A family business could imply both active ownership and passive roles for its members. Scott McCulloch reviews the combinations and implications for owners.
Family ownership lies at the core of every great family enterprise. Simple, right? Until it isn’t.
As a family business grows, issues around ownership become complex. There are many reasons why.
The challenge for family business owners is to acknowledge the issues that they face, and understand how to develop – and deploy – strategies to address them.
What if a family needs its business to distribute funds for living expenses and retirement but the business needs stronger cash flow to stay competitive?
What if a family member who is an owner wants to sell the business and maximize their return, but a family owner-manager wants to keep the company for next-gens?
Suddenly, family business ownership interests and the business are misaligned. Yet misalignment can be corrected.
Aligning Ownership Interests
As Hewitt Group Inc. CEO Jim Hewitt explains in this video, a decision to keep or sell a family business is not necessarily straightforward.
“In our previous business situation, that was a circumstance whereby there was a third party, who was our primary supplier and who really had a very large say in what that circumstance might be,” Hewitt says.
Ultimately, Montreal-based Hewitt Equipment Ltd., the family business founded by Jim’s father, Robert Hewitt, in 1952, was sold to Toromont Cat in 2017.
Investment concern Hewitt Group Inc., and the Hewitt Foundation, were born later that year with Jim’s son, David Hewitt, as president. The Hewitt family business morphed into what proved to be a satisfactory family ownership outcome.
It’s just as well. Family ownership is the pillar of family enterprises around the world. Indeed, Canada’s family-owned businesses are the backbone of the economy. They were directly responsible for $574.6 billion in goods and services produced in 2017.
Yet fully understanding the roles each family member plays in ownership requires strong knowledge of what family business ownership actually means.
Mastering decision-making processes or how to approach different family business ownership models doesn’t come naturally to even the most agile family enterprises.
We’re seeking input through the family council
Some families treat ownership as unplanned – and often painful – processes of discovery. But those whose learning approaches are more formal, insofar as seeking counsel from neutral advisors, are at an advantage.
“We’ve continued using advisory boards for the different entities within our group as it’s structured today,” Hewitt says.
“[We’re] getting an awful lot of input from them and seeking input from various members of the family, including input through the family council.”
Two key learnings from BFF’s Discovering Family Ownership course are that family business ownership is an evolving process that changes over time, and that owners work on the business, whereas managers work in the business.
Learn how the course Discovering Family Ownership can future-proof your business.
One person can do both, but their roles change depending on which hat they are wearing. Family participation as owner-managers can strengthen the firm because family members are often dedicated to the enterprise.
But family participation as owner and/or manager can present unique problems because the dynamics of the family system and the business systems are often imbalanced.
Think of the classic three-circle model which sets out family, business and ownership as three overlapping circles. Each circle shows that a person can be in more than one circle.
A person might be in both family and ownership circles, but not in the business circle because they don’t work in the enterprise.
The model actually creates seven different categories that people in family enterprises fall into, including owners who are not family and family who are not owners.
Which why it’s useful to assign roles and responsibilities amongst owners. Aligning responsibilities with corresponding motivations narrows the scope for conflict.
And don’t forget, emotional ownership affects how ownership decisions are made.
Don’t be passive. Discover family ownership on your terms.