Family Businesses and Shareholder Value
Revelations about public company financial shenanigans have again focused attention on the issue of trust between the investor who buys stock in a company and that company’s management. Indeed, the issue is large and important. After all, the mantra of top executives in most public companies is simple, straightforward and single dimensional.
Their job, they will unequivocally state, is to “increase shareholder value.” That’s what they are paid to do, and their success or failure is measured by the stock market every business day. So motivated are top executives to present the appearance of increasing shareholder value, that many resort to speaking loudly and carrying a crooked (measuring) stick. A “1998 survey found two-thirds of financial executives complaining of pressures from upstairs to make the numbers look better by dubious means,” according to the Wall Street Journal. Another study looked at accounting scandals that brought down companies 1987-97 and found fraud starting at the top in 70% of cases. These guys weren’t just out to mislead the IRS. Their goal was to create for investors an illusion of value that did not exist. In so doing, they defraud the one constituency they claim to serve on the single criteria they recognized as valid.
In contrast, consider the family business owner. Shareholder value is a long-term abstraction to the owners of most family businesses –not something constantly in your face, on a computer screen. What is in the family business owner’s face are the day-to-day realities of customers, employees and suppliers – the people who tangibly make it possible and profitable to do business every day.
Consequently, these constituencies are rightfully recognized. Their interests, as well as owners’ interests, are carefully balanced in the effort to build long-term value. Real, lasting value must be the family business goal, because unlike owners of public company stock, shares in family businesses can rarely be disposed of casually or easily.
Again and again we are dramatically reminded that the greatest competitive advantage of family businesses is expressed by a single word – trust.
Everything that family business owners do to reinforce trust with other owners, and with customers, employees, suppliers and other key constituencies of the business, differentiates them from those who treat business as a financial game with rules meant to be broken.
On a base of carefully nurtured trust, family businesses with talent in their fields and in commerce will build value over time consistent with other values essential to the building of a humane society. Their rewards come not only from wealth created, but also from the fulfillment of family and community. Ultimately, satisfaction should come to the good stewards who represent the soul and salvation of private enterprise.
That family businesses so rarely discuss shareholder value only shows what a deep commitment it represents.
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