Family businesses always have an owner family as the shareholder of reference. This is the family that defines the company’s purpose and transforms family values into corporate values. This is the family that serves as a beacon of unity and commitment, transmitting a sense of corporate stability and long-term continuity.
Hence, the importance of developing, enabling and empowering family members so they can effectively serve and support the business. As history can attest, under-prepared and divided families can spell doom for family-owned firms. Adequately preparing future shareholders – equipping them to responsibly lead what one day will be theirs – is essential to ensuring their long-term success and sustainability.
A smooth transfer of power is another key challenge and one that quickly rears its head in succession processes. In our economic-mercantile system, the ultimate power lies with the owners, who determine the company’s mission, vision, corporate governance and management model.
Decisions on share distributions among the next generation are critical during succession processes, as seen by the classic debate about the best way to divide ownership. On one hand, the notion that “the business is for those who work there” and allocating more shares to family members who are also employees, and on the other, adhering to the principle of equality by dividing shares evenly among all offspring.
There are no hard-and-fast rules to navigate these quandaries, since no set of family dynamics, business situations and individual circumstances are alike. Family-controlled firms need to find the management system and succession process that works best for them.
That said, in my humble opinion, business family leaders who opt for the first path – “the company is for those who work there” – need to be very sure that achieving their objectives is only possible by breaking this fundamental balance of equality.
This is sometimes the case and there’s no other way around it, but it’s worth taking a step back to objectively consider all viable alternatives and avoid emotional biases, which can cause harm to both people and families.
In other cases, it’s the age-old concern of “too many cooks in the kitchen,” leading firms to limit the number of family members in the decision-making process. This is generally true, yet many legal systems offer sufficient flexibility in defining ownership, governance and management models for firms to attain their corporate objectives and prevent disparate opinions from undermining unity of command and control.
Another aspect of frequent debate is whether to divide ownership by family branches or by individual direct owners. Once again, there are pros and cons to both options and no ideal “one size fits all” approach.
Taken as a whole, these issues all point in one direction: the imperative of family committees or councils to rigorously and competently address and work through these critical questions. Referred to as the “owners council,” this body is an excellent planning mechanism to prevent conflict from arising among family members.
Owners of family firms should include these economic-ownership functions and issues as agenda items in family meetings to define which ownership structure, decision-making framework and organizational structure are most conducive to fostering unity and commitment as a family in business, and in consequence, promoting the firm’s long-term continuity.