The resilience of family businesses depends on their structure

These three types of family businesses have distinct strengths, weaknesses, and strategies for resilience and longevity.

family owned business

In a single-owned family business, ownership and control is transferred to or consolidated into one owner. Single-owned family businesses are structured as dictatorships or monarchies. This ownership structure has proven to be a stable, viable and successful long-term family owned form.

Business issues aside, intrafamily conflicts over control, succession, and ownership usually run vertically between senior and junior generations, and generally indicate when and how changes in business control and ownership occur. It’s about how it happens.

Resilience Strategies for Privately Owned Family Businesses

• As always in a privately owned and family run business, communication is key and our goal is to ensure a graceful entry and dignified departure when ownership changes.
• Senior generation owners must be emotionally and financially prepared to exit the business when the time comes, and the next generation of leaders must be prepared ahead of time for their next owner and manager roles.
• Upon request, Senior Members should be made available within the business to provide advice and consultation.
• Ownership transfers should be structured to minimize the economic impact on owners and business operations.
• Any economic imbalances in wealth that may arise between siblings who are not involved in the business must be fully addressed prior to the transfer of ownership.
• The retirement of a senior generation owner should be celebrated and commemorated, acknowledging and formalizing the transfer of ownership and control to a junior generation owner.
• Advisory boards are necessary for privately owned, family-owned businesses to ensure that they receive unbiased outside advice that employees and families may be reluctant to provide.

a family business ruled by brothers

In a family business dominated by brothers, ownership, control, and related powers are distributed in the hands of multiple brother-owners. Since the business is owned and controlled by more than one person, the governance structure equates to an oligarchy (e.g. 2 to her 6 or so owners).

The advantage of having sibling owners is that families often have a common desire to see their businesses thrive. Building on the success and entrepreneurial spirit of the founding generation, they often seek to specialize and grow their businesses to accommodate the expanding ownership structure. But oligarchic structures tend to be at odds, especially as they move beyond their brothers.

Sibling oligarchy structures increase the potential for conflicts, such as horizontal conflicts between sibling owners over dominance and vertical conflicts with the next generation. Also, the next generation may have a horizontal conflict within themselves.

Resilience Strategies for Brother-Owned Family Businesses

In addition to the advice provided for single-owned family businesses, sibling businesses should consider:

• If not already done, establish an advisory board involving non-family members. In addition to seeking unbiased outside advice, it is important that siblings gain third-party perspective and validation to mitigate potential conflicts.
• Develop a “professional” management structure for the business that applies equally to family and non-family employees and includes procedures and policies such as hiring requirements, performance reviews, and position and performance-based compensation packages.
• Establish clear business entry rules for the next generation.
• Establish clear guidelines for future ownership opportunities.
• Establish a sales contract that, if triggered, will not hurt your business.

Now comes the hard part. If business longevity is a family goal, a brother-owner oligarchy should consider one of the following:

• Return to a sole-owned, family-owned business by acquiring shares from other owners, or
• Structure your business ownership so that it can be spread widely enough, preferably within the next generation (you can have 10+ owners). You can afford to take ownership.

Family business with scattered ownership

In diffuse-owned family businesses, ownership and control are passed beyond one nuclear family. Diffuse ownership does not imply a particular generation or number of owners beyond her two, but rather that the owners are not from the same nuclear family.

The problem with diffuse family businesses is that oligarchic structures are particularly prone to conflict as coalitions develop and vie for power and control. This conflict can become more pronounced as family relationships move further away from the founding nuclear family.

So the diffuse family business decision is to decide which ownership structure works best for the family and the business. Does ownership need to be consolidated, and to what extent—does it need to be consolidated enough to resolve the ownership or conflict of a single-owned company? It can take a while, and the next generation is likely to face the same or similar dilemma, so it’s usually only a temporary solution.

Another option is to change the legal ownership structure to something resembling a public corporation or a democracy, and spread business ownership widely enough to the next generation (10 or more owners) so that a single It is to prevent one owner from easily creating a coalition. You can afford to control the business or take ownership.

Resilience Strategies for Diffusion-Owned Family Businesses

• If the survival of the business is a family goal, the owner should consider changing ownership to something more democratic or resembling a “corporate” structure. If your family may relinquish control of your business and your business is big enough, financially stable, and able to develop the necessary infrastructure, go down this path.
• Legally mimics the structure of a public corporation with a representative set of family owners while maintaining the benefits of being private.
• Create an Owners Council for family owners to discuss and share concerns.

At some point in the prevailing democratic family business, management succession trumps ownership succession. With fewer and fewer shares held by more and more owners, each member of the family assumes the role of a ‘shareholder’, as if the family business were a publicly traded company.

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So which family ownership structures have proven to be the most resilient over the long term? It is often considered an aspirational template. However, these are difficult businesses to create, manage, and maintain.

The future of ownership structures is a decision that all family business owners must face. And each has a cost. Consolidating ownership can lead to bitterness from those not included. Distributing ownership among more representative forms of ownership can create a feeling that you have lost control of your business. Staying in the middle with the oligarchy seems like an easy choice for the siblings, but it could only be a temporary solution as they could face the same dilemma later. Whatever choice you make, put your family first and make sure you have a lot of discussion before making the decision that is best for your family.