Governance for families who now own an institution, not a business

A family business becomes something else without anyone deciding it should. The founder's three children become eleven grandchildren and thirty-one great-grandchildren. Two of them work in the company. The rest own part of an institution they have no operational relationship with and cannot sell.

The governing documents, meanwhile, were written when every shareholder was also an employee, and they still assume that the people who own the business are the people who run it.

Deadlock is structural, not personal

Families in this position usually describe their difficulty in personal terms: a branch that is difficult, a cousin who will not engage. In our experience the difficulty is almost always structural.

A shareholder with no liquidity, no information, and no influence will eventually obstruct the only decision they can affect. That is a rational response to the position, not a character trait, and it will recur with whoever occupies the position next.

Three mechanisms, in order

The arrangements that hold, in our experience, address the position rather than the person, and in this order.

• Information. A defined reporting package delivered on a fixed cadence to every shareholder, whether or not they work in the business. Most obstruction is an information problem first.
• Voice. A family council with a defined remit, distinct from the board, so that ownership questions have somewhere to go that is not the chief executive's office.
• Liquidity. A redemption mechanism with a valuation methodology fixed in advance and a funding source defined as a share of distributable profit. Its existence matters more than its size.

Fix the valuation before anyone needs it

A valuation methodology agreed when nobody is selling is a technical question. The same methodology agreed when a branch has announced it wants out is a negotiation with a known winner and loser, and it will not be agreed.

The methodology does not need to be generous or precise. It needs to be settled, published, and applied consistently the first time it is used, because the first redemption sets the expectation for every subsequent one.

Document the failure case

Every redemption facility has a capacity. Families are reluctant to discuss what happens when demand exceeds it, which is precisely why it should be documented.

We tell clients plainly when a facility will be inadequate if more than a certain number of branches use it at once, and we write down what happens then. A family that has read that provision in a calm year behaves very differently from one that encounters the gap in a difficult one.