Last November, I offered some reflections regarding what family shareholders deserve from their family business. This article takes the opposite approach: what do family businesses deserve from their family shareholders?
The answer is clear: responsible and efficient performance. As is often the case, this is easier said than done.
Let’s start with the essence of family business: ownership is transferred from generation to generation, so future shareholders have to be prepared for what’s in store.
Ownership comes with the right–but also responsibility–to decide on fundamental issues to ensure the company’s continuity, take care of its people and protect organizational assets.
Among their obligations, owners should define the company’s mission and vision, delegate power, define its management system and structure, and appoint people to serve in strategic roles.
They also need to establish economic parameters with a relevant equity impact, especially debt levels versus equity, and use of free cash flow for dividends, investments and corporate operations.
To this end, it is paramount that shareholders are educated and informed to effectively fulfill their obligations and exercise their rights.
Inheriting shares in a consolidated business carries a responsibility toward its employees, suppliers and customers. For many people and their families, their work within the company is vital to their livelihoods and overall well-being.
Mission, vision and family values
For family business owners, the first key responsibility is to clearly communicate the company’s mission, vision and family values.
They must ensure that the company’s decisions, management style, policies and daily operations align with these principles, and embody them through their actions, fostering unity and commitment among shareholders.
Appointments of family and non-family members
Once the governance and management structure are established, the next priority is selecting individuals–both family members and non-family professionals–to take on leadership and senior management roles within the company
In this context, a deep understanding of people is key: knowing their personality, disposition, values, leadership and capabilities will allow businss owners to place the right people to the right role, while ensuring that shareholders are adequately represented in the firm’s governance and management.
Economic considerations
The third area is economic. A common issue arises when family shareholders, distant from the day-to-day business environment, lack the financial acumen or interest in the company’s performance.
Yet paradoxically, they are required to approve the company’s financials and leadership at the annual general shareholders meeting. Since they trust other family members more conversant in financial matters, they often delegate their vote and/or vote according to what others vote.
For family-owned firms, it’s problematic when family members are disengaged and distanced from their role and responsiblity as shareholders.
On the other hand, when they show interest, make an effort to understand these key aspects and actively contributing to shareholder decisions, they set a strong example for the next generation of shareholders.
In short, company stakeholders expect family shareholders to provide stability, safeguard the business and demonstrate long-term commitment to its vision.
Homepage image: Yibei Geng · Unsplash