Keeping ownership within the family

sept 5

Ownership Stages

An analysis of family business system development in 1997 led Gersick, et al to create the Three Stages of Development of the Family Business, first published in the book Generation to Generation: Life Cycles of the Family Business. 

Most family businesses start at the Controlling Owner stage with one owner (or one owner and his/her spouse) having ownership control. A family business can stay at the Controlling Owner stage for many generations if ownership remains consolidated in one person or a married couple. 

Because families tend to pass ownership equally to the next generation, family businesses typically move next to the Sibling Partnership stage. Now brothers and sisters control the business together through ownership. 

Next, family companies typically move to the Cousin Consortium stage as ownership control passes to a group of cousins. The family is larger, more diverse, and the business is larger and more complex.

I am finally back in Manila but only for a few days as I am slated to be in Iloilo and Cebu for back to back engagements before resuming my regular advisory work for ASEAN clients in mid-September.

My two-week research and family coaching work in the US and Europe related to the dynamics of Family Enterprises was indeed a learning experience. To borrow a line from Albert Einstein…’the more I learn, the more I realize how much I don’t know.’

The series of engagements made me reflect that the more I learn about anything related to governance naturally unlocks the knowledge that there is so much more about ownership that I don’t know.

Ownership transition is a critical end stage initiative that when done early and correctly produces real growth and harmony bereft of any tension and conflict long after the founder is gone.

Ownership Governance and Stewardship

One particular meeting during my two visits in the US that is worth mentioning was with Andrew Hier, Senior Advisor and partner at Cambridge Advisors. It was another opportunity to learn the complexities of ownership as family businesses transitions from one generation to another. Like its Founder and Chairman, Dr. John Davis, Andrew is a globally recognized expert on the ownership dimension of family enterprises and has served as facilitator and lecturer at Harvard Business School’s Families in Business Program.

As he intimated during our meetings, for visionaries and founders to transition the enterprise to the next generation members successfully, leaders must rigorously pursue the following ownership programs:

  1. Craft ownership strategies
  2. Create an integrated, long-term ownership plan
  3. Put in place Ownership governance forums
  4. Develop Ownership and dividend policies
  5. Design a process in selecting and compensating board members
  6. Assess the most appropriate ownership models to include strategies for transferring ownership
  7. Work on a process for shareholder buyouts

Under a globalized economy, high net worth families and SME owners, must do more to make sure their wealth is preserve while passing the reigns of the business to the next generation. In return, next generation business leaders must grow and braced for more changes that are expected to happen in the near future.

Ownership alignment and stewardship is no longer limited to tax minimization and estate planning but has become far and wide reaching that founders of businesses must seek expert advice on how to go about crafting a future proof ownership plan. Seeking the right advice from specialists is no longer an option. It is an imperative.

Wired and Borderless Transactions

While doing research and scanning the various modalities related to ownership and wealth preservation, family enterprises in Asia, the EU Countries and North America are experiencing unprecedented regulatory changes as a result of technology and globalization.

These changes are clear manifestations that family advisors, wealth planners, estate lawyers and most importantly business owners must start embracing complex ownership models as part of their legacy building initiatives.

It is a clarion call for stakeholders to embrace change and initiate the process of stewardship and incorporating tools to further protect the purity of ownership as the family transitions to a multi-generational system.

So whether your enterprise has presence in multiple countries or is simply a small or mid-sized enterprise with local operations, business owners wishing to preserve wealth and control within their family inevitably face a multitude but unique set of circumstances.

If the ownership plan is not initiated early, the American version of losing wealth by default would always resonate…

“Shirtsleeves to shirtsleeves in three generations”



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