In my work with sibling or cousin shareholder groups, I often encounter unprepared, or “sudden” shareholders. These individuals come into ownership of their family’s business as a result of a gift or the death of a parent with little to no preparation for the role of owner. As these shareholder groups come together to align for the future, a challenge they face is that some of the shareholders who now have decision-making powers have not been equipped with the knowledge on how to effectively manage this responsibility.
Often the “sudden” shareholder becomes dazed and confused about what being a shareholder means. Questions like: “What are my responsibilities?”; “How much time do I have to commit?”; “Do I have to do real work if I am a shareholder?” “What if I really don’t want to be an owner – what are my options?” arise in their minds. They don’t really understand what ownership of the family business means to them or the broader family.
This situation can bog down the governance process and lead to ineffective decisions as the shareholder group seeks a threshold level of knowledge to “get up to speed.” In addition to the time each individual shareholder may need to wrap their mind around their rights and responsibilities, the group of shareholders also has to learn to collaborate as a team of owners – something that doesn’t just happen by virtue of kinship! The governance process tends to slow to the pace of the family shareholder with the least knowledge.
A critical component of multi-generational family business continuity is a cohesive shareholder group. The better prepared the family is for transition of ownership from one generation to the next the smoother the transition will go. A key part is preparation of all potential next generation shareholders through a deliberate next generation shareholder development effort. By learning about being an effective shareholder well in advance of a triggering event, the family and the business will be better equipped for continuity and will not run into the unnecessary burden of power without knowledge.