A little over 25 years ago my family began meeting to discuss matters pertaining to the ownership of our business. My father, who was running the company at the time, was concerned that family communication was creating conflict that could impact the business as well as damage family relationships. He was also concerned the next generation (in their 20′s and 30′s) needed to be prepared to be responsible owners of the business.
He was inclined to lead the meeting, but then he realized that he was in the middle of issues like family employment, executive compensation, dividends, etc. So he decided it would probably be best to have an independent third party facilitate the meeting. Wise move, because it also allowed him to share his opinions and leave it up to the facilitator to guide the family in discussing issues and resolving differences.
He hired a family business consultant (probably one of the few in the world at the time) and the first of many family meetings began. Over time this consultant and others along the way helped us by sharing “best practices” on issues like family employment, providing tips for effective family communication, and clarifying roles and responsibilities of shareholders and other key family business constituencies. They facilitated our discussion of how we could modify those “best practices” to best meet our needs. They’d listen to our various points of view, summarize the key points, add their informed perspective, and help us reach agreement on guidelines and policies.
For example, we created a family employment policy (subject to review and approval by company management) that described how family members could apply for a job, what their qualifications should be, and how they would be evaluated and compensated.The company appreciated our input on this sensitive topic.
We prepared “Guidelines for Communication” that we all agreed to follow when communicating with each other in meetings and by telephone and e-mail. We also established ground rules for communicating with management and our board of directors. The management team and board also contributed to shaping those ground rules – and they’re happy to have them in place. Why? Perhaps because of provisions like the one that discouraged individual shareholders from contacting individual managers and board members to push their personal agenda!
And we discussed the roles and responsibilities of shareholders in a family business. Being clear on our “R&R” helped us prepare the above communication guidelines. And we learned that as shareholders our primary legal responsibility, and legal authority, is simply to elect directors. Beyond that we really weren’t legally required to do much of anything, nor did we have the legal authority to do much of anything.
Hmmm. Legally, this doesn’t sound much different from a shareholder of a public company, right? But of course ownership of a family business is much different from ownership of a public company. Just to name one: as an owner of a public company, the typical IBM shareholder has no interest in ensuring that their 500 shares of stock pass successfully to their children. (Maybe some of their wealth, but not necessarily those specific shares in IBM.) And if the shareholder is disappointed with IBM’s financial performance or its approach to environmental issues, or if they think IBM executives are overpaid, that it carries too much debt or the dividend is too low, then they can simply sell their shares.
Not so easy to do, technically or emotionally, when those shares are in the company started by your grandfather 50 years ago.
Our family may be like yours – we’d like to keep ownership of the business in the family through at least the youngest (4th) generation. With that goal in mind we’ve identified shareholder responsibilities beyond just voting for directors. “Owner Education” is one of those responsibilities, so, as described above, family meeting topics include understanding principles of good governance, learning about critical success factors for the business, and discussing financial matters important to the ownership group like estate planning.
When we gather as a family (now with three generations in attendance) we learn how to be effective owners, then take action to put key principles into practice. I guess you could say that since 1985 we have been guided by the wisdom simply stated by well-regarded family business author/consultant John Ward, “Responsible family business ownership doesn’t come naturally. It has to be learned.” But we had a head start – this quote is from the book he published in 2002!