In this issue
Parents who want to spur entrepreneurialism in future generations should consider setting up afamily bank to fund new ventures by family members. Such a bank can be particularly important insecond- and third-generation firms that have many family members and not enough room in top managementfor all of them. The bank can grant loans based on a more impersonal assessment of risk, avoiding muchof the emotionalism that often surrounds intra-family borrowing.
No question about it, a lot of my attitude toward money stems from growing up during a prettyhardscrabble time in our country's history: the Great Depression. And this heartland area we come fromout here — Missouri, Oklahoma, Kansas, Arkansas — was hard hit during that Dust Bowl era.
The spectrum of family businesses includes countless small dealers, franchisees, anddistributors who depend for their livelihoods on contractual arrangements with a large manufacturer.Fast-food outlets, soda bottlers, automobile dealerships, furniture distributors — these are just a fewof the industries in which small, independent firms, many of them operated by families, benefit fromformal ties with big corporations.
When family businesses seek to recruit an outside, nonfamily CEO to run the company, theyusually have to offer a compensation package that promises to build the individual's net worth. In theeuphoria of a hiring decision, often the first thing the family gives away is equity in thebusiness.
Our firm has consistently advised against offering ownership as a hiring incentive. Giving away equitynot only dilutes family control, it can create weighty problems later on if the manager is notretained.