Changes in values signal needed business discussion
By April Hall
In Georgia, Howard Hsu decided to start selling barbecue and burritos instead of Chinese food, as his parents had. In England, Jay Wilde, the sole inheritor of his family’s cattle farm, is a vegetarian. This year he is sending most of the cattle to a sanctuary and transitioning into vegetable farming.
Pivoting the family business can take the form of a small move or a huge shift, but it’s quite common, says Dennis Jaffe, a family business consultant.
“This is an issue that crops up over and over again,” Jaffe says. “I’m working with a number of families going through this.”
By the time a business gets to the third or fourth generation, he says, family values can change -- or the NextGens may simply be more interested in a different industry.
Obviously, if there is a sole inheritor in the family business, that person is free to make whatever decision he or she wants in running the company. However, with a larger pool of shareholders, there must be a dialogue.
“When the next generation inherits, it’s important to revisit values and the way in which the family operates,” Jaffe says. “You can have different ethics [from the previous generation], but what happens if there are a bunch of family members who are depending on the income of the current business?”
In such cases, “First, you have to define who has what rights,” Jaffe says. For example, he says, the most vociferous family members may not be entitled to a vote because they don’t own shares in the company.
He says family members who want to voice concerns or propose a new direction for the business must understand that if they don’t have a vote, the decision makers can overrule them. But if they communicate well and make a strong case, they could convince the majority owners to incorporate their recommendations.
As for the decision makers, Jaffe notes that they should consider the alignment of the business with the needs, goals and interests of the family as a whole. They also must determine whether the proposals are viable in the marketplace.