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FAMILY BUSINESSES
Perspectives on Responsible Ownership

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PREFACE XX

INTRODUCTION XX

OWNING A BUSINESS: SOME BASIC CONCEPTS XX
The “spirit of ownership” xx

FAMILY BUSINESS OWNERS: A SPECIAL CASE XX

STRESSES AND STRAINS OF FAMILY BUSINESS OWNERSHIP XX
Proliferating ownership xx
Becoming an owner – problem areas xx
Staying an owner – more problem areas xx
Role confusion xx
Inadequate ownership education xx
Family branch complications xx
“Insiders” versus “outsiders”: Disparate interests xx
Trust ownership xx

HALLMARKS OF RESPONSIBLE OWNERSHIP XX
Responsible ownership behaviours xx
Responsible ownership attitudes xx
Other characteristics of responsible ownership xx

Multiple stakeholders xx
Active and visible commitment xx
“Enterprising stewardship” xx

Defining responsible ownership xx

THE “BUILDING BLOCKS” OF RESPONSIBLE OWNERSHIP XX
Articulating a clear and powerful vision for the family and the firm xx
Planning ownership xx
An ownership education programme xx
Preparing the next generation for ownership xx
The role of governance structures in unifying family ownership xx
A defined succession plan xx

Transfer methods xx
Transfer timing xx
Financing the transfer xx
Retirement funding xx
Responsible ownership and succession: Some conclusions xx

Shareholder agreements xx
A “graceful exit” xx

CONCLUSIONS XX

NOTES AND BIBLIOGRAPHY XX

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Owners “outside” the business

Have less access to knowledge and information

Want to feel more connected to the business,

or might prefer to exit

Sometimes are confused and overwhelmed by the

responsibilities of ownership

Often feel disrespected by owner / managers

May suspect owner / managers of being greedy, receiving

inflated salaries and perks

Source: Adapted from Craig E. Aronoff & John L. Ward (2002) Family Business Ownership: How To Be an Effective Shareholder. Marietta, GA: Family Enterprise Publishers.

FAMILY BRANCH COMPLICATIONS

A further example of a set of ownership

issues that are unique to family firms

concerns what tends to happen when shares

in the business are passed down from

generation to generation within branches

of the family. By the cousin company stage,

issues arise because some branches may

have one child, while others have many

offspring, producing significant branch

imbalances when it comes to individual

ownership interests in the business.

Another common scenario is that, by

generation three, management control of the

business has often been assumed by one

particular branch of the now multi-branch

founding family. Any skill shortages of the

branch and how its members exercise

their authority can generate tensions and

resentment among the wider ownership group

(for example, if there is branch favouritism in

recruitment or remuneration).6 By this stage

also, another branch (generally not itself

involved in management, and possibly

motivated by some historical grievance – real

or imagined) commonly takes on the role of

critic and challenger of ruling branch policies,

and sets out to campaign and seek support

for its opposition from elsewhere in the family.

“INSIDERS” VERSUS “OUTSIDERS”:
DISPARATE INTERESTS

Over time, the needs, expectations and

ambitions of owners running the business

can become very different from those of

owners who are not employed by the firm.

The latter, for example, relying on dividend

income to maintain lifestyle expectations,

may oppose any reduction in dividends, even

if that money is to be reinvested for future

growth of the business. In contrast, the

spouses of share-owning relatives working

in the business may feel that their partners

are being under-rewarded and their business

prospects and careers undermined by the

regular payout of dividends to shareholders

not involved in day-to-day operations.7

These differing perspectives and needs of

“insiders” and “outsiders” can be a

significant source of intra-family conflict

and, sometimes, outright warfare. It is not

possible to overestimate the emotional

turmoil that a disgruntled section of the

ownership group can introduce into a family.

We’ve highlighted here just one aspect

of the “inside” / “outside” divide – i.e. owners

who work in the business and owners who

do not (see Exhibit 3) – but family businesses

can have various other groups of “insiders”

and “outsiders”: majority shareholders and

minority shareholders; family members who

own shares and those who do not; owners

who hold their shares directly and those

whose interests are held in trust; and married

couples where one spouse is an owner and

the other is not. The perceptions of each

faction about the other can breed

resentment that serves both to damage

personal family relationships and to

undermine the cohesion and effectiveness

of the ownership group as a whole.

TRUST OWNERSHIP

Shares in a family business may be placed

in trust for the benefit of an individual or

group of individuals known as beneficiaries.

Control of the trust is in the hands of a

person (or institution) designated as the

trustee. In other words, trusts allow the

separation of the control of shares from

their ownership and, as such, they enable

firms to be passed down to the next

generation within a structure that supports

continuity while retaining flexibility.

However, criticism is sometimes levelled

against the use of trusts in a family business

context, precisely because of the

disconnection that results between control

and ownership. At a time when family

business success is being understood more

and more as a product of shared vision and

values, a long-term perspective and

concentrated ownership, some families are

reluctant to follow the trust route because

of the emotional perspective they have

about ownership. Trust beneficiaries, it is

argued, do not have the same feeling of a

bond with the family that comes from share

ownership; their indirect ownership means

they may feel distanced from the

responsibilities that are required to help

ensure effective ownership of high-

performing, long-lasting family businesses.

Owners “inside” the business

Have more access to knowledge and information

Are so steeped in the business that they fail to recognise

what others do not know

Have power and status and can make

important decisions

Work hard and carry a heavy burden

Sometimes view owners outside the business as an

interference or as parasites

Exhibit 3: INSIDERS AND OUTSIDERS – HOW PERSPECTIVES CAN DIFFER

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OTHER CHARACTERISTICS OF
RESPONSIBLE OWNERSHIP

These studies, and the research literature

more generally, raise a number of other

interesting themes and perspectives that

help us to turn “responsible ownership” from

an abstract notion into a useful, working

concept. Three of these issues deserve

special mention:

• Multiple stakeholders

• Active and visible commitment

• Enterprising stewardship.

Multiple stakeholders
When asked to define the role, most family

business people agree that the responsible

owner must address the needs of multiple

stakeholders – the company, the family,
other owners, employees, customers and
society at large. This theme of multiple
constituencies is echoed in many of the
definitions of responsible ownership.9

Coupled with the notion of the
responsible owner serving multiple
constituencies is the need to balance
those demands. The idea of balance,
however, not only addresses balance as
between the needs of stakeholders, but
also between rights and duties. Thus, one
study defines responsible ownership as
“balancing the rights and privileges of
ownership, such as wealth, power, joy,
source of motivation and other rewards,
with associated duties and risks of
ownership, including the proper concern

for welfare of the firm and accountability
for the firm’s success”.10

Active and visible commitment
The notion of “commitment” also pervades
the research literature. Owner responsibility
to the company includes a commitment to
company continuity and development, and
acceptance that the company is separate
from the family. Emphasis is laid on the
importance of ownership to the family,
including commitment to assuring
preservation and growth of family wealth,
and assuring the smooth transition of
ownership to the next generation.

Commitment comes in many guises.
Perhaps one of the most valuable is the way
united and committed family shareholders

RESPONSIBLE OWNERSHIP

ATTITUDES

In addition to examining behaviours, these

studies identified a number of responsible

ownership attitudes – that is, feelings,

thoughts and values owners found to be

associated with responsible ownership

actions or behaviours. The main categories

of attitudes identified were:

• A long-term view of the family

enterprise, including interest in its

strategy as well as a long-term view of

investments and returns.

• Psychological ownership, measured by

a variety of factors reflecting care,

emotional attachment, personal interest,

strong commitment, enthusiasm,

personal meaning and identification with

the values of the family enterprise.

• A common vision of the family

enterprise, as well as agreement about

its long-term objectives.

• A commitment to growing the family’s

wealth versus preserving or harvesting it.

• Social responsibility, in the form of a

feeling of responsibility to society,

wanting to give something back, as well

as the possibility of sharing norms and

values with those outside the family.

The research results indicated responsible

ownership attitudes and behaviours to be

strongly and positively linked.

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HALLMARKS OF RESPONSIBLE OWNERSHIP
Earlier we tentatively defined “responsible ownership” as ownership
behaviours that contribute to the interests of the collective group of
owners, as opposed to behaviours that selectively serve the owner’s
own interests. But what are the types of behaviours involved in
responsible ownership and what attitudes are associated with it?

In this section we examine recent research studies designed to throw light on this subject in
ways that are applicable and important to a wide range of family-owned businesses.8 The main
focus of this research effort was the identification of responsible ownership behaviours, and
their links with responsible ownership attitudes, family governance practices, the financial
performance of firms and changes in family wealth.

“Ownership of a family firm rests on two fundamental axes – economic

value and emotional value. Economic ownership refers to the number of

shares and their actual monetary value and voting power. Emotional

ownership refers to the identity and attachment associated with the family

firm and the value that each individual assigns to it, regardless of legal

ownership rights. These two components make for a powerful combination,

and it is therefore crucial that family ownership relies on trust and

recognised mutual dependence for it to be responsible.”

Nigel Nicholson & Åsa Björnberg (2005) Family Business Leadership Inquiry, London: Institute for Family Business (UK).
The research identified the three most critical categories of responsible ownership
behaviours to be:
• Serving as a resource to the family enterprise through “patient capital” (i.e. the

tendency of owners to keep their investment in the business as long as needed),
willingness to delay dividends to facilitate capital improvements, and, more generally,
owners making themselves available to the family enterprise.

• Acting professionally towards the family enterprise, which includes respect for
lines of authority in the family enterprise, discussion of long-term goals with
management, being clear about current and future intentions regarding investments
– i.e. plans to hold, sell or buy shares – and being careful not to interfere with internal
affairs in the firm unless this is part of formal duties.

• Working proactively for the family enterprise, which includes making outside
contacts, monitoring the work of management, and putting in considerable effort
beyond what is expected in order to make the family enterprise successful.

Other behaviours considered important were:
• Keeping informed about the family enterprise through activities such as attending

shareholder meetings and reading annual reports.
• Enhancing interpersonal relationships by listening to other owners’ opinions, treating

other owners and employees with respect, and fostering team spirit among owners.
• Acting according to agreements, such as shareholder agreements or the terms of

the family constitution.

RESPONSIBLE OWNERSHIP BEHAVIOURS

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NOTES
1 See Rupert Merson (2004) Owners (especially Chapter 2), London:

Profile Books.

2 Craig E. Aronoff & John L. Ward (2002) Family Business
Ownership: How To Be an Effective Shareholder, Marietta, GA:
Family Enterprise Publishers.

3 See, for example, Roy O. Williams (1992) “Successful Ownership
in Family Businesses”, Family Business Review, 5(2), 161–172.

4 Craig E. Aronoff & John L. Ward (2002) Family Business
Ownership: How To Be an Effective Shareholder, at p.3, Marietta,
GA: Family Enterprise Publishers.

5 See the work of John Ward on ownership development. In
particular, John Ward (1987) Keeping the Family Business
Healthy, San Francisco: Jossey-Bass; and John Ward (1991)
Creating Effective Boards for Private Enterprises: Meeting the
Challenges of Continuity and Competition, San Francisco: Jossey-
Bass.

6 See BDO Centre for Family Business / Institute for Family
Business (UK) (2007) Family Governance in Multi-Generational
Family Businesses, London: BDO Centre for Family Business /
Institute for Family Business (UK).

7 See Peter Leach (2007) Family Businesses: The Essentials,
especially Chapter 7 (“Cousin Companies: Family Governance
in Multigenerational Family Firms”), London: Profile Books.

8 Johan Lambrecht & Lorraine M. Uhlaner (2005) Responsible
Ownership of the Family Enterprise: State-of-the-Art, Brussels:

FBN-IFERA World Academic Research Forum; and Lorraine M.
Uhlaner (2006) Responsible Ownership of the Family Enterprise:
How to Enhance the Success of Business and Family, Lausanne:
FBN International, EFBI, JP Morgan. In addition, see the following
two country studies with findings specific to the Netherlands
and Finland respectively: FBNed (2005) Ownership Strategies
for Family Businesses, Bilthoven: FBNed; and FBN Finland (2004)
On the Characteristics and Duties Involved in Responsible
Ownership, Helsinki: FBN Finland.

9 See, for example, L. Melin, E. Brundin & E. Samuelsson (2005)
Family Ownership Logic: Core Characteristics of Family Controlled
Businesses; paper presented at the FBN-IFERA World Academic
Research Forum, EHSAL Brussels.

10 FBN Finland (2004) On the Characteristics and Duties Involved
in Responsible Ownership, Helsinki: FBN Finland.

11 J.J. Chrisman, J.H. Chua & P. Sharma (2005) “Trends and
Directions in the Development of a Strategic Management Theory
of the Family Firm”, Entrepreneurship Theory and Practice,
September, pp. 555–575.

12 FBNed (2005) Ownership Strategies for Family Businesses,
Bilthoven: FBNed.

13 For an excellent discussion of in-laws and family businesses see
Peter Leach (2007) Family Businesses: The Essentials, pp.25–27,
London: Profile Books.

14 D. Montemerlo (2005) Family Ownership: Boost or Obstacle
to Growth?, paper presented at the FBN-IFERA World Academic
Research Forum, EHSAL Brussels.

15 Lambrecht, J. & Arijs, D. (2005) Learning to Manage Family

Wealth for Future Generations: Empirical Findings from Belgium,
paper presented at the FBN-IFERA World Academic Research
Forum, EHSAL Brussels.

16 James Hughes Jr (2004) Family Wealth: Keeping It In the Family,
New York: Bloomberg Press.

17 For an excellent introduction to this topic, see BDO Centre for
Family Business / Institute for Family Business (UK) (2004)
Getting the Family to Work Together, London: BDO Centre for
Family Business / Institute for Family Business (UK). A more
detailed analysis of family governance structures is provided in
BDO Centre for Family Business / Institute for Family Business
(UK) (2007) Family Governance in Multi-Generational Family
Businesses, London: BDO Centre for Family Business / Institute
for Family Business (UK).

18 Further practical steps are suggested in Craig E. Aronoff & John
L. Ward (2002) Family Business Ownership: How To Be an
Effective Shareholder, Chapter VIII, Marietta, GA: Family
Enterprise Publishers.

19 Lorraine M. Uhlaner, Albert Jan Thomassen & R.H. Flören (2005)
Ownership Composition, Relational Governance and the Family
Business, paper presented at the FBN-IFERA World Academic
Research Forum, EHSAL Brussels.

20 Craig E. Aronoff & John L. Ward (2002) Family Business
Ownership: How To Be an Effective Shareholder, Chapter VII on
“Owners by Choice”, Marietta, GA: Family Enterprise Publishers.

21 Nigel Nicholson & Åsa Björnberg (2005) Family Business
Leadership Inquiry, at p.24, London: Institute for Family Business
(UK).

BIBLIOGRAPHY
Aronoff, C.E. & Ward, J.L. (2002) Family Business Ownership: How
To Be an Effective Shareholder, Marietta, GA: Family Enterprise
Publishers.

BDO Centre for Family Business / Institute for Family Business (UK)
(2004) Getting the Family to Work Together, London: BDO Centre
for Family Business / Institute for Family Business (UK).

BDO Centre for Family Business / Institute for Family Business (UK)
(2007) Family Governance in Multi-Generational Family Businesses,
London: BDO Centre for Family Business / Institute for Family
Business (UK).

Carlock, R. & Ward, J.L. (2001) Strategic Planning for the Family
Business: Parallel Planning to Unify the Family and Business, New
York: Palgrave.

Chrisman, J.J., Chua, J.H. & Sharma, P. (2005) “Trends and Directions
in the Development of a Strategic Management Theory of the Family
Firm”, Entrepreneurship Theory and Practice, September, pp.
555–575.

FBN Finland (2004) On the Characteristics and Duties Involved in
Responsible Ownership, Helsinki: FBN Finland.

FBNed (2005) Ownership Strategies for Family Businesses, Bilthoven:
FBNed

Gersick, K., Davis, J., McCollom Hampton, M. & Lansberg I. (1997)
Generation to Generation: Life Cycles of the Family Business, Boston,

MA: Harvard Business School Press.

Godfrey, J. (2003) Raising Financially Fit Kids, Berkeley, CA: Ten
Speed Press.

Hughes Jr, James (2004) Family Wealth: Keeping It In the Family,
New York: Bloomberg Press.

Lambrecht, J. & Arijs, D. (2005) Learning to Manage Family Wealth
for Future Generations: Empirical Findings from Belgium; paper
presented at the FBN-IFERA World Academic Research Forum, EHSAL
Brussels.

Lambrecht, J. & Uhlaner, L.M. (2005) Responsible Ownership of the
Family Enterprise: State-of-the-Art, Brussels: FBN-IFERA World
Academic Research Forum

Lansberg, I. (1999) Succeeding Generations: Realizing the Dream
of Families in Business, Boston, MA: Harvard Business School Press.

Leach, P. (2007) Family Businesses: The Essentials, London: Profile
Books.

Melin, L., Brundin, E. & Samuelsson, E. (2005) Family Ownership
Logic: Core Characteristics of Family Controlled Businesses; paper
presented at the FBN-IFERA World Academic Research Forum, EHSAL
Brussels.

Merson, R. (2004) Owners, London: Profile Books.

Montemerlo, D. (2005) Family Ownership: Boost or Obstacle to
Growth?: paper presented at the FBN-IFERA World Academic
Research Forum, EHSAL Brussels.

Neubauer, F. & Lank, A.G. (1998) The Family Business: Its Governance

for Sustainability, Basingstoke: Macmillan Business.

Nicholson, N. & Björnberg, Å. (2005) Family Business Leadership
Inquiry, London: Institute for Family Business (UK).

Nicholson, N. & Björnberg, Å. (2007) Ready, Willing and Able: The
Next Generation in Family Business, London: Institute for Family
Business (UK).

Uhlaner, L.M., Thomassen, A.J. & Flören, R.H. (2005) Ownership
Composition, Relational Governance and the Family Business; paper
presented at the FBN-IFERA World Academic Research Forum, EHSAL
Brussels.

Uhlaner, L.M. (2006) Responsible Ownership of the Family Enterprise:
How to Enhance the Success of Business and Family, Lausanne: FBN
International, EFBI, JP Morgan.

Ward, J.L. (1987) Keeping the Family Business Healthy, San Francisco:
Jossey-Bass.

Ward, J.L. (1991) Creating Effective Boards for Private Enterprises:
Meeting the Challenges of Continuity and Competition, San
Francisco: Jossey-Bass.

Ward, J.L. (2003) “What Do Owners Do?”, Families in Business,
June/July, 78–79.

Ward, J.L. (2004) Perpetuating the Family Business: 50 Lessons
Learned from Long-Lasting, Successful Families in Business,
Basingstoke: Palgrave Macmillan.

Williams, R.O. (1992) “Successful Ownership in Family Businesses”,
Family Business Review, 5(2), 161–172.

NOTES AND BIBLIOGRAPHY

Published by the Family Business
Network UK/ Institute for Family Business

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Family Business Network International

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