The #1 Threat: The Company's Ownership

In previous articles, we covered two out of the three systems of family business, that is, the management and family systems. The third system, ownership, is the focus of this month's article.

In many instances the issue of ownership is discarded by the family business owner as being trivial. He argues that he owns the company and that's that. Employees, clients and family know it to be the case and therefore it's a fact, not an issue worthy of further discussion. Besides, one's financial affairs are personal and private.

Most family businesses fail due to ownership related issues. Ownership is the foundation of all business and family businesses are no exception. Due to the wide ranging legal and jurisdictional issues involved with ownership, the following discussion by-passes these specific details to highlight the psychodynamics of ownership and their impact on the family business. The last article in this series will explore the future of the printing industry family business in a strategic perspective.

In harmony with the previous articles, it's important to highlight the differences found between family and non-family (corporate) businesses and how they relate to ownership and more specifically succession.

In corporate succession, the CEO's ownership stake is usually unimportant. As an agent to the shareholders, the CEO is obligated (to varying degrees) to follow company procedure enforceable by a Board of Directors' resolution or intervention. The formality of corporate governance is supported by the legal system and consequently carries a great deal of influence.

In the corporate organization, a company's needs underlie succession planning. As stated in a previous column, the initiator and regulator is the organizational entity, which, by extension, wishes to protect itself, sustain current activity levels, and/or grow. Its needs, fueled by the shareholder's desire for wealth generation and growth, remain at the forefront of its objectives.

Ownership of family businesses is of significant importance to succession. A unique owner's control is absolute and incontestable. However, if the CEO is not the sole owner, the issue remains important but now its significance extends beyond the individual to include other owners and/or partners who are often other family members. The relationship becomes a major factor as does the balance of power and the interrelationship of family, ownership and management systems. Such issues are not exclusive to family businesses.

Corporate organizations do have similar criteria, the difference lies in the (in)formality of the governance system. Most family businesses are managed by informal governance structures. Little or no documentation exists. Rules, regulations and guidelines are discussed informally and change over time. The governors' roles are not clearly spelled out or understood by the role players themselves, nor are the governors clearly identified to or acknowledged by outside parties.

A contrasting finding of family and non-family business succession research is the emphasis on the founder's needs and desires in family businesses compared to the company's needs in the corporate business context. This is reflected in the body of literature that analyzes the stockholder returns as an operationalization of business needs and which is non-existent in family business research. It is true, however, that private ownership, prevalent in family businesses renders such an analysis difficult if not altogether impossible.