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Dean R. Fowler, Ph.D. ♦ 262-271-5979 ♦ dean@deanfowler.com


Family Business Leadership
Copyright ©Dean Fowler Associates, Inc. 2013. All Rights Reserved.

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As the statistics show, only 30% of family businesses transition with family ownership from the first to the second generation.  After that first transition, the success rate is actually slightly better for future generations hovering around 50%.  But that means only 15% of family businesses make it to the third generation with family ownership.

Transition options for family business include:

  1. Continuity of family ownership from generation to generation.
  2. Sale of the business to a third party such as a strategic buyer or investment group or perhaps a merger with another business.
  3. Sale of the business to the non-family management group – an LBO or an ESOP.

The transition of ownership between generations has two primary variations:

  1. “Owner Manager” where only those family shareholders actively employed as managers in the business have voting control while inactive shareholders (or employed shareholders who do not have management roles) own non-voting stock and may eventually have their stock redeemed.  “Trimming the family tree” is an approach to consolidate ownership into the hands of one or a small number of actively employed family shareholders with each new generation.  The challenge for the “owner manager” model is to have passionate and competent family executives.

  1. “Engaged Investors” where family members continue as voting shareholders independent of their employment status in the family business and a non-family President (or minority owning family member) and executive management team operate the business. The approach often looks like a “semi-public corporation” where voting shareholders elect Board of Directors which in turn has the responsibility of overseeing the effectiveness of the President, financial performance, budgeting process and corporate strategy.  The challenge for “engaged investors” is to have a strong governance system with educated shareholders.

Based on our recent discussion at the Presidents Forum for Family Business SM ,  we identified guidelines for the “engaged investor” model.

  1. Beyond the emotional value of the family legacy, to continue to be “engaged investors” family shareholders expect a return on their investment as either current income through distributions, dividends, or lease payments and/or equity growth for their investment risk.
  2. A strong governance system needs to be in place where all the shareholders have confidence in the Board of Directors to oversee the management of the business.
  3. Shareholders need to be educated and competent to evaluate specific “score card” metrics for business success by:
    1. Establishing top level corporate strategy based on recommendations from executive management.
    2. Reviewing and monitoring the sales strategy, process, and sales pipeline/forecast.  This requires an effective and well-managed CRM program.
    3. Monitoring the financial reports of the business and make sure the correct key financial metrics are being reported and analyzed.
    4. Knowing how to evaluate acquisitions and how acquisitions fit into overall corporate strategy.
    5. Establishing metrics to evaluate the performance of the President and the executive management team.
    6. Understanding the industry through participation in industry groups, trade shows, etc. to have a strong understanding of changing market conditions and corporate strategic alternatives.
    7. Determining an appropriate financial diversification strategy with an effective balance between re-investment in the business and diversification to other investments.
    8. Understanding one’s fiduciary responsibilities to the other shareholders as Trustees and/or Board members.
    9. Developing expertise as investors and understanding how investors measure business success and take risks.  For example, understanding how non-related third party investors would evaluate and monitor the family business as an investment.

Comprehensive Family Roadmaps
We offer three different Comprehensive Roadmaps for specific client needs. Click on the Roadmap below to download more detailed information: