When family members collide in the boardroom:  Navigating disputes in family-owned businesses

In first-generation businesses, this separation is often unnecessary. The founder is typically the CEO, the majority shareholder, and the head of the family. Decision making is centralised, disputes are resolved swiftly, and authority is rarely challenged. While this concentration of power is desirable and efficient, it is temporary.

As companies transition into second and third generations, that unity dissolves. Shareholdings become diluted, management roles are unevenly distributed, and family hierarchies flatten. These structural changes create fertile ground for disputes, particularly when governance rules are not clearly communicated and enforced.

When conflict arises, family businesses tend to gravitate toward one of two approaches.

A business-first approach applies standard corporate discipline: family members are evaluated on merit, contracts are formalised and enforced, governance processes are strictly followed, and legal counsel is engaged when disputes emerge.

This approach offers clarity and legal certainty but often comes at a family cost. Common outcomes include dilution of family shareholdings due to missed formalities, termination of family employees during restructurings, disregard of minority objections, and disputes resolved almost exclusively through adversarial legal proceedings focused on documents and procedure rather than relationships.

A family-first approach, by contrast, prioritises harmony over formality. Employment decisions are influenced by family relationships, verbal agreements often replace or modify written contracts, governance lapses are tolerated, and disputes are handled internally without legal advisors.

While this may preserve short-term peace, it frequently undermines the business. Overcompensation of family members demotivates non-family executives, decision making slows as consensus becomes mandatory, and disputes are addressed inconsistently, often factoring in personal or financial issues unrelated to the company. These practices tend to reduce the long-term stability of the company.

From a dispute-resolution perspective, neither extreme is sustainable. Most litigation involving family businesses originates in the grey zone between the two: informal arrangements treated as binding, selective enforcement of rules, or sudden shifts from family-first to business-first once positions harden.

The role of advisors in a family dispute is not limited to considering the client’s preferred philosophy, but also to anticipating the consequences of following it, and helping navigate the conflict to achieve an enforceable and acceptable outcome. In family-owned business disputes, the choice is not merely between family and business, but rather the degree to which the two can coexist without irreparably damaging the other.

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Mauricio Saul Ramos, Consulting Director at Guerrero Santana, has more than 15 years of experience advising domestic and international clients on a wide variety of matters. He is also a professor at the undergraduate level teaching courses like Innovation, Project Feasibility, and Strategic Planning.