Evolving perspectives on ownership in family firms

In traditional economic-based views on governance, owners are often portrayed in a somewhat passive role, with an emphasis on the incentive structures they install to motivate employees and other key stakeholders.

Under these frameworks, owners provide financial resources, while management–driven by the right incentives–execute day-to-day operations to create value.

Yet this perspective fails to fully capture the multiple facets of ownership, especially in the domain of family business.

Key decisions for family business owners

As Prof. John Davis aptly points out, owners can delegate numerous responsibilities to their management team and board of directors, yet certain decisions require their direct oversight:

> Defining the business vision: This pertains to crystallizing the family firm’s overriding ambition and objectives in a roadmap that reflects the family’s aspirations and the company’s future direction.

> Financial oversight: Owners play a crucial role in capital and financial decisions. Among their judgement calls, they may assess the need for additional capital, when to venture into new industries and the benefits of a public offering.

> Selecting key figures: Beyond financial strategy, owners decide who stands at the helm. Appointing a CEO or chairperson of the board is more than a one-off decision; it’s a declaration of the company’s direction.

> Crafting governance: Structuring the organization isn’t limited to hierarchy. Owners define the board’s composition and the criteria for both family and external board members, ensuring a balance between supervision, guidance and feedback.

> Fostering company culture: Culture is an intangible with a direct impact on organizational behavior. Owners ensure the prevailing culture promotes their overarching vision, preserving the firm’s unique identity.

3 core competencies of effective ownership

Recent strategic management research has put the more active aspects of ownership into sharper focus. Among their key findings is owners’ capacity to create and capture value, not only by offering stakeholder incentives but by actively controlling and coordinating resources.

In this respect, Foss et al. stress three core competences for effective ownership: knowing what to own, how to own and when to own:

1 – What to own: matching competence

Matching competence is about an individual’s ability to predict valuable combinations of resources that meet specific needs or solve unique problems.

By way of example, a executive in the food industry might detect the need for environmentally friendly packaging and determine the requisite assets to fulfill this objective.

Owners decide on the problem to be solved, which directly informs how resources are prioritized and allocated. Those with high matching competence excel at defining the optimal use of resources by understanding the value of both their own and others’ assets, and determining how resources can be reconfigured for greater value.

Matching competence requires thinking creatively about the potential of resources and their alignment with emerging opportunities.

2 – How to own: governance competence

Governance competence involves effectively managing and organizing resources, including decisions on whether to manage resources personally or hire a manager. In the case of the eco-friendly packaging solution, this might entail choosing the right team to innovate or refine the packaging design.

The right alignment between managerial expertise and the task at hand is what drives performance. Owners must design incentives and controls that promote and reflect their objectives with a keen understanding of their risks and rewards.

Successful governance also involves managing relationships with suppliers, employees and other key stakeholders, and deciding when to share ownership with partners.

3 – When to own: timing competence

Timing competence involves discerning the optimal moments to invest or divest in assets. For the packaging solution, this might mean recognizing when the market is ripe for introducing a new sustainable packaging material, or when an existing solution has reached its peak and needs to be innovated or replaced.

Efficient timing includes gauging when resources will be most valuable and predicting their value in the face of changing consumer preferences or regulatory shifts. It also means understanding when an outside entity might be better positioned to manage or own certain resources, potentially leading to new partnerships, divestments or repositioning.

While all business owners need to delegate, some responsibilities intrinsically fall to them.

By consciously embracing and continually honing these three core competencies, owners–especially in family businessesmaximize value by ensuring alignment between strategy and action.

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