Minority Shareholders

Minority Shareholders

by Craig E. Aronoff, Ph.D.
Co-Founder and Principle of the Family Business Consulting Group

“I’m a minority shareholder in a family business,”the phone call began.”I’m hoping to start a national association of people in situations like mine.”

“We could learn more about our rights,”she continued.”We could organize and try to pass laws more favorable to minority shareholders.We might even organize a market for trading our shares.”

The caller wanted my help.”Why do I think your association is designed for dissident minority shareholders?”I asked.”What has upset you enough to want to organize?”

She told me that her parents had left her shares in the family business.She wanted to work there, but women were systematically excluded from involvement.She sought to be on the board.Her brothers vetoed the idea.Whenever she asked for information about her investment, she was denied.Efforts to gain some value from her parent’s gift through dividends were rebuffed.Her attempts to sell her shares to the business or to her brothers got no response.

Of course, there are two sides to every story, and I was only hearing one side.I asked her several more questions — about discounts from market value for minority ownership and lack of marketability, for example.Her answers were measured, balanced and intelligent.

“Do you have any relationship with your brothers that you hope to salvage?”I asked.””There’s nothing left,” she responded.

I didn’t help my caller.She understood.”I’m too adversarial for you, aren’t I?”she stated.I answered, “Yes.I can’t help much when family relationships are gone.”

The phone call saddened me.In this woman’s case, actions meant to bind a family together became a legacy of pain.A valuable gift had become a costly burden.Energy, time, effort, emotions and wealth were squandered rather than being focused on moving forward toward shared goals.

Had her father not insisted on leaving shares to non-active family members…had a meaningful shareholders agreement been established…had a method of providing liquidity been established…had brothers adopted a fiduciary attitude…had gender not kept a daughter from being more involved…had brothers and sisters been willing to consider one another’s goals, communicated, compromised or sat down and reasoned together….any of these approaches might have prevented the pain and waste.

Instead, a woman seeks to organize minority shareholders to assert themselves and their rights against their kin.

This article appears with permission from Family Enterprise Publishers.