Enrique M. Soriano, Senior Advisor, Wong Advisory Group
Ownership governance goes beyond the mere division of shares; it is about establishing a framework that safeguards the longevity and success of the family business. This framework is essential in creating clarity, structure, and a shared sense of responsibility across generations. Proper governance not only ensures the business thrives but also protects the family’s legacy and vision for future generations.
Shares Are Sacred
Shares in a family business represent far more than financial assets; they are symbols of stewardship, responsibility, and legacy. These shares are sacred—holding them means carrying the weight of the family’s history, values, and future. As such, it is vital that ownership is passed down with a clear understanding of who is qualified and deserving to carry the torch forward. The principle here is meritocracy, not entitlement. The future success of the business does not lie in merely distributing shares equally among family members, but in ensuring that those who inherit the shares are equipped with the skills, commitment, and vision to lead and grow the business. The next generation must be chosen based on merit—on their ability to serve as active stewards of the family business—rather than as passive beneficiaries of inherited wealth.
The Danger of Equal Division
While dividing shares equally among heirs may seem like a gesture of fairness, it often leads to dysfunction and discord. Equal ownership fails to account for the differing levels of commitment, competency, and interest among family members. More troubling, it can dilute decision-making power and hinder the business’s ability to adapt and respond to challenges swiftly. This imbalance in ownership can create an environment where active members feel undervalued, and inactive members feel entitled to the same privileges despite their lack of engagement.
Such division is dangerous for long-term growth. Family businesses thrive when ownership is aligned with capability and passion. Without a framework that differentiates between those who contribute and those who do not, the business risks being steered by individuals whose interests do not align with its best interests. This is why ownership should reflect engagement, investment, and alignment with the business’s vision, not mere inheritance.
Defining Roles
One of the first steps in establishing a solid ownership governance structure is clearly distinguishing between owners, managers, and beneficiaries. In family businesses, these roles are often blurred, leading to confusion, frustration, and even conflict.
· Owners are those who hold equity in the business, but not necessarily those involved in its day-to-day operations.
· Managers are responsible for running the business on a day-to-day basis, overseeing operations and ensuring that the business performs well.
· Beneficiaries, though they may not be active in management, stand to inherit from the business or receive dividends from its success.
By establishing these roles clearly, family members can understand their responsibilities and rights, thus reducing misunderstandings and potential conflicts. This is particularly crucial in multi-generational businesses, where ownership may pass down but management remains concentrated in the hands of a few.
Furthermore, it is essential for owners to recognize that while they may hold shares, they may not always be the best-suited individuals to run the business. Leadership should be based on skills and experience rather than ownership alone. Similarly, family members who may not own equity might still bring invaluable skills to the company’s operations. By defining roles clearly, the family ensures that every member can contribute where they are most effective, allowing the business to grow both individually and collectively.