Financing the Family Business: When Growth and Succession are at Issue

Financing the Family Business: Northeastern University
When Growth and Succession are at Issue

Family Business Quarterly
by Thomas M. O’Reilly

The following is a true story. The names and certain details, however, have been changed to ensure confidentiality.

In 1957, Stanley decided to go into business. With $10,000 of his own and another $10,000 from his brother Fred, he started a small parts supply company.

By 1994, Stanley’s company had become a thriving $33 million business with 15% annual growth. Fred, who still owned 50%, was not seriously active within it. He used the company as a place to launch various less-than-successful enterprises. He relied on the 50% split of company profits that Stanley had always given him to live on and to fuel his various undertakings. More…

Compensation for Family Isn’t Always Fair

Compensation for Family Isn’t Always Fair

by John L. Ward, Ph.D.
Co-Founder and Principle of the Family Business Consulting Group

Next-generation successors in family businesses are wise not to be too concerned about justice in compensation — because they’re likely not to be paid what they’re worth.

Assume that one sibling becomes CEO and has another sibling in management and two others who are co-owners but not employed by the business. The CEO will be and should be shortchanged in two respects.

First, CEOs of most businesses, especially public companies, receive generous stock options that generate wealth for the CEO if the business’ value grows. Family-member CEOs usually don’t have that privilege. They already own or will own stock, most likely in equal shares with their siblings.Their parents carefully set up ownership that way.Stock options, even if technically feasible (and they are very difficult to construct in a private company), create unhealthy equity differences. More…