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Thursday, April 19, 2018

Applying Game Theory to Preempt (and Resolve) Conflict

By Scott E. Friedman, Andrea H. Vossler, Eliza P. Friedman, and Mary Owen

It is not uncommon for two or more people, particularly when they spend time living or working together, to have differing perspectives about what is “good or bad,” “right or wrong,” “better or worse.” Successful families and businesses don’t seek to squelch disagreements, as those often lead to higher quality relationships and decisions.[1]

The suggestions offered in the preceding posts are the most important steps a family can take to maximize the likelihood that a family in business together will make the best and most principled decisions, and, so, enhance the quality of inter-personal relationships and business prospects—while minimizing the likelihood of destructive disagreements. If individual perspectives cannot, however, be constructively reconciled through these efforts, differences can escalate and turn to conflict. Such conflict can take an enormous toll on family relationships, resulting in breached relationships and the inability for family members to continue working together, as well as on the family’s business.

Managing disagreements not only risks family division but can also be expensive and severely impact a company’s bottom line and prospects. HR professionals say that just one incident can soak up weeks of attention and effort.[2]

An informal survey of family business literature suggests that mediation, arbitration and litigation remain common strategies to address reconciled disagreements that have boiled over.[3]

While such traditional tools and techniques might remain relevant as approaches of last resort, they make the likelihood of family members remaining connected, much less working together, remote and, so, attorneys and other advisors to family business owners and stakeholders must develop new approaches, tools and skills to do their job well. Families in business together sometimes need “wise counseling,” not “legal advice.”[4]

Finding and developing new ways to help family members work together can be rewarding and creative.

In one creative approach, the Elghanayan family prepared a partnership agreement dividing a $3 billion real estate empire between three brothers when a fourth brother departed the business. The agreement, finalized in binding arbitration (with the father as arbitrator) split the empire with the flip of a coin.[5] 

When those disagreements threaten to boil over, applying insights from Game Theory can be helpful.[6]

More on this next week, as we give a brief overview of Game Theory.


[1] See, e.g., Harriet B. Braiker, Who’s Pulling Your Strings?: How to Break the Cycle of Manipulation and Regain Control of Your Life 42 (2004) (“Conflict can and should be handled constructively; when it is, relationships benefit. Conflict avoidance is not the hallmark of a good relationship. On the contrary, it is a symptom of serious problems and of poor communication.”).

[2] “[M]anagers and executives at Fortune 1,000 firms spend 13% percent of their work time—the equivalent of seven weeks a year—mending employee relationships and otherwise dealing with the aftermath of incivility. And costs soar, of course, when consultants or attorneys must be brought in to help settle a situation.” Christine Porath & Christine Pearson, The Price of Incivility: Lack of Respect Hurts Morale—And the Bottom Line, Harv. Bus. Rev., Jan.–Feb. 2013, at 115, 118; see also Lynne M. Andersson & Christine M. Pearson, Tit for Tat? The Spiraling Effect of Incivility in the Workplace, 24 Acad. Mgmt. Rev. 452 (1999); How Rude!: Workplace Incivility Could Destroy Your Company, Inc.: The Build Network (Nov. 28, 2013), http://www.inc.com/the-build-network-staff/how-rude-workplace-incivility-could-destroy-your-company.html; supra note 92 and accompanying text.

[3] See supra notes 20–21, and accompanying text.

[4] See, e.g., Bork et al., supra note 15, 1 (“[W]e suggest that professionals . . . look at their practice from a broader context and help the family resolve some issues that may at first seem confusing or even unsolvable . . . [We also] suggest that professionals add what we call process consulting skills to their repertoire. Process consultants do not reject their own professional disciplines but take on an expanded role of teacher in order to help the family learn and grow.”) (emphasis in original); see generally Kets de Vries et al., supra note 53.

[5] Charlies V. Bagli, Flipping a Coin, Dividing an Empire, N.Y. Times (Oct. 31, 2009), http://www.nytimes.com/2009/11/01/business/01real.html.

[B]y planning ahead and creating a process that they understood and freely adopted, the brothers did some valuable conflict management. They reduced the scope and severity of a potential family wealth conflict and then, when the agreement was needed, they had a far easier conflict to resolve. One that they could put to rest without destroying their wealth, their company, or their family.

Family Business Buy-Out Conflicts, Dovetail Resol. (Nov. 11, 2009), http://www.dovetailresolutions.com/2009/11/family-business-buy-out-conflicts.

[6] The field of Collaborative Law, pioneered and mostly used by matrimonial lawyers, suggests potential new conflict resolution opportunities worthy of exploration that would function by encouraging “corporate attorneys” representing differing factions of a family to help resolve disputes by linking their continuing engagement to finding a solution outside of the courthouse. See Pauline H. Tesler, Collaborative Law: Achieving Effective Resolution in Divorce Without Litigation 23–53 (2001).



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