Family Business Owners: Intentional Stewardship
Without proper planning and effort, many future generations will lose out on ownership opportunities within the family business. In the founder stage, owners are often also management and directors. As ownership expands to include rising generations, the number, type and involvement of owners becomes far more diverse and dispersed, which can make or break a family and the family business.
What is the opportunity?
Decisions to acquire, own and dispose of public company shares are informed by an investor mentality. That is, investors focus on whether an investment meets their risk, return, growth and liquidity objectives. There is rarely any personal connection to the business.
However, in the family business context, share ownership is imbued with profound stewardship opportunities. Stewards of a family business often feel morally responsible to carefully protect, nurture and grow the business for future generations of stakeholders, including future owners. Certainly being an owner in a family business can and should have the potential for financial reward. However, the positive human, intellectual and social opportunities of being a good family business owner are more far-reaching than money.
What you need to know
In the family business context, some future owners may have senior management roles, some may have a place on the board of directors and others may not even know they own shares. Shares may come with different voting rights and dividend entitlements. There are often restrictions (implied or express) on who can become an owner, how and when. There can also be limitations on how, to whom and at what value an owner can dispose of shares. These factors can—and often do—have profound implications for the success of the business and for the welfare of the family.
So what does all this have to do with being a good family business owner? What does it even mean to be a good owner? Why would you want to be a good owner?
Characteristics of good ownership include:
- The family and the family business trump self-interest
- A long-term, intergenerational focus on continuity
- A personal connection to the family business legacy
- Clarity on how the family mission, vision and values form and continue to shape the family business
- Being actively involved in establishing board membership selection criteria, accountability measures and communication processes
- Initiating and taking advantage of opportunities to learn and keep informed about the business, business fundamentals and governance
- Seeking opportunities to add value (e.g. employee recognition events, community ambassadors, philanthropy)
- Participating in developing and adhering to ownership policies and a code of conduct
- Creating policies and processes for family members to exit gracefully without jeopardizing the success of the business
- Being respectful of those who actively contribute to the success of the business
- Being responsible for their own financial independence separate from the family business
The rewards of being a good owner in a family business include:
- An understanding of the type of ownership interest you have and the privileges and responsibilities of being an owner
- Clarity about the distinction among dividends, salary, reinvestment, liquidity and capital appreciation
- Reduced friction among family, management, board and employees and greater understanding of how to participate in any
of these key stakeholder groups
- A deeper appreciation for the impact your family business has on its employees, suppliers, customers and the communities
in which it operates
- Financial outcomes that are consistent with family values
- The right to hold the board of directors accountable to expected values, financial and non-financial outcomes
- The opportunity to participate in leadership succession by being actively engaged in board appointments
- The chance to work with your family to see your family’s identity and legacy come to life
- Cohesive family ownership across generations despite geographic dispersion and independent aspirations
- To see the rising generation become good—and maybe even better—owners than the current generation
What can I take away?
Being a good owner doesn’t just happen—it takes effort. Communication and education at family, sibling and cousin levels is fundamental. Certainly formal opportunities can and should be created—family meetings, owner meetings, education and information sharing are all important. It is even more important to intentionally create plenty of space for spirituality, fun and human connection. It is incumbent on current owners to take steps to become, and set an example, as stewards of your family business who will nurture and grow it, rather than act as mere investors focused solely on financial gain. It also requires that new and future owners commit to learning how to be good owners. Why make the effort? Because it’s good business; it’s good for the family and it’s good for the communities in which your family business operates.
Reference source: “Family Business Ownership—How to be an Effective Shareholder”, Craig, E. Aronoff, Stephen L. McClure, John L. Ward (a Family Business Publication).
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