What Keeps Family Business Directors Awake at Night?

Capital Budgeting Capital Structure Dividend Policy M&A Performance Measurement Shareholder Engagement Taxes

Mercer Capital provides sophisticated corporate finance services to family businesses throughout the nation. We know that stewarding a multi-generation family business is a privilege that comes with certain responsibilities, and each family business faces a unique set of challenges at any given time.  For some, shareholder engagement is not currently an issue, but establishing a workable management accountability program is.  For others, dividend policy is easy, while next gen development weighs heavily. Through our family business advisory services practice, we work with successful families facing issues like these every day.

Our new book The 12 Questions That Keep Family Business Directors Awake at Night addresses the most common questions and challenges facing family business directors.  Since we have striven for brevity—not to mention the fact that we don’t pretend to have all the answers—the chapters help you think through these questions. At the end of each chapter, we offer a list of potential action items to help family business leaders and directors prioritize which issues are most pressing to the long-term health and sustainability of the business. In the book we address:

  • How Do We Promote Positive Shareholder Engagement? As families grow into the fourth and fifth generations, common ownership of a successful business can serve as the glue that holds the family together. However, as the proportion of non-employee family shareholders increases, maintaining productive shareholder engagement grows more challenging.
  • How Do We Communicate More Effectively with Shareholders? Effective communication is a critical for any relationship. Multi-generation family businesses are complex relationship webs. Identifying best practices for communicating effectively with family shareholders is a common objective for family businesses.
  • Does Our Dividend Policy Fit? Hands down, the most frequent topic of conversation with clients is establishing a dividend policy that balances the lifestyle needs and aspirations of family shareholders with the needs of the business.
  • To Invest or Not to Invest? The flip-side of dividend policy is how to invest for growth. Can the family business keep up with the biological growth of the family? Is that a desirable goal? Regardless of the target, family business leaders are concerned about identifying and executing investments to support the growth of the family business.
  • Should We Diversify? We find that a striking number of the family businesses diversify rather far afield from the legacy business of the founding generation. What are the marks of effective diversification for a family business?
  • Does Father Always Know Best? Evaluating managerial performance is never easy; adding kinship ties to the mix only makes things dicier. The family business leaders we speak with are eager to develop and implement effective management accountability structures.
  • How Do We Find Our Next Leader? Whether it comes simply through age or as a result of poor performance, management succession is somewhere on the horizon for every family business.
  • Is There a Ticking Time Bomb Lurking in Our Family Business? Buy-sell agreements don’t matter until they do. When written well and understood by all the parties, buy-sell agreements can minimize headaches when a family business hits one of life’s inevitable potholes. But far too many are written poorly and/or misunderstood. Directors are always eager to discuss best practices for buy-sell agreements.
  • What Is the Family’s Most Valuable Asset? Rising generations are naturally more diffuse than their forebears with regard to geography, interests, skill sets, and desires. Family leaders are interested in identifying appropriate pathways for the next generation to engage, learn, and grow in their contribution to, and impact upon, the family business.
  • What Should We Do About Estate Taxes? Directors are keenly interested in tax-efficient techniques for transferring ownership of the family business to succeeding generations. While certainly important, there may be unanticipated pitfalls if estate and other taxes are the only factors considered when transferring wealth.
  • How Should We Respond to an Acquisition Offer? Even if the family does not plan to sell, credible acquisition offers at what appear to be attractive financial terms need to be assessed. It is important to know how best to evaluate and respond to such offers.
  • Who’s In and Who’s Out? There are many reasons family members may want to sell shares: desire for diversification, major life changes, funding for estate tax payments, starting a new business, or funding other major expenditures. What is the best way to provide liquidity to family shareholders on fair terms without sparking a run on the bank?

For more on these topics, order a copy of our recently published book, The 12 Questions That Keep Family Business Directors Awake at Night.