Tag Archives: shareholder

Information and Communication: The Challenge of Data Overload

Drew Mendoza
Drew Mendoza

A keynote speaker I heard twenty years ago, who promoted himself as a ‘futurist’, made the point: “don’t worry about the trash, we’ll find a way to deal with all the trash as better recycling technologies arise.  The thing you’ve got to worry about is the data.  We’re all going to be drowning in information.” 

Turns out he was spot-on.

In enterprising families, attention to information flow seems to be on the rise.  So too are family meetings, family councils and boards of directors are becoming more disciplined and more thoughtfully and strategically comprised.  *

The challenge for leaders of families and family firms is building the processes by which family members are educated and enlightened so that they can understand the data they’re receiving and apply it to metrics which indicate the degree to which the family and its enterprise(s) are reaching its goals.  Doing so results in more fully aligned shareholder groups and, as any CEO with multiple family shareholders will tell you, an aligned shareholder group makes the CEO’s job much easier.  In my experience, these are the same families that are more likely to achieve their business goals.

We’d love to hear from you – what steps are you taking to keep family shareholders both aligned and informed?

*For a great read on family enterprise boards read Building A Successful Family Business Board: A Guide for Leaders, Directors and Families


What’s in a name? Use the right words to describe the family meeting

Drew Mendoza
Drew Mendoza

The caller told me that in her family, they have a family meeting every six months.  I asked who is invited to the meeting: “All of the family members who own stock” she said.  Spouses? “Nope.”  Siblings who don’t work at the business?  “No”.  Adult children in the next generation in college? “Of course not.”

Another (and more descriptive) name for these gatherings would be a shareholder meeting.  Why does it matter?  To my thinking, excluding spouses, the next generation or any siblings (not working in the business) from a family meeting runs the risk of communicating ‘You’re not a part of the family.’

Eckrich and McClure’s book The Family Council Handbook does a nice job of differentiating among all the many different sorts of meetings


Three ingredients to multi-generational firm success

Drew Mendoza
Drew Mendoza

Over the last twenty-plus years of working with and observing multi-generational family businesses, three attributes common to the oldest, largest and best performing ones seem to present themselves repeatedly. 

First – the family shareholders are aligned around matters of vision, purpose and expectations of each other and the enterprise.  And, as often as not, they reach alignment through the use of family meetings or other such important forums for shareholder and family education, development, trust building and communication. 

Second, the output of those family meetings – their vision, purpose, sense of unity,  policies and agreements – these all serve as important contributors to strategy.  The outputs inform management of what is expected of them and the rules they’ll have to play by; what some may call the non-negotiables.

Third, their values implicitly or explicitly include transparency, accountability, stewardship, outside input and a responsibility to others.  These values usually guide them to establish appropriate and active governance – both for the family and the operating company.

At our website, www.efamilybusiness.com, you’ll find dozens of books, webinars and thousands of articles loaded with ideas about family meetings, governance and being an effective family firm shareholder.


CFO Issues

We were recently with a forum of 10 non-family CFOs of large family businesses. When asked what are the “family business” issues most on their mind, they responded with the following (in no particular order):

  • Airplane use
  • Incentive compensation
  • Board effectiveness
  • Keeping family shareholders informed
  • Dividend levels
  • Assuring stock redemption funds

The Pygmalion Effect on Responsible Management

Otis Baskin


As Henry Higgins expectations of Liza Doolittle transformed her image of herself, our expectations of those in top management positions may explain their behavior.  

The ongoing revelations about the failures of chief executives to manage the companies they serve in the best interests of shareholders and society has caused many to pronounce greed as the driving force of business itself.  Yet, those of us who work closely with family businesses see a different picture.  We see executives, both family and non-family, who are loyal to the organization, its mission, the communities in which they operate, their employees and the owners.  Great leaders whose concern for others is demonstrated in everything they do.   

Of course, it is overgeneralization to say that all family business CEOs are somehow better and nobler than their public company counterparts.  There are truly excellent managers in all types of companies regardless of industry, size, or ownership structure.  But it has been my observation that family companies are better at spawning these “servant leaders”.  

One explanation may lie in the expectations that are communicated to executives when they accept positions and as they work their way into roles of greater responsibility.  As modern organization theory developed the problem of agency theory emerged as a chief tenent taught in every business school and economics course.  Agency theory depicts top managers in the modern corporation as “agents” whose interests may be different from those of shareholders because both are attempting to maximize their own personal gain.   

If executives understand their role as maximizing their own personal gain it is no surprise when they take unreasonable risks with the capital of shareholders to increase the potential of their own bonus plans.  Therefore, complex compensation schemes and onerous accountability mechanisms have been devised to assure that executives manage with the interests of their shareholders in mind.  However, these mechanisms only serve to highlight the underlying theme that “agents” are not expected serve the interests of shareholders.  Thus, the more “protections” we put in place the more we may be contributing to the cause of the problem.  

Why the difference in family business?  I propose that, at least one reason is the generally accepted concept of stewardship.  In successful family businesses executives assume their roles as heirs of a great tradition and understand that their primary responsibility is continuity.  The same is true for good owners of family businesses.  They understand that this is not “my business” but rather ours to nurture, grow, and deliver to another generation.  The expectations communicated in a successful family business are shared values and a common future that serve to align the interests of executives and owners.



Bernie Kliska

Going into business with a parent, child, sibling, in-law, or cousin both demands and assumes a certain level of trust. But, you need more than good faith and a firm handshake. Future disagreements and unexpected events can occur and tear apart businesses, and relationships as well.  A shareholder’s agreement is almost a must in any business when more than one person is an owner.  Just because your fellow shareholders are family is not a reason to assume this ‘good practice’ does not apply to you.

How do you avoid splitting up a company and deciding who gets what in the heat of battle?  You may not be able to think in a level-headed manner when screaming is at the highest decibel and doors are being slammed. What is better is to plan for the worst cases, hoping they never happen.  The wording and terms of shareholder agreements can vary greatly, but they most commonly address the following issues:

1) Who may or may not own shares and what happens if shares intentionally or unintentionally fall into the “wrong” hands due to divorce, death, credit problems, lifetime transfer or otherwise.

2) Events permitting or requiring a sale, such as leaving the company to pursue another profession, retiring, being disabled, funding estate taxes or getting divorced from a family member.

3) The price for which shares can be bought or sold and how that price is determined (fair market value given minority shareholder discounts, etc.) and how that price could be modified over time.

4) The payment terms, including down payment, length of note and interest rate.

Many shareholder agreements give the company or existing shareholders the right of first refusal to purchase the shares. A shareholder agreement legally determines how to handle a host of what-ifs.

While it may be uncomfortable to go through drafting legal documents between family members – remember the adage, better safe than sorry!


Stock Market Convulsions – Lessons for Families

Chris Eckrich
Chris Eckrich

Last week was a great lesson in the consequences of emotional reactivity to business information.  Monday’s news was gloomy – business conditions had eroded from earlier projections and the debt deal wasn’t enough.  The Dow was in a free fall as investors ran for cover.  The sun came up 24 hours later and investors realized that maybe they overreacted, and much of the losses were won back.  Only to drop again, then roar back as a few key indicators seemed to back away from the story line of financial Armageddon.

Family enterprise shareholders are regularly exposed to information about their businesses, and not all of it is good news.  When hearing bad news, it is natural to catastrophize and begin thinking of all the things that could go wrong, which nurtures further anxious thinking.  Many a family CEO has received phone calls from fearful shareholders questioning management’s abilities at a time when management is usually working very hard to make the business work properly.  Unless both caller and CEO are gifted communicators and can find common ground, it is not unusual to have the call end with the CEO frustrated and the shareholder finding little to ease the anxiety.  There is a better way.

Families do well to work on building strong communication systems between the business and shareholders, and nurture trust through clear and agreed upon governance.  This usually occurs in family ownership forums or family meetings, during which the family creates the rules for how governance will occur, and how information will be disseminated.  Once this framework is in place, trust is built and strengthened over time as each group (Owners, Board, CEO, Family) lives up to its expectations with the others. 

Trust and communication are necessary, but not sufficient to prevent reactivity among ownership groups.  Also needed is a deep sense of long-term commitment towards achieving ownership’s vision.  Securing long-term commitment requires that shareholders be educated about the business, the opportunities it offers to owners, and how it will achieve the owner’s objectives.  For many enterprising families, shareholders are educated regularly (often starting at an early age) about the long-terms benefits of family business ownership.  This education is crucial in helping shareholders appreciate and value the businesses they own, and to deepen their sense of long-term commitment to the business.  Then, when difficult business situations arise, shareholders provide stability to the enterprise rather than chaos.

As for the stock market, one wonders what would have happened if investors all had a 10, 20 or 30 year investment horizon, rather than being driven by the news of the day.  It probably would have been a pretty bland week.


Invited Accountability

Steve McClure
Steve McClure

Business families with “accountability issues” often describe them in two ways.  The shareholders who do not work in the business, whether actual shareholders or family members in line to inherit, will see it one way:

My relative running the company is not accountable to the rest of the family.

The interpretation from those involved in operations of the business see it another way:

My relatives are trying to impose accountability and they do not have the background or experience to do so.

While there may be cases of individuals who just don’t want to be held accountable period, generally speaking, family managers are resistant to being held accountable by “ill-equipped” family members.  Resistance is also emotional, as family shareholders who want to impose accountability are seen as ungrateful for the care, sacrifice and achieved business results of the past.  The idea of accountability is not resisted; in fact, they feel they already are being accountable.  Shareholders don’t want to take it on faith however, they want proof.  However, it is very difficult for even the most qualified family member to hold another family member accountable.

Business families who break through this impasse, or avoid it altogether, do it by utilizing objectivity; in the form of a wise, universally trusted advisor or senior manager who can interpret and build receptiveness in family-to-family communication.  One we know is quoted regularly by all as saying, “There is management’s view and there is the shareholder group’s view, and then there is the right way to do it.”  Or, objectivity comes from strong, universally trusted independent directors making use of formal board procedures and appropriate involvement of management and shareholders.  Whatever the form, business leaders are more likely to welcome accountability when individuals are involved who are unbiased and understand business.

It is difficult for a family group of shareholders to establish the objective resource they need; they are loosely organized and their motivations may be suspect no matter how open and transparent their methods.  Management is better equipped due to access to organizational and financial resources.  However, if they don’t actively involve family shareholders in an open and transparent process they will not have full trust either. 

When family managers lead in resolving the accountability issue, and do it well, they demonstrate a sincere form of invited accountability.