Engaged Ownership

A Guide for Owners of Family Businesses

Amelia Renkert-Thomas

• Publisher: Wiley
• Year: 2015
• ISBN:
  9781119171157
• Edition: 1
• Topic: Commerce
• Subtopic: Petite entreprise

Successful ownership transition requires effective decision making at the top

Engaged Ownership is the definitive owner's guide to the family enterprise. Whether you're taking over a family business, family office, or trust, this book shows you how to work effectively with the management and board to keep the enterprise moving in the right direction. The first guide of its kind written from the owner's perspective, this book is designed to help owners who are truly committed to growing all forms of capital be successful in their role. You'll learn the time-tested process that helps you 'unstick' decision-making, become engaged and effective, and manage the transfer from owner control to shared ownership while minimizing risk. Improve communication and relationships with the board, and ensure that every stakeholder understands your strategies and vision for the future. You'll allay the fears that frequently accompany ownership transfers, and inspire a sense of teamwork that leads to sustainable success generation after generation.

As the Baby Boomers retire, business founders and entrepreneurs worldwide are transferring ownership of privately held enterprises to their children in record numbers. It can be a complex and difficult-to-navigate time for everyone involved. This book helps you smooth the way to a successful transition, and transcend the owner's traditionally passive role.

• Learn to work effectively with management and the board
• Get everyone on the same page in terms of vision and direction
• Build relationships that lead to forward-thinking decision making
• Succeed in the ownership role by bringing your expertise to the fore

Ownership transfer often triggers a radical change in family enterprise, and if poorly managed, can turn a business in the wrong direction. Engaged Ownership shows you how to build a dynamic and effective partnership with trustees, board, and management, and become a successful steward of the family's financial, human, social, and operational capital.

Part I
Engaged Ownership: An Introduction

Prologue

Owen Family—January 3, 2010

Earlyin the morning, Charlie Owen went for a run. There was a board meeting coming up, and he suspected his two outside directors might ask him about succession planning. He had just signed estate planning documents two weeks ago, at the insistence of his wife, Ali, his daughter, Amanda, and his accountant. The estate plan wasn't exactly what he wanted, but it at least got everyone off his back. Ali had urged him to consider putting his 75 percent of the Owen Products' shares in trust, just as his uncle Fred had done, particularly since three of their four children had married and there would be less risk of the shares passing out of the family in the event of a divorce if the shares were held in trust. Charlie usually followed his wife's advice, particularly when it came to legal matters, but he couldn't imagine how he could have dealt with a trustee on top of everything else had his own father put the shares in trust, so he opted for the shares to pass to his children at his death instead. As for the taxes that would be due when he died and the shares passed, they would be paid for by insurance—thank goodness he didn't smoke and had the heart of an ox from all the marathon training. Ali would receive their house and Charlie's savings and investment accounts. Son Mike could run the company, drawing on his siblings for advice and support. Daughter Martha's husband, Ryan Jones, the head of operations for Owen Products West, could help. As he started up the long hill behind the football stadium, Charlie made himself a mental reminder to begin talking with Mike next week. Ali had suggested that Charlie call a family meeting to explain his plans. But was it really a good idea to talk about all this? What if the kids—or worse, their spouses—didn't agree with his plans?

Charlie was nearly to the top of the hill, still in full stride, when the pain hit. A motorist coming up the hill behind him saw him stumble, then collapse. She pulled over and ran to help, calling the emergency number on her mobile phone.

July 10, 2010

Meet the Owen family (Figure I.1). Charlie Owen took over the reins of Owen Products, Ltd., in 1975 from his father, John Owen, who founded the company in 1948. Like his father, Charlie was a driven businessman, and as a result of his efforts over four decades Owen Products is now a leading manufacturer of clay pots for the domestic greenhouse industry. The company has two manufacturing facilities, Owen Products East and Owen Products West. Each serves a distinct market due to the very different climates on either side of the country. Owen Products East primarily serves greenhouses in the East, where it is wet and cool. Eastern greenhouses want pots that can withstand freeze–thaw conditions so that they can be used outside. Owen Products West primarily serves greenhouses in the West, where it is hot and dry. Western greenhouses want pots that can withstand extreme heat and will absorb and retain water, thus reducing the amount of watering that must be done to keep the plants healthy. Owen Products has developed distinct technologies in each of its manufacturing facilities to meet the needs of greenhouses on both sides of the country. The company makes pots in thousands of different sizes and shapes, including custom sizes for top customers. It also prides itself on quick and accurate deliveries to its biggest greenhouse customers and has made a substantial investment in supply chain and logistics management technology. As a result, Owen Products' clay pots command a higher price in the marketplace than their competition.

Figure I.1 Owen Family Tree (as of February 2010)

Charlie Owen died six months ago, leaving his shares (representing 75% of the outstanding shares of Owen Products, Ltd.) to his four children:

1. Mike Owen, born 1971, now president, formerly served as vice president of sales for Owen Products East.
2. Martha Owen Jones, born 1972, homemaker, is married to Ryan Jones, VP of operations for Owen Products West.
3. Amanda Owen Cooper, born 1975, is an attorney who practices with a corporate law firm in the West.
4. Christopher Owen, born 1976, is an associate professor of applied mathematics at Eastern University.

The remaining 25 percent of the shares are held in a trust that was created by Charlie's Uncle Fred for the benefit of his son, Alfred, who suffers from severe cerebral palsy (Figure 1.2). Fred was Owen Products' CFO for more than 40 years. Fred died in 2008 and named Charlie as trustee of the trust for Alfred. Charlie named his daughter, Amanda, as successor trustee. Dividends from the shares are expected to provide much of the funding for Alfred's ongoing care.

Figure 1.2 Owen Products, Ltd. Ownership Chart

Charlie's death was unexpected; a self-described health-food “nut” and marathon runner, he collapsed one day during a training session and never regained consciousness. Doctors told his wife, Alison, that he had suffered from an undetected aneurysm.

The board of Owen Products, Ltd. (Mike, Alison, the company's outside general counsel, the owner of a prominent Eastern greenhouse, and a local professor of botany) named Mike as president and CEO.

The Owen kids are proud to be the third generation of shareholders of Owen Products, and they are excited about the opportunities they see in the clay pot industry. As Charlie told them from the time they were small, “People will always want potted plants, and terra cotta is the best possible pot for growing them.” But the Owen children are finding that there is no roadmap for the journey they have embarked on. While they have always enjoyed close relationships, they find themselves disagreeing on seemingly simple decisions.

The business isn't running smoothly; employee complaints are increasing, cash flow is slowing, and major customers have suggested they may turn to other suppliers. The board, which previously served primarily as a sounding board for Charlie, isn't accustomed to strategic planning, and they have proven to be little help as Mike tries to navigate his new role. Their advisors are telling Mike that he should buy out his siblings. Martha, Amanda, and Christopher are beginning to question Mike's motives.

A major competitor called to ask whether they would consider selling the business “now that Charlie is gone.” Mike, offended, slammed down the phone. When Mike joked about the call at a family gathering, Amanda was shocked and scolded him for not bringing the offer to the board and shareholders.

Martha and her husband, Ryan, want to bring their son, Jameson, into the company when he graduates from university; Amanda (whose children are much younger) is worried about “equal opportunities.”

Christopher called Mike recently to ask when the dividend would be paid, and whether he could expect an increase next year. Mike has been avoiding Christopher since then.

The Owen children, as the controlling owners of Owen Products, Ltd., feel as though they are alone in uncharted territory. But the Owen children are not alone—in fact, the situation they face is increasingly common. What is happening here? What can they do about it? How can they come together to lead Owen Products forward? And why does much of the advice they are receiving seem off-base?

A Note about the Owens and Owen Products, Ltd

Readers whose involvement in a family business revolves around very different sorts of companies—larger, more international, more technology- or service-oriented—may wonder whether the Owens' story and this book will be relevant to them. In family business there are certain patterns that recur over and over, regardless of setting. This book focuses on one of those patterns: a group of related individuals inherit shares of a family business that previously was controlled and managed by a single person, and struggle to find their place within the business system. This book focuses on a relatively small family in a relatively old and slow-to-change industry to illustrate these patterns, so as to minimize the business-oriented distractions that might otherwise arise in the telling.

This is not a story about dysfunction. The Owen children are intelligent, educated, well-adjusted, and capable adults with good jobs, adequate financial resources outside the business, and a strong commitment to family and their family business. Certainly, they share the challenges that most families face—raising children, dealing with an aging mother who now finds herself widowed, and managing complex professions, growing financial obligations, and busy family lives. But in the main, the Owens are as well-prepared to be owners of a business as anyone. The Owens are entirely fictitious, but they are similar to many business-owning families. The challenges they face in becoming engaged owners of Owen Products, Ltd. do not arise from their interpersonal relationships as family members, but rather from their new relationship to the company and the family's core capital. They will not be able to resolve those conflicts simply by relating better to each other (though good communications skills will certainly stand them in good stead). Rather, dealing with those conflicts will require that the Owens get organized in an entirely new way, by developing structures and policies that will enable them to look at capital and strategy at the highest level and support them in developing a new decision-making structure and allocation of power among the owners, board, and management.

Chapter 1
More at Stake than Money

Refocusing the Succession Planning Discussion

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Refocus the discussion around business succession planning from who's going to run the company to what is the best use of the core capital.

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News stories about family business disputes are eternally popular because they have all the elements of epic tragedy: love, greed, betrayal, loss. Readers know how the plot will turn out: owners can't agree on the future of the business; they take their disagreement to court; a lengthy and public battle ensues; a fortune is spent on the battle; the business is lost and the family is torn apart.

Often, blame for this tragic ending is laid squarely on the family owners. They only wanted big dividends. They fought each other for control. They couldn't agree on whether to sell the business. They failed to change course before disaster struck. Certainly, there are plenty of examples of such behavior. So often are owners cast in the role of villain that advisors to family businesses regularly suggest that ownership and control should be concentrated in the hands of a single individual, to avoid conflict that could arise when family members with different viewpoints, needs, and agendas share ownership of a business.

This book takes a different perspective on family business ownership. How can family owners be the core strength of the business, and not the villains? How can owners be the source of a unified and thoughtful vision for the future? How can they be engaged in an ongoing, productive conversation with family, board, and management, strengthening the long-term value of the business, the family's core capital and the owners' stake in it?

To see family business ownership in this new light, we need to think differently about the roles and responsibilities of family owners, their shared purpose, and thei...