|
Posting by: Joel Susco
Date: October 2, 2009
Being born into a family business does not necessarily grant one all the rights and privileges of becoming an owner of that business at birth. All too often young family members look upon themselves as heirs of entitlement without the thought of the management obligations that must go along with the rights of ownership.
It is important for families to invest a considerable amount of time and effort in educating these young potential shareholders, including those both active and non-active in the business, in their rights and responsibilities to that company. The establishment of governance structures that set ground rules is important to the longevity of the family business. It is so important for shareholders to understand that they not only have rights, but more importantly they have obligations to the business.
Three Wrongs Don’t Make a “Right”
So what are some of the rights of a shareholder?
1) Shareholders have a right to expect a certain economic return from their investment. If the business is not generating a certain level of profit or benefit, they have legitimate considerations that must be raised. The American dream for a family business owner usually involves the steps of working hard, becoming profitable and establishing a legacy for years to come.
2) Shareholders have the right to demand that the business be run in line with the vision and values of the family. What principles has the family set? They shouldn’t be compromised for short-term gains.
3) Finally, each shareholder has the right to express their views on whether those managing the company are the best persons suited for such a position. Is the company not heading in the right direction? What should change and how should it change?
The Other Side of Right – Responsibility
As one carrying rights, there are also respective obligations or responsibilities that go along with those rights. Some include:
1) It is up to the shareholder to be committed to the long-range development of the business. Shareholders should not think of the family business as a source of available resources to fund their own lifestyle.
2) Shareholders should also have some say in the degree of risk that the business undertakes, such as the amount of debt the business should assume. Not only do shareholders have the potential for losing their investment if the company is mismanaged, they themselves are liable for any damages that managers inflict, as owners of a privately-held company.
3) And finally, the Shareholder has the obligation to share in the definition of the vision for the business. It may be decided that alternative business ventures should be considered, if the current one is no longer economically viable or desirable.
As family businesses grow, they face complex issues. Shareholders are not born with the knowledge to understand the rights and obligations to their family business. They must be learned. Ownership requires the development of this knowledge and the understanding to respect management’s role in guiding the business throughout the years.
 |
Subscribe to this comment's feed