Help, I have a family (business)
Many businesses have struggled in recent years; bankruptcies have been the order of the day. Businesses that did survive were forced to reorganize and sometimes even put themselves up for sale. It has been no different for family businesses. But they face an additional challenge: the emotion of the family bond.
Case Study 1
A 45-year-old manufacturing company is run by two cousins. One of them is externally oriented, the other more focused on the internal organization. The company has historically done well but has recently been struggling with sharply declining sales. The externally focused cousin, a true entrepreneur, wants to innovate, expand and is even willing to sell (part of) the company to facilitate growth in other areas. The second cousin disagrees and after months of failing to act, the company is forced to lay off half its staff.
Case Study 2
A young company in logistics services is run by an uncle and his cousin. The uncle is responsible for the strategy of the company. The company has been growing rapidly, outstripping its financing capacity. Warnings from the nephew were ignored; cash flow problems resulted. At that point in time a potential buyer emerged. The nephew wanted to engage with that candidate, but the uncle didn’t; afraid of losing face within the family. As a result, the company succumbed to its success and had to fold.
Good governance offers a solution
These case studies are just a few examples of family businesses that run into trouble. Business and family interests do not always go hand in hand. That’s why family businesses in particular benefit from good governance, such as the establishment of a structure that includes sufficient guarantees for the interpretation and supervision of the management. This could involve rules regarding the decision-making process within the management board, the organization of a supervisory board, the use of depositary receipts for shares and, of course, proper arrangements in the event of disputes within the management board and/or the shareholders.
Especially when succession within the family is at hand, it is important to have the company’s governance in good order. As such it is of prime importance to get timely advice, if only in an outline form, on such issues. Arranging good governance now can prevent the company’s original bond – the family bond – from becoming a divisive factor in the future.
We regularly advise companies on their governance and assist family businesses on their succession issues. These same family businesses are increasingly using our firm as a regular sparring partner for all their legal issues. As a consequence, we really get to know the company and its stakeholders well, allowing us to provide them with even more insightful and considered advice.
Would you like us to review your governance? Or are you looking for a legal advisor who has specific expertise and deep understanding of family businesses? Then please contact us. We’re happy to assist you.