Entity Design and Formation: The First Step in Conflict Management

I’ve always been fascinated with workplace conflict. In fact, I am so intrigued with organizational approaches to conflict that it was the focus of my Masters in Dispute Resolution.

I certainly experienced my share of workplace conflict during my days as a rank and file employee. But it wasn’t until I became a business owner and CEO that I realized that I was such a major contributor. I’m still amazed at difficulties I inadvertently created by my actions and decisions.

Establishing Conflict Management in an Emerging Organization

If your organization is just forming, it’s a an opportune time to think about incorporating healthy ways of managing conflict from the beginning.

  • What proactive conflict management actions can be taken even as your enterprise is being organized?
  • How can you prevent workplace conflict before the attitudes that underlie the organization’s culture have been fixed?
  • How can you design policies and practices that are still effective in addressing conflict as the entity matures?
  • What role should dispute resolution professionals play in identifying ways to avoid needless conflict?

My Experience as a Start-Up Owner

For me, opportunity to put these questions into action came in 1985 with the start of my own new business, with the objective of creating other start-ups. In fact, my success would be dependent upon the success of these new entities and their effective delivery of a critical clinical service—emergency physician staffing in small to medium-sized community hospitals.

The good news was that these start-up entities would by necessity be comprised of highly trained professionals—emergency physicians. The bad news was that they’d be total strangers at the time of the entity’s formation, and they weren’t likely to have much management or operational experience. Despite these complications, the newly created entities would have to be perceived by their prospective clients (the community hospitals) as organizationally stable in order to be accepted as a reliable provider of emergency physician service.

I’d spent several years involved with two large corporate contractors that provided staffing of this clinical service. As result, I was very familiar with many of the logistical, cultural, and political challenges that would have to be accommodated in order to meet the needs of both hospitals and emergency physicians.

In a relatively short period of time, I had the opportunity to experiment with the design and construction of professional corporate entities on a large scale. No doubt there are attorneys and advisors that have facilitated the formation of far more entities than I. However, I believe that the frequency of my experiences involving a consistency of circumstances, participants, and objectives made my efforts and outcomes truly meaningful.

Periodic follow-up with the operators of these new entities confirmed that the structure of the organization did impact the frequency and intensity of conflict. Most significantly, those reviews confirmed that the establishment of proactive governance mechanisms minimized disruptive issues and counter-productive behavior.

A Business Plan for Less Conflict

With such a remarkably high correlation between appropriate design and resulting performance, I believe that the process of forming any new enterprise should include in-depth discussions on structure and governance, much more than is routinely done today! For that to happen, those charged with organizing the entity (the lawyers, consultants, accountants, etc.) need to have an in-depth understanding of the functioning of the new entity as well as a deep appreciation of the market to be served and the unique cultural, political and logistical challenges likely to be encountered.

But the insights associated with my experiences aren’t limited to the narrow niche I was attempting to serve. They offer meaningful lessons on the foresight and preparation that should be given to any major re-organizational action undertaken by established businesses. They also provide guidance on the formation and operation of governing bodies (Boards of Directors) whether those serve the commercial marketplace or the non-profit sector.

But isn’t time and attention given to governance and decision-making usually a part of entity formation? What more needs to be done?

It’s true that completing the operating documentation typically requires identifying the key players and may include the description of voting interests or financial ones. But too often the language is pro forma, completed by legal counsel or the accountant without sufficient thought or insight to the circumstance or personalities unique to this new entity. Ironically, the new owners themselves rarely fully appreciate the challenges and complexities they’ll face. Many, in fact, grossly under-estimate the conflicts they’ll experience, especially if they’ve had a long-standing relationships with those that are about to be their partners or investors.

I believe that this aspect of new business creation should be an essential component of effective strategic planning. It should be given as much or more time and attention than that afforded to developing the business plan, design of products and services, or the plans for securing start-up funding. Regrettably, with the process of establishing legal entities becoming even easier (with the advent of Internet-Based Legal Services) I’m very concerned that this level of organizational planning and preparation won’t get the attention it so clearly deserves.

 

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