Posting by:  Geoff Brown
Date: August 8, 2009

In this month’s Journal of Accountancy, there is an article titled “Four Options for Measuring Value Creation.” http://www.journalofaccountancy.com/Issues/2009/Aug/20091518> At the beginning it states that first and foremost, the role of a corporation is to create shareholder value.  While this is relatively easy to visualize in the world of publicly-traded securities, how does this play out in the world of family-owned businesses?

Publicly-Traded versus Family-Owned

In the publicly-traded sector, you’re creating value for shareholders that, in a myriad of ways, they use simply to increase overall wealth.  That wealth is to be used, presumably, at some future point in time.  However, in the family business arena you’re creating value of a different kind.  It’s not just “shareholder value;”  it’s the kind that you hope your future generations will see and want to participate in.

As the business leader(s) you are not simply creating something that has significant monetary value to future generations.  If so, it would be much more difficult to entice the next generation to work in the family business.  After all, wouldn’t they be happier letting someone else do the heavy lifting while they simply cash in the dividends each year?

How Your Family Values the Business

For some, value means creating a company that they would be proud to call their own because of its place in the community and the stature it brings.  For others, it may be the philanthropic side of the business.  Or, perhaps the lure is the opportunity to use the business as a launching pad for significant future company growth.  One might simply want the opportunity to continue to build and mold the family business into something special for the next generation. 

I think most of us have probably seen failures when the younger generation arrives on the scene with the single purpose of making money, whether it be for themselves or for the family shareholders.  If the younger generation doesn’t have a purpose for entering the family business beyond simply making money, chances for their ultimate success deteriorate.  The current generation will make succession within the family much more probable by building non-monetary value in the business.  Yet another way the job of the family business owner/manager is often more challenging than that of the publicly-traded company CEO.

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