Your family company has been around for nearly a hundred years. It’s in its fourth generation. There are shareholders spread around the world – some are involved in the business, others are not. The family members who are involved in managing the business want to ensure it stays within family control. However, there are not enough family who are interested and/or able to manage all the business, and there isn’t one strand of the family who own enough shares to maintain control. What do you do?
Most family owned businesses pass out of family control within two generations but there are a significant number which pass further down the genealogical chart. So this kind of situation is more common than you might think. And, surprisingly, not many have actually planned a strategy for family ownership and management succession.
We recently helped the long standing (86 years) family business of Mactaggart and Mickel go through a process of modernising their family ownership and management structure. This process should help them prosper for the next 86 years.
Homes Chairman and shareholder Bruce Mickel said “For many years we had taken an old-fashioned and paternalistic view of the issues of ownership, control and succession. We began to realise that we would need to adopt a new approach to avoid the potential friction and emotional problems that family ownership can generate.”
What kind of issues did we have to address with Mactaggart & Mickel?
- What do the family owners want – management control, dividends, ownership control, realisation of their capital, or what else?
- Is there a set of owners who have enough ownership control and shared emotional commitment to the ‘family business’ ethos and concept to allow it to continue as a family business?
- Is there a ‘next generation’ who are genuinely interested in running or joining the business? And do they have an appropriate skill set to manage it?
- What to do with the ‘uninvolved’ family shareholders? Do they want to continue in some form of ownership stake? What kind of economic return do they want from that stake?
- Is it feasible for the family who wants to continue in management and ownership to have access to enough capital to buy out those who don’t want to continue in ownership?
Family businesses have a propensity to tear themselves apart as they go down the generations. Even if they don’t go as far as that, lack of able family members with the capability and drive to manage the business successfully can mean a slow, painful death for even the most flourishing of family businesses. The old Arab saying of sandals to sandals in four generations comes to mind.
What should family companies do?
<ul) <li=””>Consider the issue as a normal part of your family company governance – just like you would any other part of your company’s business strategy and plans. Start the process now. Don’t wait until an event or problem occurs. You need to take your time over this vitally important long-term matter. It takes leadership from the senior family directors; and although it can be difficult to start it, once you get going it is amazing how often there are shared values and aspirations.
- Understand what everyone wants from the company. Don’t assume every shareholder/family employee wants the same thing; you need to go and find out.
- Work out a broad plan and rules of transition and family relationships to the business. Write them down and get all the shareholders involved and committed to the principles
- If you can’t do it yourself get outside advice and assistance – this is a very emotive area and often it needs a skilled advisor to identify and broker the necessary compromises
Bruce Mickel again. “Our ownership and management modernisation programme has given us stability for the foreseeable future to allow us to concentrate on running the business for the benefit of all involved. It has taken family issues out of day-to-day management and we now have a formalised forum where family matters can be discussed and resolved, run by our Non-Executive Director. Recruitment of high calibre management is better because we don’t need to worry whether there is a family member for the job – we just hire the right person. We can now look forward to another 86 years of success.”