How to stop family firms boiling over

The close ties which bind family members can be one of the greatest strengths of a family business - but also one of its greatest risk factors. As the Ramsay saga has shown, the effects of a dispute can be catastrophic - not just for the individuals involved but also for other family members, who may be forced to take sides with one or other of the parties to the dispute.

In some cases, if the parties concerned are no longer able to work together, this may sound the death knell for the business - potentially jeopardising many years of hard work, as well as the family income stream.

It was interesting to read that Ramsay was apparently asked by his advisers whether he would still be employing Hutcheson if he was not his father in law - the response, allegedly, being "no".

If a family member has held a senior role in the business for some time, it is always going to be the path of least resistance to keep them there. However, this may not necessarily be what is best for the business, which can throw up some very difficult decisions.

This issue can become particularly acute where the family business has undergone a period of rapid expansion. In such cases, it is necessary to consider whether the family members have the experience and skills necessary to run a large enterprise, or whether it might be necessary to bring in outside help. Careful handling of the individual personalities involved will be crucial.

It is also important to remember that the policies and practices which may have been appropriate for a small business may need to be adapted to suit the needs of a growing business, and it may be appropriate to put more formal governance structures in place.

While Ramsay possesses a famously short fuse, he has accused his father-in-law of being manipulative and controlling and it is not difficult to see how sparks can fly when two such strong personalities are involved, particularly if they do not have clear boundaries setting out the extent of their respective authority.

Ramsay has stated that Hutcheson ran the business "as a dictator" and allegedly feared that he was losing control of his business. He also accused Hutcheson of signing major contracts and promoting other family members to senior management positions without his knowledge (despite Hutcheson holding only a 29 per cent shareholding).We don't know the rights and wrongs of this particular case, but these kinds of issues can easily arise in family businesses due to the lack of a proper governance structure and as a result of poor communication.

A well-run family business should ideally have a written agreement in place, setting out the family's vision for the business, their common goals and strategies and the rights and responsibilities of the parties involved.

This might provide, for example, that certain decisions (such as hiring a managing director or agreeing a major new contract) require to be formally approved by specified family members.

Although it is difficult to stop a wayward family member from breaching these provisions if they are determined to do so, it is less likely that individual members will act unilaterally if they know they are exceeding their authority.

In such a case, it will then be clear to the other family members that the individual concerned has breached the terms of the agreement, rather than there being question marks over who was or was not authorised to make such decisions.

Many family businesses find it useful to establish a board structure or "family council", which establishes a pattern of regular meetings among family members. This can encourage a more structured (and more transparent) decision-making process, as well as improving communication.

Involving a non-executive director from outwith the family can also help to bring a fresh perspective to the business and can assist in facilitating discussions about issues which family members may find difficult to raise, for fear of upsetting others.

Hopefully, the Ramsay rift will heal over time. For most family businesses, which do not have the eyes of the media trained upon them, it is perhaps inevitable that issues or disagreements will arise from time to time. However, proper handling of these - coupled with appropriate governance structures and open communication - can hopefully help to avoid any simmering tensions bubbling over into a (kitchen) nightmare.

Susan McFadyen is a partner at Tods Murray and a member of the firm's Families in Business Team