Family Business – an Introduction
Family businesses represent a majority in the world’s economy. In some of the biggest economies, family businesses represent up to 40% of the listed companies. From food, to retail, to manufacturing, to services, family businesses are an economic power.
For example, the Conway Center for Family Business states that:
- 35% of Fortune 500 companies are family controlled;
- Family businesses represent 90% of all business enterprises in North America.
So, it seems that startups aren’t a majority in the economy…. But that’s another story.
But first, what is a family business?
A family business is simply a business that is run by family members. Family members mean just that: people of the same family. It could be family members of the same generation, or it could be multi generational.
A family business can be plain and simple, like a mom and pop store selling groceries in a quiet neighbourhood. Even more basic than that, a lemonade stand started by two siblings can be considered a family business.
But family businesses can be quite advanced. Take, for example, Gemini Exchange, which allows cryptocurrencies to be traded, which is also a family business. Gemini Exchange was started by the Winklevoss Twins, who famously engaged Mark Zuckerberg to create Facebook (and later had a dispute with Zuckerberg over their idea).
In fact, many family businesses have grown to become hugely successful. They are no longer just the simple mom-and-pop stores. They become multinational companies, with concerns spanning continents.
Here are some of the world’s biggest family businesses.
Here are some facts and figures from a 2015 article published by Business Insider:
- CK Hutchison Holdings from Hong Kong, in the financial industry, has a market cap of $36 billion. It is owned by billionaire Li Ka-Shing and his family.
- Reliance Industries from India, in the energy industry, has a market cap of $45 billion. It is owned by the Ambani family.
- Foxconn from Taiwan, in the electronics industry, has a market cap of $49 billion. It is owned by the Gou family.
- SoftBank from Japan, in the telecommunications industry, has a market cap of $72 billion. It is owned by the Son family.
- Nike from the USA, in the sportswear industry, has a market cap of $88 billion. It is owned by the Knight family.
- Volkswagen from Germany, in the automobiles industry, has a market cap of $120 billion. It is owned by the Piëch-Porsche family.
- Samsung from South Korea, in the telecommunications industry, has a market cap of $174 billion. It is owned by the Lee family.
- Facebook from USA, in the ICT industry, has a market cap of $225 billion. It is owned by the Zuckerberg family.
- Novartis from Switzerland, in the healthcare industry, has a market cap of $279 billion. It is owned by the Sandoz family.
It is clear that family businesses aren’t just about small businesses. The evidence shows that family businesses can grow into billion dollar empires.
But, with growth, comes problems. All businesses are prone to problems.
Family businesses are no different.
The legal issues that family businesses face.
The thing about family businesses is, when the business is small and growing, nobody complains about the money. Family members look at it as a labour of love. They spend time working in the family business, for much less than they could earn if they worked elsewhere. And they know it, too.
The labour of love often becomes successful when family members invest their time and efforts unselfishly. With effort comes success. And with success, comes the money.
This is when problems usually crop up.
When family members see the money coming in, they ask, “Where’s my share?”
But to the family members who have been working hard in the family business, this sort of question seems totally unfair.
Because, how can you ask for your share when you haven’t been working in the family business?
Not all family members will be invested in the family business. Some will work outside of the family business.
It may be a question of keeping the family afloat. What if the family business failed? So, some members may have worked outside of the famil business as a precaution against the family business failing.
It may also have been a question of personal choice. Some people may have decided to find their career outside of the family business, for reasons best known to themselves.
Some may have simply wanted to prove that they could make it big without their family.
Others may have been committed to an existing job and felt that they could not leave their job security.
And so, it would have fallen upon the shoulders of a few family members to make the sacrifice to keep the family business going.
Day in, day out, they would go to work in the family business.
They wouldn’t mind that their siblings were working elsewhere.
Some of them may even have dropped out of university to spend time on the family business.
And then one day, the family business made it big.
Many people would want a share of a successful family business, even if they never worked a single day in it.
And that seems unfair.
The other issue that family businesses often face is inheritance.
When a founder of a business decides to retire, or even passes away, the first question is often, “Who will take over?”
In the case of the Reliance empire, the two sons of the founder wanted to head the empire. The situation was exacerbated by the fact that the founder, Dhirubhai Ambani, had encouraged “healthy” sibling rivalry between his two sons during his lifetime.
Finally, the situation was resolved through the intervention of the matriarch of the family — Dhirubhai’s wife, and the mother of his two sons. She brokered a peace deal that saw the Reliance empire split into two.
But the question is, how many family businesses need to go through such bitterness and anger when the founder has passed on?
We have helped a number of family business founders to craft their wills. (Will writing is a part of our business.)
Sadly many people discount the value of a will. Wills are documents which can settle the potential disputes between siblings, by making clear the intention of the founder.
Letter of Wishes – something to consider?
A family business founder may consider writing a Letter of Wishes. A letter of wishes is a letter that accompanies a will, and explains to those who hear the will, why certain decisions were made.
A letter of wishes is not legally binding, but it can be a great source of comfort for the family.
Many things can go into a letter of wishes — words of wisdom, reminders, and explanations.
It is worth considering preparing a letter of wishes in addition to a will (and not in replacement of a will), to address the concerns that family members may have.
Family Business Constitution – something to consider?
Some family businesses have also prepared a family business constitution. At our firm, this is something that we can offer in collaboration with some of our partners.
A family business constitution is a document which spells out how a family will be involved in the family business. This helps to clear up issues like remuneration and equity in the business.
It can also be a guiding document for the family business, even as the family business expands and ages throughout the years.
Because families will also grow, and as siblings pass on, it will be cousins, and then second cousins and third cousins who will remain in the business.
Second and third cousins aren’t often as close as their parents, and in due course, there may be a steady fraying at the nerves as tensions rise in the business.
A family business constitution is worth considering, and we may write more about it in the future.
Thanks for reading this article. We hope that you’ve found it useful
This article has been prepared for general information only. If you have any queries, you are advised to consult with a licensed practitioner. We can be contacted for a consultation if you have any questions pertaining to your family business issues.