The job of being an owner

 

 

Being an owner of a family business is an important job. In most companies—including family companies—management and the board usually get the attention and recognition when the company is successful. 

But the reality is that if the owners did not do their job well, management and the board wouldn’t be able to either. 

Despite how important owners are to a business, many owners of family businesses do not know what the owner job requires or how to do it well, because they have not been taught. 

Business schools typically don’t teach about ownership, and most families don’t either. That is the purpose of this series of articles: to help you understand what being an owner entails so you can do it the best way possible.

 

What makes a family business different? 

 

Family-owned businesses have been shown to live longer1 and perform better2 than their non-family-owned counterparts. Why is this the case? 

A lot of it has to do with unique characteristics of family ownership. 

Research shows that family owners tend to take a more long-term perspective—they are looking to sustain and grow value for generations to come3. This “patient capital” approach allows family businesses to better withstand economic turbulence and to invest in initiatives that will bear fruit years or decades from now.

On the other hand, a major competitive advantage of a strong unified family ownership group is the ability to make quick decisions and take advantage of opportunities or openings that other, non-family companies may struggle with. 

Family owners tend to feel a strong loyalty and sense of duty and commitment to see the business, their legacy, thrive. This often makes them top workplaces with great cultures.

The strength of a family enterprise relies on knowledgeable, responsible, supportive and well-prepared owners. 

 

Family Ownership is a Job

 

Ownership is an important job, but we rarely think about it that way. Reflect on your own family enterprise for a moment. It is likely that you already are an owner or expect to become an owner of your family enterprise. 

Often, families treat ownership as a birthright or an inheritance. To maximize the advantages of family ownership, the owners must embrace it as both a privilege and a responsibility. 

Embracing ownership as a responsibility means treating it like a job. For any job, you would: 1) want a clear description of the role, its responsibilities, and expectations; and 2) consider what you should do to gain the necessary education and experience to qualify and to perform in the role. 

 

Ownership is different than management and governance

 

There can be a surprising amount of confusion about ownership duties—what do owners do? How is this distinct from what management and the board do? If you are preparing as an owner, what exactly are you preparing for? You want to stay in your lane and not overstep your bounds.

Executives and management handle day-to-day operations. They propose and execute on the business’ strategic plan (Sometimes there are family members in management, and sometimes management is all non-family.)

Boards provide oversight of the business, approve the strategic plan and major transactions, define major corporate policies, and choose the CEO. Often, a few owners serve on the board, typically in addition to non-family independent directors.

Family owners serve many critical functions. They set the vision and values of the company. They define overall goals. They make complex decisions about the company's strategic direction, risk profile, and capital allocation. They elect and oversee the board.

All of this requires knowledge of the business, unity around shared goals, and strong commitment to the family business.

It can be helpful to think of all three groups as riding on an airplane together. The owners are the passengers, who decide where they want the plane to go. Management are the pilots flying the plane, including charting the course to the specified destination with the experience and knowhow to get the plane there. The board sits at the cockpit door, experienced in aircraft and able to communicate key messages between the passengers and pilot, as needed, keeping an eye on the pilots and flight path on behalf of the owners.

 

The Spectrum of Family Business Owners

 

As you contemplate becoming a responsible owner of your family business, you might have the (mistaken) impression that you need to choose between two paths:

  • Becoming an active owner who works in the business and may serve on the board, and is deeply experienced in the industry and company; or 

  • Becoming a passive owner who is largely distant from the enterprise, feels an emotional connection to the history and legacy, but does not do much for the company besides collect dividend checks when issued. 

But this limited binary conception of ownership can weaken family enterprises in the long term. It conflates the idea of ownership with the idea of employment in the business and overlooks the key idea of what it means to be a responsible, supportive owner. 

According to family enterprise authority, Professor John Davis from the Cambridge Institute for Family Enterprise, it is helpful to think of family business owners as falling into one of five different profiles, which exist on a spectrum4:

 

type of owners

The Importance of Supportive Owners

 

Yes, family businesses need active owners—a small group of 2-3 family members who are either executives in the company and/or board members who are pivotally engaged, help make key ownership-level decisions, and bring new strategies for creating wealth and building value. 

But the other owners need not, and should not, be passive. 

Successful family enterprises need the vast majority of owners to be responsible supportive owners. 

These are family owners who typically pursue other professional or personal interests outside of the family business, and dedicate part of their time to ownership responsibilities. 

At the same time, they, come to meetings prepared and informed, help support the business under the leadership of active owners, and contribute capital to the company if needed. 

They also help to unify the owners and raise the next generation of family members to be responsible stewards. This is far from a passive role.

Becoming a supportive owner doesn’t require you to be an industry expert or a financial genius. But, it does take preparation and commitment, like any job. 

It takes some time and energy to understand your family business and family values, and a desire to participate in discussions about where the owners want this plane to go. 

Being a supportive owner is an enriching and rewarding job. It is vital to the multigenerational success of any family enterprise. It can also help you build knowledge and strengthen your family relationships. 

KEY TAKEAWAYS:

 

Ownership is an important job and should be treated as a responsibility, not simply a birthright.


Family owners should aim to be (at least) a supportive owner—one who stays informed about the business, comes to meetings prepared, supports governance, and encourages high standards.


Becoming a responsible supportive owner does not happen by default. You must learn about the company, embrace your role, and prepare yourself for the job of owner.