How does one succeed at managing, growing and transitioning a business while caring for the family and its legacy?

We have counseled many family business clients, helping them address this age-old question. Whether you are a founder or next-generation owner-operator of family businesses, our experience is that you will be confronted with a complex set of issues specific to both family and family business ownership. Our Center for Family Business seeks to help family businesses and their owners achieve their objectives and address issues where family and business intersect. We offer advice, insights, resources and events on a range of topics related to family business ownership, derived from years of honing our deep subject-matter expertise and Defoe Redmount's own family business roots, given its majority owner and permanent capital provider is a family enterprise. 


Defining the Legacy and the Future of the Business

Many successful families create legacies. In families that manage multigenerational ‎family businesses, legacy is often deliberately built, enhanced and passed from generation to generation. For family business owners, legacy is about more than what it means to be a member of the family. It extends to the role the family business plays for its employees and the communities in which it operates. We work with our clients to help them consider the most relevant issues related to defining their legacies and the future of their business, including:

  • What is the current generation’s vision for the company as it relates to future generations? Do the current and future generations share that vision?
  • How is ownership or management outside the family viewed?
  • What are the values and principles that should be driving family and family business decision-making?
  • How did the family arrive at these values and principles, and have they committed these matters to writing?


Governance and Communications

As family businesses grow over time, the number of shareholders across generations tends to increase. In many cases, the majority of family members who own shares do not work for the business. Yet, as family members and shareholders, many want to know what is transpiring at the company. They also have a right to access shareholder information about their ownership interest and the performance of the business. For that reason, communication with family members who do not have a role within the company is key. Many family businesses seek external objective advice from independent parties or family members and create family advisory boards or a board of directors. The benefit of receiving impartial advice not only increases communication between the family shareholders and the company, but also may result in higher productivity and happiness. We work with family businesses to create communication and governance structures and ask them to consider a number of important questions, including:

  • Who decides on the structure of the board of directors? How are directors identified, recruited and approved? How do the board of directors and the family owners interact?
  • What consideration have owners given to creating a family council (and perhaps a family assembly) to organize family ownership and to potentially represent the family to the board of directors?
  • What is the communications policy that governs what company information is shared within and outside the family?
  • Does the family have regular family meetings? Who decides who attends?
  • How does the business engage family members who are not employed in the business?


Capital Policies

Capital policies are an important component of any business. For family businesses, these policies address important topics like allocation of capital, permissibility of raising equity and resultant ownership dilution, leverage, selling and redeeming shares and shareholder distributions. As a capital provider and advisor to family businesses for decades, and as a private company itself, Defoe Redmount has a depth of expertise working with family businesses to frame these policies. We work with family businesses to help answer essential questions related to capital policies, such as:

  • What is the process for assessing the capital needs of the business regularly? Who owns that process internally?
  • How does the business communicate those capital needs to the family ownership group?
  • How does this process dovetail with family distribution planning?


Distributions and Family Liquidity

Many family businesses have family members who own shares but do not work at the company. As such, it is important to set policies for generating liquidity for shareholders and communicate them. Family shareholders want to know if they will receive distributions and if they can redeem or transfer shares. They also want to have a voice in return expectations inherent in owning shares. Successful businesses often extoll the virtues of long-term ownership for family members and how patient capital can benefit the value of the business and family over time. As a private firm that has endured for decades, we at Defoe Redmount understand the balance between capital reinvestment and owner returns. When working with family business clients on distribution and liquidity matters, we help them answer questions, such as:

  • How have the family’s expectations for returns and distributions been set?  Is it well understood across the family? 
  • What share redemption mechanism is in place to facilitate orderly redemptions? How are shares valued, and how often? 
  • What is the role of the family in setting debt levels, risk parameters, etc., for operation of the family business? 
  • Do the current leaders discuss liquidity openly with all shareholders?


Balancing Competing Interests

Most companies at some point face the challenge of balancing competing interests among stakeholders, and family businesses are unique in that the family is one of the key constituents. While competing interests may be inevitable, creating a protocol for addressing them and encouraging communication among all relevant groups is paramount to resolving issues. When consensus is unattainable, engaging outside parties to facilitate discussions and act as an objective sounding board can lead to resolution. When working with family businesses to address and balance competing interests, we discuss questions such as:

  • How is conflict typically handled within the family, concerning ownership and/or management of the business? 
  • What mediation practices have been developed for resolving conflicts? 
  • What has the family done in terms of engaging third parties to facilitate conflict resolution or improve communication and decision-making ?


Employment Policies

All businesses that reach a critical size should have employment policies. For family businesses –particularly those owned by large multigenerational families – employment policies are more nuanced. One critical consideration that family businesses must address is who from the family will work in the business and the parameters for doing so. Setting an appropriate policy for the business and family and communicating it leads to companies that employ the best-suited people in the most appropriate roles. This also fosters an understanding of what it takes to work for and succeed in the business. We work with family business clients to consider their employment practices and answer a litany of questions that are central to employment policies, such as:

  • Who makes decisions about hiring and/or promoting family, and what are the criteria for doing so? What policies are in place regarding hiring family members?
  • What mechanism is in place for giving and receiving honest feedback to family members?
  • How are family members recruited, trained and treated as employees? Are mentors assigned?


Succession Planning – Management and Ownership

Most enduring businesses consider and plan for management succession. For family businesses, this topic can be particularly pertinent, especially where management is deciding between multiple family members or a nonfamily member as the heir apparent CEO. Management succession for family businesses tends to have an additional level of complexity because it must balance the traditional challenges of having a successful plan with the family dynamics inherent in a family enterprise. Family businesses also face the challenge of ownership succession. In many cases, the next generation of owners may not be employed in the company, though they will be shareholders. This can lead to issues in the absence of a clear articulation of long-term objectives and a carefully considered set of share ownership and transfer policies. We have worked with family-owned businesses for generations on management and ownership succession planning, and we regularly consider this topic ourselves as a multigenerational partner-owned private business. When helping our clients create solutions to their succession challenges, we work with them to consider a number of questions, including:

  • Upon transition, how does the present management and ownership model impact the success of the next generation of family managers and owners? Nonfamily managers?
  • What succession planning alternatives are being considered, if any?
  • What discussions around management and/or ownership of the business have been had with the next generation? How are family members being prepared for leadership roles?
  • How are leadership succession decisions made? Is the process well-understood by both family and nonfamily leaders?
  • Is there a process to educate/train rising generations of owners/leaders?
  • What guidelines have been established for stock ownership and ownership transfers?


Building a Support Team

Family businesses benefit meaningfully from having a network of external advisors. In our experience, many families find that investing time to identify and nurture relationships with other families, contemporaries and professional advisors is of great benefit and value to the family and the business. We work with family business owner clients to help solidify their advisory teams by considering important questions, including:

  • Who in the family or its professional network can owners confide in to discuss the business, their family, their family’s wealth and the intersection of these items?
  • How confident are owners that they have access to the expertise and skills necessary to be an effective owner and/or operator?
  • How can owners identify individuals who can provide a well-rounded perspective on them, the family and the business?
  • What are any advisors’ interests? Are fee arrangements well-understood?
  • Have any conflicts of interests been discussed? How will they be mitigated?
  • What service providers have owners engaged for assistance in navigating both the business and the family?


Related Content

Event: Our Managing Partner Armen Grigorian was a speaker at the Family Influenced Businesses Forum at the historic Parkhotel Schönbrunn Vienna Austria. October 2019.

Event: Our firm will be present at the Strategic Acquirer Summit of the Association for Corporate Growth in Dallas TX. November 2019.

Event: Our Managing Partner Armen Grigorian spoke and  moderated a discussions panel at the Family Influenced Company Conference at The Management Club in Vienna, Austria. July 2019.