Limited functionality available
This week Niall Glynn, a partner with Deloitte in Ireland, considers the challenges of encouraging engagement in multi-generational family businesses as the family expands.
I was recently at a client meeting where we were discussing the future evolution of Board membership across the second and third generations of a family business. Over the course of the meeting, it became apparent how little the third generation (the future directors) really knew each other, or had much of a connection with the business. The only shared memories they had revolved around distant interactions as children, and more recent ad-hoc interactions at family weddings as adults.
In contrast, I have worked with another family that is so keen to encourage close relationships that they have established a fourth generation family crèche, which provides after-school care for older children in order to drive greater connectivity among the future owners. Fortunately, in that case, most of the family are still geographically local.
Both of these cases made me think; what is the ‘family glue’ once ownership of a business goes beyond the second generation, as the number of family members increase, and those heavily involved in the business become the minority?
Contrasts as families expand through generations
Siblings typically grow up in the same household, have the same parents and are brought up with the same (or similar) values. They tend to look out for one another. They have common life experiences and in some cases experience rivalry for their parents’ attention and recognition. The relative competitiveness can foster a closeness that will not necessarily exist between cousins.
Conversely, cousins grow up in different homes, have less rivalry but also share fewer common experiences. Due to lack of closeness, they may feel less responsibility towards each other. In addition, as a business transitions through multiple generations, the likelihood is that family live further away from each other.
In the early intergenerational stages of a business, family members are more likely to be involved in the business as employees, as board members and in leadership positions. As the family moves through generations and grows in numbers, family representation in the business may diminish, and shareholdings may become diluted and the relative size of shareholdings between different cousins or groups of families can be extremely diverse.
What is the glue as the family expands?
What does this change mean in terms of family relationships? And how does the business generate the voluntary commitment needed from a diverse shareholder group to retain an interest and to hold the business for future generations? In our experience, it requires that extra family effort, in terms of education, purposeful communication, shareholder choice and meritocracy. Measures could include:
These tools can help ensure that, even in multi-generational family businesses, family members can still have a level of engagement with the business, either as employees, directors, or shareholders, or perhaps ‘simply’ as engaged and supportive family members.
Niall Glynn – Deloitte Ireland
A solicitor and chartered tax advisor, Niall is a partner in Deloitte Ireland who advises family businesses, high net worth individuals and associated investment vehicles on asset protection, succession planning, capital taxes, corporate reorganisation and corporate governance. The author of the book Planning for Family Business Succession, Niall is a former examiner and lecturer with the Irish Taxation Institute. He presents on taxation and related legal issues for a range of professional bodies and regularly speaks on succession for private banks and financial services intermediaries.
Darren leads our Corporate Finance Advisory business in the Midlands. Prior to this he has established and led teams in the South East and Yorkshire. He has 20 years’ experience of providing M&A advice to private companies, public companies and private equity houses on a wide range of transactions. Darren has been a partner for over 10 years. Prior to joining Deloitte Darren worked for an Investment Bank. He has particular experience of selling to overseas acquirers and has led the sale of UK based businesses to acquirers in the USA, Far East (Japan), France, Netherlands, Germany, South Africa and Australia. Whilst his experience covers a variety of industry sectors, he has particular experience in services (financial and other), telecoms and IT services and manufacturing.