education. Upon their graduation, those offspring funded by the company’s scholarship should be encouraged to work in the company. If they should choose not to work in the company, they would be required to contribute 20 percent of their income to the company for the first four years of employment. It was a well-crafted agreement, setting up guidelines for the division of family property, assignment of position to family members, and cultivation and education of offspring, which indeed greatly promoted the future development of YHS.

The 1960s witnessed a golden period for YHS. As a pioneer of local companies in Singapore that ventured abroad, YHS established a business network covering Malaysia, Hong Kong, and even Europe. Plans for a public listing were made in 1968. In order to prevent the company from falling into the hands of others, the family members decided to establish a holding company jointly controlled by the family. In 1969, YHS was listed and YHS Holding Company held 49 percent of shares of the listed YHS, reinforcing YHS’s strength in the industry. The company took the lead in the beverage and canned-food market when it was given exclusive dealership in the region by Pepsi. In 1971, YHS built a factory in Malaysia. Three years later, YHS (Malaysia) Ltd. was established and in 1975 listed on the Malaysia Stock Exchange. The 1980s was a pivotal period for YHS, during which the company carried on a series of reforms and innovations in strategy, product renovation, operation management, and organizational structure. By so doing, the listed company performed well and enjoyed a leading role in the beverage market.

YHS invested in a lot of scientific research to promote the variety and packaging of beverages. The company developed many popular Asian-style products such as iced tea, sugarcane juice, and blended juice. In addition to its agreement on bottling and distribution with Pepsi, YHS also reached an agreement with Beecham (Production) Singapore Co. Ltd. to package and distribute Ribena to retail stores through the direct sales network of YHS. In 1985, YHS got in touch with Gatorade, a famous American brand, and was licensed the right to produce and distribute 7-Up, its beverage product. Focusing on the food and beverage market, YHS became a leader in the market of non-carbonated soft-drinks in Singapore. It was also one of the leaders in the condiments and canned-food market.

To enhance the growth of products and market, the company signed a software contract for US$1.6 million, aimed at fostering a computer-assisted management environment for manufacturing. In addition, the company introduced a bottling production line with a production capability of 1,000 bottles per minute, making it the fastest production speed in Southeast Asia. As early as the 1970s, YHS introduced packaging technology with plastic bottles for Pepsi and Minolta products, becoming the first in Asia to bottle soft-drinks with pull-tab cans.

In the 1990s, with the third generation of the Yeo family at its helm, problems emerged in YHS. Family members were divided on investment and management decisions. Although decisions in the company had always been made by a majority vote, it became increasingly difficult for family members to come to a consensus. The relationships among family members became increasingly complicated, which adversely affected the management of the company. When the third generation of the Yeo family was at the helm of YHS, Alan Yeo, a son of the eldest brother, Thian In, took the position of chairman and president of YHS Ltd. Some family members were asked to relinquish and resign from their senior and managerial positions in the company, resulting in the breakdown of relationships among family members and a loss of trust and affection that they had cherished since the founding of the company. In 1992, Thian Seng and three other family members were asked to resign. Devastated, Thian Seng’s family decided to sell their shares and rights issue of the holding company. At the same time, Yeo Chee Wei, the son of Thian Kiew, having been removed from his position as executive director, also planned to sell his shares of the company. It was prescribed in the founding charter of the holding company that any withdrawal of shares of the holding company by any family member must be under the consent of other shareholders. Therefore, the holding company made plans to sell the shares at a higher price to the Keppel Group, a company that was interested in acquiring shares of YHS. Part of the fund was to be reserved for the company’s use. However, when it was discovered that the prospective buyer was a third party, the families changed their mind. In the hope of upholding the position of the family as a whole in the holding company, they decided to sell only their shares but not the rights issue, thus bankrupting the share-selling program. The conflict intensified when Alan Yeo, having negotiated with the Keppel Group, communicated with the other families, except two, on the sale price. The management style of Alan Yeo was considered autocratic by other family members, as he made decisions without consulting other directors. On one occasion, he tried to purchase 140,000 shares (4.32 percent) for his son, Timothy Yeo, in the hope of obtaining more than a 50 percent share ownership for absolute control. Alan Yeo’s move greatly disappointed other family members, who felt betrayed by his actions, and the rift between them deepened.

On April 22, 1994, Wing Tai Holding Ltd., a company dealing in real estate and garment manufacturing, proposed to purchase a huge number of ordinary shares of YHS through Citicorp Investment Bank (Singapore). The sum of the shares accounted for 25.5 to 40 percent of the total issued shares of YHS. Alan Yeo, one of the controlling shareholders of YHS, delivered an announcement in his personal capacity through Citicorp to support the purchase of YHS by Wing Tai Holdings.

However, other members of the family, who jointly held 53 percent of the total shares, did not agree with the purchase. Instead, they demanded a buy-back of the 47 percent of YHS shares owned by the three family members, including Alan Yeo’s. In addition, they asked Alan Yeo, chairman of the company, to resign. The opposing side held the opinion that the listed YHS Ltd. should be run by professional managers instead of YHS Holdings. Alan Yeo, in his personal capacity, announced that the three families in support of the purchase would not sell their shares to the other shareholders.

It was the right of shareholders, not others, to decide if he stayed or resigned. In his opinion, the other six families did not share a common understanding and point of view. Under such conditions, the holding company should be dissolved instead of being retained. Only by so doing could each family hold direct shares of YHS and avoid unnecessary dispute in the future. A shareholders’ meeting was held the following day and a decision was made to deny the purchase option as proposed by Wing Tai.

On July 1, 1994, the high court adjudicated YHS Holding Company Private Limited to be dissolved. Based on the understanding that the relationship of trust and dependence among the family members no longer existed, the verdict recognized that decision making by consensus among shareholders in the holding company was impossible. If business decisions were made by vote, it meant that the pattern of a holding company similar to a partnership ended and a new structure was born. Under such circumstances, the dissolution of the holding company was inevitable.

After the dissolution of YHS Holdings, the shares of YHS Ltd. owned by members of the Yeo family were gradually dispersed. Major changes also took place at the management level of YHS Ltd. Among the many family members who left YHS, Alan Yeo, on February 6, 1995, resigned from the board and from all of the positions in the subsidiary companies and allied companies.

Currently, Yeo Hiap Seng Limited is the subsidiary of Far East Organization, the largest private property developer in Singapore, founded by Singaporean billionaire Ng Teng Fong in the 1960s.

The Origins of Conflicts in Overseas Chinese Family Businesses

Conflict in a family business can be defined as a situation in the workplace in which two or more persons or groups in the family have opposing ideas, views, arguments, perceptions, and opinions so that they blame each other. This situation could have negative effects on the business. The origins of conflicts within family businesses vary. We will discuss them here.

Differences Regarding Business Interest and Family Interest

A family business is a combination of two institutions, namely family and business. Each institution has opposing values and goals (Figure 4.1). A family tends to be inward looking and decisions are made mostly based on emotional consideration, and family members accept them almost unconditionally. Sharing among family members is common; they often help and encourage each other. The membership in a family is limitless and almost impossible to be ceased. Family values are deeply embedded and also tend to resist change.

Figure 4.1 Conflict in a family business

On the contrary, a business is more outward looking. The ties between employees and managers are based on the tasks and commitment so that the emotional bond might not exist. Good performance will be rewarded. Those who fail to meet expectations will be terminated or asked to leave the business. While in a family there is resistance to change, in business change, is always necessary so that the company can survive and thrive.

Such opposing values often affect the electiveness of human resource management in the family business. Human resource management consists of policies such as recruitment and selection, compensation, performance evaluation, career development, and training and skill development. However, in a family business, emotional bonds often affect such policies.

In recruitment and selection, family members often feel that they have a right to be part of the business. They ask for a job in the business without considering their competence, and argue that family members should help each other unconditionally. However, a company, if it wants to progress, it should recruit only qualified individuals. Such individuals often have to be hired from outside the family business. Too many unqualified individuals will have a negative impact on business performance.

Compensation for family members is often based on the criteria and principles that mix the family and business interests. The situation gets worse when compensation received is not equal to the required contribution, and feelings of unfairness will emerge. This in turn will undermine trust, and low trust can have a negative impact on company climate, work satisfaction, motivation, and performance.

Regarding performance evaluation, family businesses often find it difficult to evaluate family members working in the company. If leaders or founders of a family business evaluate performance, bias might be difficult to avoid. The situation might be even worse if other employees cover up the incompetence of family members in order to keep their job safe.

Leaders of family businesses also often find it hard to decide on training and development for family members, especially regarding the separation between individual interest and business development. From the family point of view, training for family members should focus on “what is in the best interest of the individual family member” regardless of the business need. But from the company’s point of view, training should emphasize the individual’s improvement in learned skills, while helping to achieve the company’s goal and objectives. Inability to align the individual interest and business needs regarding training and development will result in a waste of resources, while the company’s performance will not improve.

Poor human resources management in many family businesses creates negative impacts, such as destructive conflict, unfavorable working conditions, rampant political intrigue, and higher employee turnover.

The Refusal of Senior Generations to Hand over Power

The reluctance of senior generations to hand over control to the younger generations can also create conflict among family members. As they are growing up, the younger generations often feel that they are under surveillance since they are expected to take control of the business someday. They are also expected to take the field of study and jobs based on the needs of the family business, which they do not necessarily feel comfortable with, since the field of study and jobs might not match their interests and talents.

As a result, the younger generations will lose their independence and self-confidence. They also might feel frustrated and discontented since they do not feel free to express their creativity and ideas. Failure to address such concerns could undermine the sustainability of business and family relations.

Poor Communication

Communication in the family tends to be informal. Every family member tries to speak not as a partner or shareholder, but as a parent, brother, sister, and so on. Communication can be done anytime and anywhere, for example, during dinner, on vacation, or in the living room. Such conditions, if not managed carefully, could spark conflict.

Regarding communication, miscommunication and too much communication can create conflict. Many families avoid communicating honestly, citing maintaining harmony as the reason. Maintaining harmony is important; however, constructive criticism and change are also important for personal development, family relations, and business.

Growing Business and Interest

In a family business, conflicts among family members often emerge along with the company’s rapid growth and development. This was the case in Nyonya Meneer, as well as YHS. The conflict started to break out at the same time the company’s market share, sales, and profits were at record highs. Why does such a thing happen?

Many overseas Chinese family businesses (OCFBs) start their company to survive and get out of poverty. In such a difficult situation, it is easy to get commitment and dedication from all of the family members since they realize that the only way for them to survive is to work hard together. They usually do not care much about the compensation they receive. The patriarchal leadership makes the decision making quicker, and consensus and agreement can be reached more easily.

At the initial stage, the founder and owner has full control of the company resources, including all financial resources. The owners are also deeply involved in the company’s daily operational activities, such as production, marketing, and sales activities. Owners and founders have the respected authority, based on their knowledge, information, and leadership qualities, so everyone is ready to work hard together for the company’s progress.

At the beginning stage of the business, trust among the family members is higher since there is no conflict between personal and business interests. If there is such a conflict, the leader usually will mediate and resolve it without any resistance.

However, as the company grows, relations among the family members become more complicated. Information asymmetry begins to emerge, which makes it difficult for family members to get necessary information in the same degree to make the right decision. Information asymmetry occurs when one party has more or better information than the other.

After achieving success, many family businesses often feel overconfident and complacent. They often start to put personal interests over business interests. As a result, harmony within the family business is in danger.

Siblings and Cousins Rivalry

Many OCFBs still maintain the opinion that the eldest siblings are superior to the younger ones (Lee and Li, 2008). As a result, senior generations will award the eldest the highest position in the company once they retire. The younger ones, While still involved in the business, will be given lower positions. This can spark jealousy among the younger siblings, especially when they perceive the oldest sibling is less competent.

The wealth distribution can impact the relationship among siblings and cousins (Lee and Li, 2008). If one party believes the wealth distribution is unfair, he or she will become discontented, suspicious, and jealous. For example, there are family members who receive financial revenue, but contribute very little or nothing to the company’s progress and performance. As a result, even a small disagreement can turn into a bitter conflict.

As the business grows and develops, more family members, including cousins, nephews, and nieces, become involved in the company. Such situations can make conflicts more complicated across families and generations, which could directly threaten the management, operation, and survival of the business. In Nyonya Meneer, conflicts involved cousins, uncles, aunts, and nephews. Charles Saerang, the current president director, got involved in three bitter conflicts with his uncle, aunts, and cousins regarding control of the company.

This conflict became even more apparent with the passing away of the patriarch. With the number of family branches increasing and the educational levels improving, the differences and conflicts within the family can intensify. If the conflicts cannot be resolved at an early stage, the conflict will worsen and be more destructive. Sometimes the conflicts even end up in court, as in the case of Nyonya Meneer.

Family Members’ Unfair Demand from the Employees

Disagreement between family members and employees is usually related to trust and professionalism. Family members working in the company should act and behave professionally, as they demand the same thing from their employees.

Strong commitment and professionalism will create trust from the leaders or owners of the company. Trust is most often given to the family members working in the company. However, non-family professionals should be given full trust as well so that they can freely develop and implement their ideas to improve the company’s performance. If the family business fails to do such a thing, non-family professionals will feel that they are not trusted. They will also feel that they are under constant surveillance, which makes them uncomfortable.

Company’s Structure and System

Unprofessional, unfair, and nontransparent management systems and measures will create distrust among family members and non-family employees (Lee and Li, 2008). As a result, different power factions can ruin relationships and morale within the company. The decision-making process and conflicting goals in the company’s structure and system can also be sources of conflict.

Conflict Management

In fact, not all conflicts in the family business are negative. Conflict has a positive impact if it improves achievement, gives a warning sign to modify the company’s structure, and prevents bigger conflicts. Some conflicts can even push the company to move forward (Lee and Li, 2008). Conflict can lead to an in-depth understanding and spur profound thinking. Therefore, some win-win solutions can be found to promote better interaction and competition, and the development of the business can be more healthy and mature. Disagreement sometimes can enhance communication among family members and between family members and non-family employees, and subsequently eliminate misunderstandings and prevent destruction. Moreover, some insignificant conflicts can be easily resolved within the family, and therefore prevent an even bigger conflict. Given the nature of the conflict, a family enterprise should have an effective conflict management procedure.

Conflict management involves implementing strategies to limit the negative aspects of conflict and to increase the positive aspects of conflict at a level equal to, or higher than, where the conflict is taking place. Thomas and Kilmann (1974) suggested five conflict management strategies: Competition, Accommodation, Collaboration, Compromise, and Avoidance. Sorensen (1999) discusses each of these strategies in the context of family business.

Competition is concerned with position and winning. It is often based only on the concerns of the competitor; it does not take into account others’ concerns. If the conflict involves the owner, it will likely be resolved to the owner’s satisfaction. Thus, in resolving conflict, competition is not likely to fully address the many issues of business and family. Furthermore, competition is associated with a negative effect. Competition always involves one party preventing others from success so that it creates anger, stress, and distrust; so competition is not likely to build relationships or accommodate varied interests.

Accommodation is based on high concern for others and low concern for self. It ascertains others’ desires and fulfills them while neglecting personal desires. Accommodation can establish a willingness to get along. Accommodation, by demonstrating supportiveness and acknowledgment of others’ concerns, should contribute to good relationships (Seymor, 1993). In a family business, if all parties accommodate, conflicts can usually be resolved. However, too strong a norm of accommodation may prevent some parties from asserting themselves even on important issues. For example, a highly accommodative owner might sacrifice business success to satisfy his family or employees.

Collaboration is an approach that attempts to fully satisfy the concerns of all involved parties. Like accommodation, collaboration indicates a willingness to adapt. Collaboration is not just yielding to others’ concerns, but is an active search for “win-win” solutions. However, collaboration requires time and effort on the part of participants. It also requires good interpersonal skills, including open communication, trust, and mutual support (Seymour, 1993). Collaboration contributes to desirable family outcomes, including positive relationships and cohesion. Because it requires mutual sharing and openness, it is more likely than accommodation to promote the organizational learning and adaptation needed to enhance business performance (Dyer, 1986). Thus, collaboration should significantly contribute both to family and business outcomes.

Compromise involves each party giving in to the other to find an acceptable solution. However, because something is given up, no one feels fully satisfied. Compromise may contribute to achieving desired business and family outcomes, but not to the same extent as would collaboration (Rahim, 1983).

Avoidance is the failure to address conflicts by denying that conflicts exist or simply avoiding directly discussing them. Although it limits direct confrontation, avoidance can escalate frustrations. For example, family members might avoid discussing conflicts at work but express their feelings with spouses, thus adding to overall negative feelings within the family. Too much avoidance leaves important business and family issues unresolved, which can heighten tension and limit productive action. In their study, Kaye and McCarthy (1996) found that a strategy of conflict avoidance was associated with relatively low family satisfaction, high sibling rivalry, and low mutual trust. Thus, avoidance does not contribute to positive business or family outcomes.

Avoiding Conflicts

The conflict management strategies discussed by Sorensen (1999) apparently assume that conflicts in family business have already emerged. However, efforts can still be taken to avoid any conflict before it has a negative impact.

For a family enterprise, it is important to recognize any warning signs that a conflict could break out. These warning signs include the following:

A family business should be aware of the warning signs and then take steps before the conflicts get out of control. Here are things a family business must do to avoid any destructive conflicts:

Conflict Resolution in Chinese Family Businesses: A Different Approach

Managing and avoiding conflict among family members in a family business is important indeed. However, Chinese family businesses have different views and approaches regarding family conflicts. One view and approach has to do with the good name of the family. In Chinese tradition, promoting and maintaining family glory and reputation is important, meaning that Chinese family businesses will do everything to save face. Many Chinese people believe that when they are involved in a bitter conflict, their good name will be tarnished, and building a good name requires time and painstaking effort. This will make external parties such as customers, suppliers, and members of the networks (guanxi) doubt their reliability and credibility in sustaining their businesses. As a result, making business deals and agreements will become more difficult. Restoring such credibility often requires a large effort and is costly, particularly for businesses and individuals that already have a strong image.

Because of the strong desire to save face and to build and maintain a good name, many Chinese family businesses tend to hide conflicts that take place among family members. One way to do this is to act as if there is no disagreement or dispute among family members. For example, all family members might appear together in public to show that they are united and have a harmonious relationship and are ready to make the family business thrive. Another purpose for doing this is to crush the competitor. Covering up disputes and disagreements can also be handled by intensifying promotions regarding company products and activities.

Does this mean that they don’t care about the conflict? Not necessarily. They realize that disagreement and dispute exist. Nevertheless, they believe that everything will be settled naturally. For religious people, they say that they will pray and leave the problem to God. For those who are involved in conflict, they still try to resolve the dispute. It seems that they have an unwritten agreement not to show their disagreement in public and in front of other family members, although they still talk behind each other’s backs. How they discuss the problem depends on their education.

What Andrew Cherng, the founder of Panda Express, has experienced, is interesting. Andrew acknowledges the difficulty of running a business while keeping family harmony. Working with his wife, Peggy, caused a strain in their marriage. To help save their relationship, Cherng persuaded Peggy to hire Thomas Davin, a former Marine captain and Taco Bell operations boss, to replace her. Nevertheless, at the beginning, Peggy resisted Andrew’s idea of bringing in an outside president with restaurant industry experience to replace her. Ultimately, they agreed to try again and made the hire and Peggy was happy about the decision.

Family strain in Chinese family businesses is common. For the older generation, divorce is taboo.