The Key to Long-Term Shareholder Value, Part I

The Key to Long-Term Shareholder Value, Part IBaylor

Legacies Newsletter
by Donald J. Jonovic, Ph.D.

Owners of closely held companies, by experience, inclination, necessity, and, often, personality, tend to focus on the short term. Most available waking hours are absorbed by immediate problems, sudden opportunities, annual profits and cash flows. Fortunately, a successful business can, in fact, be built this way. It happens every day.

Unfortunately, this focus on immediate challenges and rewards is definitely not the way to build the shareholder value of that successful business for the long-term.

Consider how this outlook affects transition. Few would doubt that a smooth ownership and management transition in a family firm can enhance the value of that firm to shareholders and potential buyers. Even so, in companies with a short-term focus, transition (when it’s thought about at all) is seen as an “event” in some distant future: “We’ll get to it when the problem arises.” This is wrong. Companies don’t suddenly decide to have a transition any more than a woman suddenly decides to give birth. Transition is a process. It is a way of going about things. More…

Protecting Seniors’ Interests in a Business Transition

PROTECTING SENIORS’ INTERESTS IN A BUSINESS TRANSITION

Peter Berenson, CPA, PFS

Forman, Itzkowitz, Berenson & LaGreca

For seniors, transitioning their business to the next generation can be, in some ways, like teaching their child to fly from the proverbial family nest to independent adulthood.  During the growth and developmental years of both the business and the child, seniors typically nurture both with love and money and build emotional bonds.  Then, when they contemplate separation from each, the senior/father begins to assess the related risks.

Understanding business transition risks and how to protect against them requires a brief overview of the two basic transition types: management control and stock ownership.  These can occur simultaneously or independently, and gradually or instantly.  In other words, seniors can transfer daily and strategic management to the next generation while retaining ownership.  Or, they can transition some or all of the ownership to the next generation while retaining daily and strategic management.  Or, both types of transitions can occur simultaneously.  The major difference between the two types is that as long as seniors own more than fifty percent of their business they have the legal authority to grant and/or reclaim management control.  Once the fifty percent threshold is crossed, this legal authority is substantially diminished.  Nonetheless, while the degree of risk may differ with either type of transition, the nature of the risks is the same. More…