On this weeks episode I discuss ownership philosophy. Have you as an ownership group sat down and discussed why you own a business together and what ownership means to each of you?
My thoughts are that when a business is set up, ownership is a byproduct of the founders passion, but as the business becomes something to pass to the next generation different perceptions of what ownership might mean to each of you can tensions within the business and the family.
Having the conversation around what ownership means to each of you, whether that is before or after ownership transition has happened, can be a really positive step in creating the foundation for a multi-generational business.
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Hello, and welcome to this week's episode of
Russ Haworth:the family business podcast.
Russ Haworth:I hope you are doing well wherever you're listening to this in the world.
Russ Haworth:And now that I have rediscovered the record button on my computer, I'm
Russ Haworth:back into the flow of releasing these episodes on a more regular basis.
Russ Haworth:Um, if you haven't heard already, there was a season preview last
Russ Haworth:week, which covered the topics I'm going to be recording in this series.
Russ Haworth:And I have a number of exciting interviews lined up for the next series.
Russ Haworth:In today's episode, I wanted to talk to you about, um, ownership
Russ Haworth:and in particular, uh, what I refer to as an ownership,
Russ Haworth:philosophy or ownership structure.
Russ Haworth:the reason I wanted to talk to you about this is that a lot of the conversations
Russ Haworth:that I'm having with families kind of center around this as something that
Russ Haworth:hasn't necessarily been either documented or discussed in any great detail and
Russ Haworth:the suggestions that I'm making in terms of having those discussions.
Russ Haworth:Uh, bearing fruit.
Russ Haworth:So I thought I would share with you my sort of thought process
Russ Haworth:on this and why it is that I'm talking about it a lot in this.
Russ Haworth:Before we get into the detail of, um, ownership, philosophy,
Russ Haworth:or ownership strategy.
Russ Haworth:I think it's worth considering and bear with me on this, but worth
Russ Haworth:considering when it comes to ownership, what we're actually talking about.
Russ Haworth:For me, there are two types of ownership.
Russ Haworth:There is obviously the legal element of owning a business, uh, via shares.
Russ Haworth:Um, but there's also the emotional ownership that can come.
Russ Haworth:, Often in the absence of actually the, the legal ownership, you can
Russ Haworth:feel like you own something, even though legally it is not the case.
Russ Haworth:And I think that's something that is very often present within a family
Russ Haworth:business because of the nature of family business, the emotional attachment to
Russ Haworth:it is very high amongst those in the family who, who may not necessarily own.
Russ Haworth:The shares in a, in a legal sense.
Russ Haworth:And I think what this can do is create an expectation of what it's actually going
Russ Haworth:to feel like when the legal ownership then actually arrives at a future date.
Russ Haworth:, it can obviously be a really positive thing.
Russ Haworth:It helps to create longevity in the business that if there is a shared passion
Russ Haworth:for it throughout multiple generations of the business, But what I also think
Russ Haworth:it means is that the legal sense of ownership only really becomes, uh,
Russ Haworth:something tangible or something to discuss at the second generation, uh, level of
Russ Haworth:the business as, as it progresses from sort of founder to second generation.
Russ Haworth:And the reason I think that is it in terms of.
Russ Haworth:Y a business is established.
Russ Haworth:It's very often to follow a passion or to put food on the table to earn a living
Russ Haworth:or to grow something that is, something that, that the founding owners firmly
Russ Haworth:believe in really strongly believe in it.
Russ Haworth:My view is, and the large number of founders that I've spoken to
Russ Haworth:about this tend to agree is that the business wasn't created.
Russ Haworth:In order for the founder to have an ownership of something other
Russ Haworth:than the, the passion and drive that is to create the business.
Russ Haworth:Um, if you ask a founder what their business is, they're not
Russ Haworth:going to come back to you and go, well, it's a hundred shares.
Russ Haworth:That's what I own.
Russ Haworth:Um, they're going to tell you about what the business delivers and what it does
Russ Haworth:Ownership is a kind of byproduct of them following their passion.
Russ Haworth:It happens to be the most convenient way or the most logical way in order
Russ Haworth:to establish the businesses . Is to have it in a structure that contains
Russ Haworth:shares and ownership, but it's not the sole purpose of why the shares exists.
Russ Haworth:That's as I say, it's a, it's a coincidence.
Russ Haworth:It's a byproduct of them setting up a business to follow their passion.
Russ Haworth:, but when it then comes to pass it, Ownership on as a transition within
Russ Haworth:the business, all of a sudden, there's this legal element, the shares in the
Russ Haworth:business that are, something that has to be then dealt with and passed down.
Russ Haworth:And I think by not having a conversation about what the, um, shares represent, what
Russ Haworth:the ownership of those shares represent to those individuals it can result in
Russ Haworth:a lack of clarity amongst our ownership group as to what the business is for.
Russ Haworth:. And so by then having a conversation or
Russ Haworth:to agree as a family, what the ownership, philosophy or ownership strategy is for
Russ Haworth:those shares, it's then an opportunity for everybody to share their expectations
Russ Haworth:and their feelings on, uh, what the ownership of that business means to.
Russ Haworth:And that for me is where, uh, the discussion around ownership
Russ Haworth:philosophy comes into its own.
Russ Haworth:So with that in mind, what do we mean by ownership,
Russ Haworth:philosophy or ownership strategy?
Russ Haworth:Well, the first thing to clarify is that it relates to ownership So we're not
Russ Haworth:talking about the overall strategy for how you're going to increase market share, or
Russ Haworth:take your product to market that that set, uh, um, a management or board level as
Russ Haworth:to the general strategy for the business.
Russ Haworth:The ownership philosophy applies to ownership, and sometimes it can be,
Russ Haworth:um, sort of broken down into two areas, such as your vision, your
Russ Haworth:mission, the values that you want to have demonstrated within the business.
Russ Haworth:And perhaps to a certain extent what returns you want
Russ Haworth:to get from owning this asset.
Russ Haworth:And that can be, um, financial in terms of setting expectations of whether you
Russ Haworth:want to grow the overall value of it to sell it Southern future point, or
Russ Haworth:whether you want to create a recurring income through dividends Or whether
Russ Haworth:you want to build a business, that it becomes something that supports future
Russ Haworth:generations, um, has the ability to contribute in a philanthropic sense.
Russ Haworth:Um, regular listeners will know that I've managed to get better at pronouncing that
Russ Haworth:particular word, but it's a conversation between you as owners as to where the.
Russ Haworth:shared vision comes into play and where there might be differences
Russ Haworth:that the benefit comes in my view from those conversations.
Russ Haworth:It's the clarity that can be obtained by sitting down with,
Russ Haworth:um, siblings, with cousins, with.
Russ Haworth:It may be that the parents retain ownership or uncles and aunts, uh, retain
Russ Haworth:ownership of sitting down with whatever that ownership group is and going, what,
Russ Haworth:why is it that we own this business?
Russ Haworth:What do we want to achieve as a result of that as an ownership?
Russ Haworth:And then you can start having conversations about how best you go
Russ Haworth:about that and what roles you play.
Russ Haworth:Um, it may be that some will work within the business.
Russ Haworth:It may be that some won't, but might want to sit, um, on a forum of
Russ Haworth:some kind to be able to contribute.
Russ Haworth:To the business or the board level or, um, via some of the governance forums that
Russ Haworth:we've discussed historically, such as a family council and owner's council, but
Russ Haworth:it helps to get that clarity and manage the expectations of everybody that's
Russ Haworth:going to be within that ownership group.
Russ Haworth:So that then.
Russ Haworth:Parsis down into those, um, areas of the business that do need to make
Russ Haworth:the strategic decisions as to how to deliver against that ownership
Russ Haworth:Strategy.
Russ Haworth:So having clarity on your ownership, philosophy, your ownership strategy,
Russ Haworth:the reason you own the business, how however you want to term it, to help
Russ Haworth:it fit with your circumstances helps you to make ownership decisions.
Russ Haworth:So if we take an example Well, perhaps you're producing something that has
Russ Haworth:a negative impact on the environment.
Russ Haworth:And you decided as an ownership group, that the purpose of the
Russ Haworth:business is to contribute positively towards, uh, environmentally.
Russ Haworth:As part of, uh, an ESG strategy or a sustainability strategy, then you
Russ Haworth:can make decisions about what you do with the negative contribution through
Russ Haworth:that lens, through that framework, understanding that you have an agreement
Russ Haworth:between your ownership level, that that is something that you want to do.
Russ Haworth:So you may go, we want to address our environmental impact and
Russ Haworth:understand it better as an ownership.
Russ Haworth:And then you can set up a task force within the business
Russ Haworth:to allow you to do that.
Russ Haworth:. So you might be wondering
Russ Haworth:of having this conversation.
Russ Haworth:If it's not one that you've had historically, and you can, ask, somebody
Russ Haworth:like myself to come in and facilitate those discussions and share some ideas,
Russ Haworth:uh, from other families as to how they've approached it, or if you feel comfortable
Russ Haworth:in doing it yourself, sitting down and arranging, setting aside the time.
Russ Haworth:To be able to have this conversation, but to have it in a very open and honest
Russ Haworth:way with ideally as little judgment on the responses, um, as it is possible.
Russ Haworth:So within a regional.
Russ Haworth:But what you might find is that by understanding what
Russ Haworth:ownership means to each of you.
Russ Haworth:And that's what I think is a good starting point.
Russ Haworth:As a question to ask yourself is what does ownership of this business mean for me?
Russ Haworth:What are my ambitions?
Russ Haworth:Do I want this to become something that is an enabler
Russ Haworth:for me to follow my own passion?
Russ Haworth:In which case do I need to have a very active role as an owner within the.
Russ Haworth:Or do I want it to be fulfilling from a, an emotional perspective
Russ Haworth:because the work that's done within the business is something that I'm
Russ Haworth:very passionate about in which case you're more likely to want to be an
Russ Haworth:active participant in the business.
Russ Haworth:Whatever ownership means to you is personal to you.
Russ Haworth:And in the same way, as you would want that respected by your, Siblings or
Russ Haworth:parents or cousins, whatever, whatever level of conversation, you're having an
Russ Haworth:ownership level by putting everything in on that table and going, this is
Russ Haworth:what we're looking for out of it.
Russ Haworth:You're likely to then have an understanding of the different
Russ Haworth:motivations that might be at play within each of those owners.
Russ Haworth:Now that doesn't need to be seen as a negative, if all of you don't agree on.
Russ Haworth:That it's a starting point for you to agree with what, what can we do
Russ Haworth:in order to get a level of compromise between all of us that allows us to
Russ Haworth:progress forward with the business?
Russ Haworth:, it may be that you all agree with what the purpose of the business is, why your,
Russ Haworth:the most effective owners of that business and what roles and responsibilities
Russ Haworth:you want as an ownership team.
Russ Haworth:But as that, isn't always the case.
Russ Haworth:It might be necessary to have conversations around what
Russ Haworth:compromises might need to happen.
Russ Haworth:Now, I like to use analogies when I'm working with clients or when I'm, um,
Russ Haworth:explaining or running through things.
Russ Haworth:It is the way my brain learns.
Russ Haworth:So.
Russ Haworth:apologies if it's not your preferred method.
Russ Haworth:But the analogy I use here is if you see the opportunity that you have with your
Russ Haworth:businesses as a blank canvas, and what ownership means to you is your own version
Russ Haworth:of a picture that goes onto that canvas.
Russ Haworth:If there are say 10, 15, 20 of you all with different cards, Paint
Russ Haworth:brushes to paint your picture.
Russ Haworth:If you just go ahead and paint your idea of ownership or the vision
Russ Haworth:for that business onto the canvas, without any conversation, without
Russ Haworth:any cooperation or compromise, you're likely to just end up with a mess.
Russ Haworth:All the different colors will be mixed in.
Russ Haworth:There'll be no shape or, structure to the painting.
Russ Haworth:It'll be, uh, a brown mess on, uh, on the camera.
Russ Haworth:Whereas, if you take a step back and have that conversation around what
Russ Haworth:ownership means to you and what you want the business to do for each of
Russ Haworth:you, that's akin to saying, well, we're understanding that we bring different
Russ Haworth:things to this canvas and in order to paint the best possible picture,
Russ Haworth:we need to take a little bit of this color, a little bit of that color, a
Russ Haworth:little bit of structure and agreement.
Russ Haworth:And so by understanding what you're able to contribute, what you're willing to
Russ Haworth:and able to contribute to that picture.
Russ Haworth:You're far more likely to get to, a closer version of the vision.
Russ Haworth:Then if you just all throw your pain brushes in without any of
Russ Haworth:that conversation or structure.
Russ Haworth:Now, maybe that there's a branch of the family or an individual
Russ Haworth:that has a completely separate idea to what everybody else.
Russ Haworth:Is having, and it may also be that then the conversation needs to be had
Russ Haworth:around, well, if everyone else wants this, um, beautiful blue, seascape,
Russ Haworth:for example, as, as the vision and the, the, the person that has a different
Russ Haworth:viewpoint, it has an orange paintbrush.
Russ Haworth:It might be that little touches of that.
Russ Haworth:Orange will enhance the rest of the colors.
Russ Haworth:Whereas again, if you try to Chuck all of that orange into the
Russ Haworth:mix, it would mock up the pain.
Russ Haworth:So by having the conversation and understanding what it is, the ownership
Russ Haworth:means to everybody, you can then start to have the conversations as to, okay.
Russ Haworth:How do we create an environment that allows everybody to get as close to what
Russ Haworth:they want out of it whilst also having a profitable business at the end of it?
Russ Haworth:You can then decide what communication forums need to be in place in order
Russ Haworth:for people to feel a part of it.
Russ Haworth:If they're not within the business or to separate out your roles as owners
Russ Haworth:and board members and employees, if you happen to work in all of those
Russ Haworth:different areas, but you can then start to base that on something.
Russ Haworth:Is your ownership, philosophy, your strategy for why you
Russ Haworth:as a family owned this.
Russ Haworth:So, although I said earlier in the show that, um, ownership is kind of a
Russ Haworth:by-product of somebody following their passion, when they set up a business, if
Russ Haworth:the business has been successful and has, turned into something that can be passed
Russ Haworth:on to future generations, it's really important not to ignore the emotional
Russ Haworth:ownership that exists within that founder.
Russ Haworth:And so by asking the founder the same question, what does
Russ Haworth:ownership mean to you now?
Russ Haworth:You're likely to get a far different answer to when the
Russ Haworth:business was established.
Russ Haworth:Because as I say at that point, it was almost a by-product for
Russ Haworth:the passionate was being followed.
Russ Haworth:And so.
Russ Haworth:One of the other elements that you may uncover.
Russ Haworth:And it would be interesting to, to talk to the founders of the business
Russ Haworth:as well as, as, um, those that are perhaps taking on ownership is the
Russ Haworth:question is what ownership means to you.
Russ Haworth:Blocking any future transition of either ownership or management roles.
Russ Haworth:So it may be that for a founder ownership of the business means control.
Russ Haworth:It means power.
Russ Haworth:It means, uh, influence and status and their sort of place in the
Russ Haworth:world is defined in their view by the ownership of the business.
Russ Haworth:. And it may be that the thought of giving
Russ Haworth:a bit more conversation a bit more time.
Russ Haworth:Um, it's not just the legal element of that ownership that needs to
Russ Haworth:be discussed is very much more the emotional side and how some of those
Russ Haworth:elements of what ownership means.
Russ Haworth:Can they be replicated?
Russ Haworth:Can they be replicated in an alternative role or by pursuing alternative passions
Russ Haworth:in a way that retains the element of wellbeing that is derived from the
Russ Haworth:ownership of something, but allows the business to continue to progress
Russ Haworth:and function via the next generation.
Russ Haworth:It's beneficial to understand different people's perspectives on something like
Russ Haworth:ownership, particularly when it comes to a family business, because it's not
Russ Haworth:the same as when you own shares in a footsie or a Dow Jones listed company.
Russ Haworth:There can be some emotional attachment to that, but generally the metrics as to
Russ Haworth:why you own those, is is this going to allow me to achieve my financial goals
Russ Haworth:and what dividend yield am I going to.
Russ Haworth:And things like that, but when it comes to a family business and when it's your
Russ Haworth:own family business, that emotional tie to it creates far more complexity
Russ Haworth:than if it were a, a standard, shall we say, share on a stock exchange.
Russ Haworth:So to summarize, what I was hoping to get across on this episode is to share with
Russ Haworth:you a discussion that I've had with many families over the last two or three years
Russ Haworth:around why it is that they own a business together, what they want that to represent
Russ Haworth:collectively and for them individually.
Russ Haworth:And then how best do they create the forums around
Russ Haworth:which those can be satisfied?
Russ Haworth:And it is very likely that if what I'm talking about resonates with you, or isn't
Russ Haworth:a conversation that you've had with your own family, it may very well be that there
Russ Haworth:is the need for an element of compromise.
Russ Haworth:Now, for me, that is a positive step because it means that the
Russ Haworth:business can support the ambitions of more than just say a founder.
Russ Haworth:It can be something That helps create this multi-generational business that
Russ Haworth:can go on to support different members in different branches of the family,
Russ Haworth:over many, many generations, but it starts for me with a conversation
Russ Haworth:about what ownership means to you.
Russ Haworth:Now, if you want to get in touch and get a sample of a questionnaire
Russ Haworth:that I use to help with this, I'd be really happy to hear from you.
Russ Haworth:You can drop me an email.
Russ Haworth:It's Russ at family business, partnership.com, and I'll be happy
Russ Haworth:to share some of the methods on how to start this conversation.
Russ Haworth:. So, if you think that would be useful,
Russ Haworth:please do get in touch
Russ Haworth:, and I hope you found the episode useful.
Russ Haworth:As I said in the series preview, these are going to be
Russ Haworth:shorter, more succinct episodes.
Russ Haworth:And, uh, so with that, I will bid you farewell and hope you have a fantastic
Russ Haworth:day and fantastic rest of the week.
Russ Haworth:And join me on next week's show.