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Balancing Inside and Outside Stockholders Needs

Dear Advisor:

How do you balance the needs of family stockholders when some are employed by the family business and others are not?


To “balance needs,” one must know stockholders needs and have a sense of their priorities. One hopes that stockholders maintain their status out of choice – so the first step in the process of finding balance is to offer freedom to all. Those whose needs are unlikely to be met are likely to self-select out of the system. Of course, the ability to offer freedom requires liquidity – but that is a subject for another discussion.

Balancing needs is greatly facilitated if those whose needs you seek to balance have articulated shared understandings, values and goals. All stockholders should be educated about responsible ownership (a great topic for family meetings) and should be developed as an ownership team which seeks its own balance.

At the same time, those responsible for running the business should see themselves as “servant leaders,” accountable to and serving their stockholders and their family. Servant leaders understand that their job is to facilitate the achievement of their constituencies’ goals, not to corral others into supporting their own agenda.

To summarize and to be specific, balancing stockholders’ needs requires:'

  • A clear statement of family values, goals and vision to answer the need to know why we are in business together;
  • Stockholders educated and informed about the responsibilities of their position as stakeholders and the performance of the business;
  • A shareholders’ agreement that spells out the rules of the relationship;
  • A liquidity program that makes ownership a status that can be freely chosen and that, when appropriate, provides a dividend or distribution to stockholders. Otherwise, a stock certificate will tend to be viewed as “just a piece of paper with an estate tax liability attached.” About 1 percent - 5 percent of company value, distributed quarterly or annually, is often seen as an appropriate reward for owners;
  • Transparency concerning company finance and strategic plans. We believe that compensation should be open and explained, and that stockholder meetings or family meetings provide excellent forums for education about and articulation of the company’s performance (measured as return on investment), growth, risk, and debt.

Take the time to gather and discuss information about stockholder needs. Have stockholders engaged in the process of being responsible owners, and have those in the company work hard to understand, articulate and respond to the needs of all those who own the company.

The Advisor




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