Redefining ownership as shareholder stewardship
A family business owner reflects on the journey from owner-operator to owner-steward.
Thirty years ago, I was faced with a typical family business crisis. My father, the founder of our family-owned industrial fabrics company, Seaman Corporation, had passed away prematurely at the age of 55. The management team and I ran the company out of our headquarters in Ohio, while my mother and siblings worked in one of the company’s divisions in Florida. For several years following my father’s death, I had the support of my family. But then differences started to arise, and it was not long before my family actively disagreed about how to manage the company.
My parents had the best intentions in encouraging us to work in the family business, which was founded in 1949. From their viewpoint, they were providing us with lifelong job security, the most meaningful gift someone who came of age during the Great Depression could give. The common narrative in American family business at that time, and continuing on to today, was that if you want to have anything to do with the family business, your career must be in the business.
When I graduated from Bowling Green State University, my father discouraged my attempts to interview elsewhere. He had supported my education so that I could bring my new skillset back to the company. When my siblings began to have difficulty with their college studies, he simply provided them work opportunities in the business, rationalizing that they could learn as much working in the business as they could struggling with college classes. Future ownership of the family business by all the children was a given, and therefore few or no other career options were seriously considered.
Linking ownership in the family business with a lifelong personal career is a paradigm that can create one of two scenarios. The first is that the owners of the family business put pressure on their children to join the business, regardless of aptitude or interest. The children’s careers become focused in the business, often preventing them from exploring other opportunities that might better match their skillset and interest.
The second outcome of this kind of parental pressure is that the children rebel, refusing to join the business and choosing to build their career elsewhere. The downside of this situation is that the children might miss real career opportunities within the family business that, long-term, could be more fulfilling to them. A lack of interest and/or career on the part of the next generation results in failure to cultivate the business as a family treasure. The business more often than not gets sold, increasing the risk of its early demise.
This cultural narrative seems to create a sense of entitlement in the next generation, who then fail to understand the immense effort and sacrifice required of the founding generation in the early years of the company’s life cycle. More tragically, this paradigm fails to recognize the true value of ownership of this family business treasure.
The disharmony that evolved in my family business resulted in my buying out all of my mother’s and siblings’ interest in 1994. Ownership succession became an entirely different scenario. I wanted to avoid the classic “shirtsleeves to shirtsleeves in three generations” outcome. My wife and I would have to reframe how we thought about ownership and family career participation if we wanted our children to someday inherit the business. This was further complicated by the fact that our three children, perhaps after witnessing the stress created by our family conflict, had no interest in careers in the business. We would need a new model to accommodate this reality.
About this time, at a family business conference, I reconnected with John Ward, a family business consultant I had met 20 years prior. John was an expert in generational family business transitions and had developed the concept of “active shareholder.” With his help, we began reframing our thinking from ownership to stewardship. Our family business was not meant to fund the next generation’s lifestyle; we saw it as a treasure to be nurtured with the intent of passing it on to future generations. We did not ask our children to commit their careers to the family business, but we did offer them an opportunity as owners to preserve the family business’s original values and culture, while giving executive leadership the freedom to manage the business for survival and growth in a dynamic economic environment. Owner was redefined as shareholder steward.
We committed to implementing this model with the help of Ward and his team. One of our first tasks was to codify our family values in a family mission statement. Our mission statement has evolved over the years, but its primary function has stayed the same: It is a mutually agreed-upon set of principles to guide our family. It represents our commitment to our potential, our respect of each other, our creativity and innovation, and our desire to pass these values on to future generations. Although we wrote this as a family, independent of our business, we surprisingly found it to be in very close alignment with our family business mission statement.
On a more tactical level, we also created a family business manual, a handbook for establishing policies that address the role of family shareholders. This manual is extensive. Among its contents are guidelines for active ownership and the details of our shareholder policies. This document continues to evolve as our family’s business interests diversify and broaden into a larger family enterprise, including an investment fund and a philanthropic foundation. With the help of the Family Business Consulting Group, we are in the process now of updating our manual into an even more robust family constitution.
Our three children now have children of their own who are even further removed from Seaman Corporation’s daily operations. Early shareholder education is the key to successfully developing a new generation of shareholder stewards. Beyond using the mission statement and manual as educational tools, we are formalizing a curriculum for our grandchildren. Our first publication was a history book of Seaman Corporation, The First Fifty Years, and we plan to write picture books for our grandchildren exploring basic business concepts (i.e., What is money? What are the principles of entrepreneurship? What is philanthropy?). It is important that new generations understand not only the founding story of the company, but also the strategic challenges the business faces.
To fully understand the role of responsible ownership, we clarified the distinction among ownership, governance and management. Sustainable family business ownership can suffer when all three of these functions are carried out by the same family members. Owners have the responsibility of electing the governing board, which should be primarily composed of independent, non-family, non-management directors. The board has the responsibility of electing the officers of the company who will lead and manage the business in our challenging economic environment while still preserving the values, culture and legacy of the founders. A clear understanding of these roles helps clarify how a family member can play an important role as a shareholder steward even though their career is outside the business.
The role of family stewards
An example of integrated, hands-on shareholder education occurred at one of our multiday offsite board meetings. Our grandchildren were asked to craft products using the fabrics created by our business, then present their crafts to Seaman Corporation’s board of directors. Another example is an event we scheduled at our facility in Bristol, Tenn. All our children and grandchildren (ages 1 to 16) were taken on a tour of the facility, showcasing our weaving and coating capabilities. Afterward, we held a barbecue luncheon with our associates.
This interaction of our children and grandchildren with the employees of the company instills the understanding that our family business is also important to the many families we employ. Beyond exposure for our family, these kinds of events provide value in demonstrating to both employees and customers the interest and preparedness of the next generation of family owners.
Shareholder stewards also recognize that the family business is a powerful platform for opportunities beyond personal careers. Because the business is a key entity within the community, a shareholder steward can make significant contributions to the local community as well as the community at large. For example, one of our daughters has been instrumental in a continuing effort to donate our outdated inventory to humanitarian NGOs that use the fabric for emergency shelters. She is able to effectively leverage her philanthropic interests in conjunction with the business operations of Seaman Corporation.
But this would not be possible without the continued success of Seaman Corporation, which has grown to nearly $200 million in sales today. During the COVID-19 pandemic, Seaman Corporation has been designated an essential business because of its supply to transportation, construction and defense industries. As such, we have been able to keep operating. Nonetheless, we have experienced a significant disruption in revenue in the short run, and have been using the federal government programs to keep our associates employed during this timeframe.
Staying focused on the growth and financial health of the company is critical for shareholder stewards. Although family shareholders as owners are not responsible for running the day-to-day operations of the business, they have a responsibility to understand its strategic challenges. Sustainability requires adjusting to the ever-changing economy. If they do not understand the strategic competitive challenges facing the enterprise, family shareholders will not be able to develop realistic shareholder expectations with which the board can hold management accountable.
Successfully passing a family business on to future generations as an economic asset requires early education and an evolved ownership model that accounts for each shareholder’s interests and strengths. Within this context, it is both possible and significantly important for family shareholders to play an active role in owning their business regardless of their career direction, thus ensuring the successive stewardship of a true treasure.
Richard Seaman, author of A Vibrant Vision: The Entrepreneurship of Multigenerational Family Business, is the chairman of Seaman Corporation, where he served as CEO from 1976 to 2015. Under his leadership, Seaman Corporation, a Wooster, Ohio-based manufacturer of industrial coated fabrics, grew from $10 million in annual sales to nearly $200 million in sales today.
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