Matters Column

The challenge and opportunity of independent business ownership

April 28, 2017
| By Paul Damon |
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In the world of many privately owned businesses, there are at least three competing areas to manage actively. These three areas are family, ownership and management. These three distinct interests can intersect with one or both of the others. This is what can cause conflict and be difficult to manage.

Management functions refer to the team of managers that is leading the company. In some cases, they may also be family members and owners. In other words, they could be one, two or all three of the roles. Their role as manager is to do what is best for the business and place this priority before the owners or family members. But what if they are also family members? Then they have a potential conflict of interest because they represent both family and management.

The decisions they make as managers may hurt members of the family (of which they are part), especially in the short term if the decisions are difficult ones that need to be made for the long-term success of the business. And since they are members of the family group, they are making decisions that are potentially hurting their own interests. This can be difficult to do. Add to this the role of owner, and it even gets more complex.

Imagine a manager who is part of the ownership of the business and a member of the family who started or has controlling interest in the business. The potential conflicts of interest and difficult juggling of priorities can truly be challenging (if not schizophrenic) to manage. A scenario that could arise can easily be imagined and often happens. An owner, manager and family member could be faced with a decision that would be best for one of the roles one occupies but is in direct conflict with one or both other roles. This can cause conflict with other members of the groups one is “hurting.”

It is the proverbial conversation at the dinner table on Thanksgiving, where one has made a difficult decision one believes is in the best interest of the business as a manager but could hurt the family and other shareholders in the short term or long term. And there are many permeations of this scenario depending on the roles, responsibilities and obligations of the person.

All of this is magnified when there is a business transition. A transition can happen for any number of reasons: death, divorce, retirement, financial hardship, strategic opportunity or desire to exit for personal reasons. Regardless of the reason, the reality of exit planning when there are the three interests present can cause some real difficult challenges and some very emotional reactions. And emotions running wild in the middle of trying to execute an exit make the exit even more difficult and, in too many situations, has led to transactions being delayed or canceled.

If you are dealing with a situation that is being impacted by this or a similar situation, it might be in your best interest to contact a certified exit planning advisor (CEPA) or someone with similar education and training to help you manage the complexity of your situation.

Paul Damon is the president of Strategic Stewardship Partners. You can reach Paul at paul@strategicstewardshippartners.com.

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