What is Ownership?
For me there are two types of ownership legal and emotional. You can own something emotionally without it being a legal owner of it and in my experience, this is very often the case with a family business.
Businesses as a legal concept have been around for a while in terms of recent history, however in the context of passing ownership between generations in a family business, our ‘study’ of this is relatively recent.
Traditionally changes in ownership have been centred around the most tax efficient or logical solution from a financial or technical perspective.
My view is that more focus is needed on the emotional aspects of ownership and developing an ownership philosophy as a family is a way to help this.
Future potential owners often feel a high degree of emotional ownership of the business long before any legal transfer of ownership happens. This can obviously be a positive thing, the emotional connection to the business highlights the importance that it plays in that person’s life but if expectations aren’t understood, both from an individual and a collective perspective, and then shared, there is the potential for future tension.
Ownership as a 2nd Generation issue
In my experience when I have spoken to founders about the reason that they own a business they speak to me about the passion they have for the business, what is does and the impact it has either on their lives or the lives of those within the business and the people it serves.
I don’t often hear that it is because they wanted 100 shares in something.
Ownership is a by-product of following a dream, or a passion for something you want to create that goes beyond the legal structure of the entity we call a business.
When it comes to family business, the shared passion for the business that creates the emotional ownership in the second generation and beyond can become a powerful force for good, when harnessed and optimised.
Discussions around your ownership philosophy is a way to do this.
What is an Ownership Philosophy?
The first and possibly the most obvious observation with an ownership philosophy is that it relates to ownership, either current legal ownership of the business or as part of the discussions around the transition of future legal ownership.
It is an opportunity for the individuals that will own the business to think deeply about and then share what it is that ownership means to them. Is it to continue the legacy of the generations before them, is it to allow them to follow their own dreams via a potential revenue stream from the business? Is it to build it up and sell it?
Is it to focus on building or maintaining somewhere that will always provide opportunity for the family, be that through ownership or via foundations or philanthropic activities?
In an episode of The Family Business Podcast, I spoke with Josh Baron and Rob Lachenauer, authors of The Family Business Handbook, about The Five Rights of Ownership. They highlight that as owners of the business you can make important decisions about the family business.
Discussing and agreeing your ownership philosophy gives you the lens through which you can make those decisions.
Some of the elements of your ownership philosophy will relate to the vision you have for the business, the mission or purpose it serves and the values you as a business owning family wish to see displayed within the business.
In this episode of the show I speak about the fact that we become what we do, and this is as true for individuals as it is for businesses. Discussing and agreeing how you will behave as owners and then behaving in that way helps to create the culture within the business, or it highlights that the culture within the business isn’t matching what you want as owners.
These conversations should and need to be meaningful, anyone can grab a set of values from the internet and say, “That’ll do” and print some posters etc but for this to become embedded in your family and in the business, it needs to taken seriously.
This can mean some uncomfortable discussions, some misalignment in motivations or expectations, but rather than seeing these as a negative, tackling them with a positive intention and working on how you can encompass all views into your business.
Life involves compromise as, does any form of enterprise, your family business is no different.
What is the benefit of an ownership philosophy?
There are a number of tangible benefits to having these conversations. Firstly, it gives you clarity, not just for you but to those who are responsible for running the business.
Remember, the ownership philosophy relates to ownership so even if you are wearing multiple hats (ownership, management and family roles), having clarity at ownership level gives clear direction for the Board to do their jobs and deliver against that vision.
If there are high levels of emotional ownership within the family, the ownership philosophy gives you something more tangible to rally around, understanding from your family what their expectations and ambitions of ownership are and them understanding yours gives something more real to focus on rather than assumption or a lack of understanding.
Thinking about this also allows you to look at what sort of role you want to be playing as an owner. Do you want an active role (within suitable boundaries as an owner) and to be involved in establishing or running the appropriate family governance forums (owners council as an example)? Do you want a more passive role that involves little of your time but still allows your viewpoints to be expressed (again governance can help here)?
These issues become clearer when you fully consider what it is that ownership means to you.
It allows you as an ownership team to understand each other’s roles and responsibilities, it may involve those that have multiple roles, within the business itself and as an owner and can help create the boundaries that are often blurred when this is the case.
As an ownership team, having clarity on what the business is ‘for’, allows you to make ownership decisions that are aligned to that.
Impact on Transition
Whilst earlier I mentioned that for many of the founding generation ownership of the business is a by-product of their passion, it still means something. Especially when asked to give that up.
Having the conversation about ownership with the ceding generation aside from the legal and financial avenues is important and can highlight barriers to succession such as what giving up ownership will mean for their sense of purpose and identity.
It also provides an opportunity to identify ways in which ownership contributes to your own and each other’s wellbeing and what can be replicated in order to allow the business to continue through generations but without the need for the ‘giving up’ of ownership to be seen as an entirely negative experience.
How to get started
So how do you get started? For me it starts with the question “What does ownership mean for you?” Considering it from your own perspective and thinking deeply about it will hopefully bring a degree of clarity that allows you to communicate effectively with your family.
If you need support in either in helping to gain this clarity or in facilitating the conversations as a family, I can help.
The key is to ensure openness and honesty and for each of you to respect the views being shared. If there is an alignment on this fantastic, if there are areas that may require some additional conversation and compromise, see this as positive.
If there are different motivations or priorities it is better to address these with a positive mindset than for them to go unspoken only to pop up at some point in the future.
If you would like to use a short questionnaire I have, please get in touch on russ@familybusinesspartnership.com
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