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Owning a Family Enterprise Has Many Facets
This week we’re going to look at a topic that affects every family business, even if it doesn’t get discussed very often.
I write a lot about the overlap of the family and the business circles, but less often about who owns the company.
See Ownership: The Forgotten Circle in Family Business
That’s partly because the people who work in and own most family enterprises don’t talk about this subject very often either.
Of course that doesn’t mean that they shouldn’t, or that these conversations aren’t important, far from it.
It can get pretty complex at times, but I want to just bisect it into its two most essential elements: value and control.
Beyond Tradition, Pride, and Duty
When people involved in a family owned enterprise do actually talk about what ownership means to them, they often talk about intangibles like tradition and pride.
That makes plenty of sense, of course, but it often just puts off the discussions about what really is at stake, i.e. who can derive the value from the business (financially) and who gets to call the shots.
Many people who are part owners of a family enterprise feel like it’s part of their duty to keep the business in the family, and they adopt a stewardship mindset, which is often also rightly praised.
But while the family and business circles move quickly, changes in the ownership circle often drag.
See Varying Time Factors in Each of the Three Circles
Who Can Profit, Who Gets to Decide
Where families sometimes get stuck in discussing what the best ownership structure should look like, they sometimes fail to make the distinction between the two main elements I’m highlighting.
I’ve lost count of how many parents I’ve heard saying that they want to treat all of their offspring equally, even as they recognize that they are certainly not equal in many important respects.
I’ve yet to meet a family with even just two next gens who are equal in ability, work ethic, motivation, education, availability, contribution….
You get the idea.
Where they often run into problems is when they get stuck in the belief that allowing all of their children to benefit from the family’s ownership of the business also means that every one of them needs to end up with an equal say in how it will be run.
Learning to Share All Over Again
Growing up together as siblings, the parents surely spent some time teaching them to share, whether it was about food on the dinner table, clothing, sports equipment or even just the TV remote.
See Who Gets to Decide Who Gets to Decide
Figuring out how the family should best share both the benefits of owning the business and control over business decisions is yet another tricky subject that needs to be worked out.
But it all begins with getting unstuck from the idea that the default of “everyone needs to be equal” can often lead to disastrous consequences.
When a particular ownership structure has been in place for a while, a certain amount of homeostasis sets in, meaning it’s difficult to introduce change without meeting resistance.
Leadership for Important Discussions
Undertaking such discussions requires courage and leadership.
It can be difficult for families to do this by themselves, so outside assistance, facilitation, and guidance can certainly help.
Preparation for this is key, which requires plenty of time, intention, and effort.
This is not a subject you want to just throw on the table and see what happens.
Those who currently own the shares need to put a lot of thoughtful consideration into how they see the future and establish their perspective first.
Not a Fait Accompli!
At this point, a fulsome discussion with the next generation can begin, presenting what the current owners have in mind, and why they think their ideas make sense.
You don’t want to present this as already done, or a fait accompli.
The final version needs to be co-created by the family, so that everyone is heard and feels like they were part of the decisions.
You cannot realistically expect this discussion to be done quickly, rather a series of meetings is quite likely going to be required.
It’s more important to end up with a result that everyone has bought into than to get this over with so you can cross it off your to do list.
Everyone needs to get something, but nobody should expect to get everything.
You are looking for consensus here, not unanimity.
