Posts in Business

Fiducia Partners Insights - Ensuring Good Relationships Between Active and Non-Active Family Shareholders

Preventing Standoffs Between Active and Non-Active Family Shareholders

November 22nd, 2018 Posted by Business, Family Wealth 0 thoughts on “Preventing Standoffs Between Active and Non-Active Family Shareholders”

A few months ago I wrote about preventing feuds from becoming fatal for the family business. In that piece I focused on family members who are actively involved in the business and how they separate their roles at work and their roles in the family. Now I want to look at the relationship between active and non-active members of the family business. The dynamics here need to be carefully managed particularly when a family business has survived several generations as there are likely to be many family members who have shares in the business and while some may be actively involved in it as employees or directors some won’t be and this has the potential to cause tension. And whether involved or not, in a family business every family member feels some degree of responsibility because the business is often interwoven with the family’s history, future and financial wellbeing.

To ensure harmony between all family shareholders for the benefit of the business, here are a few suggestions:

 

  1. Be practical with voting stock

Where the voting power lies can have a big impact on the smooth running of the business. Problems can arise when all shares have equal voting power and active and non-active shareholders vote different ways on key decisions because of differing priorities, risk tolerance or levels of knowledge. One solution is to have multiple classes of stock which enable certain members of the family to maintain control over the company. For example active members of the family business could be allowed to hold a class of stock with one or more votes per share and a different class of stock with reduced or no voting power can then be held by family members who are not actively involved in the running of the business. This ensures decision making about the business will remain with those most familiar with it, but the economic benefit of the business is still shared evenly throughout the family.

While this can be a practical option, in the name of fairness and equality many families prefer to have one class of share. In this case a solution I know that many families use is for non-active family members who do not feel informed enough about the business to make key voting decisions to appoint an active family member as their proxy. However this can only happen with consent and trust and so only tends to work in well functioning families.

 

  1. Draw up an enforceable shareholders agreement

Whether you have different classes of shares or not, there may still be other issues about control of the company that you need to address. This can be done with an enforceable shareholders agreement. Depending on the issues you want to avoid or resolve, you can include certain stipulations such as restrictions on the appointment and removal of directors and of their remuneration. Another area that may need clarity relates to dividends which for some non-active shareholders may be their sole source of funds.

 

  1. Promote inclusion

Because a family business is often intertwined with the family’s identity it is vitally important for active family members not to dismiss input from non-active family members. While there is the potential for issue where non-active members begin to unduly interfere, in general any contributions and sacrifices made should be acknowledged and appreciated, and ideally remunerated. It is important to remember that even if a family member has chosen not to be actively involved in the business they are still likely to interested in it and would appreciate being included in some way. Therefore, active family members need to take responsibility for communicating updates about the business with non-active family members just as non-active family members should show an interest in the business, offering opinions and advice, but without unduly interfering.

For many families, holding an annual or bi-annual family shareholders meeting serves several purposes:

  • it gives everyone an update on how the business is doing and makes them feel included;
  • it allows advice or concerns to be heard in a constructive way; and
  • it reaffirms positive family relationships which can only be good for the business.

 

Particularly in the case of large families, it can be difficult to include everyone in the business in a meaningful way but offering opportunities to be heard and promising to listen is something that active members have a responsibility to do and non-active family members have a responsibility not to take advantage of.

 

If you enjoyed this article, please leave a comment and let me know!

Fiducia Partners Insights - Building Trust in Business Relationships

Five Ways to Build Trust in Business Relationships

November 1st, 2018 Posted by Business 0 thoughts on “Five Ways to Build Trust in Business Relationships”

Developing strong relationships is crucial for success in business and is something that involves several factors of which I would argue that the most important is trust. It is a component of integrity and confidence and forms the basis of both personal and business relationships since it relies on others knowing that you are who you say you are and that you do what you say you will do as the essential criteria for trust.

It is well known that building trust takes time and effort while losing it takes a single instance of breach. Trust is a two-way relationship that enriches your life and in my experience opens up new opportunities. Here I go through a few behaviours I find helpful in building trust with my business colleagues and contacts:

 

Communicate openly and effectively

Honest and effective communication is crucial for all trusting and successful relationships. This includes both conveying your messages clearly and listening to others. Where there is a lack of communication, misunderstanding seeps in and relationships can fall apart. In a business context effective communication is particularly pertinent to agreements where all parties should be clear about what exactly has been agreed to. Good communication is also important when difficulties arise in a relationship, as they often do, and a frank conversation must be had rather than avoided.

 

Be honest about your vulnerabilities

Showing rather than covering up vulnerabilities is a great way of creating and accelerating trust as it allows your relationship to grow deeper more quickly. Exposing your flaws and weaknesses is a demonstration of your trust in those you share with and you will quickly find out if it is taken advantage of. A well known case of this is when Starbucks founder Howard Schultz returned as CEO to revive the struggling company in 2008. He stood up at an all-company meeting to confess that the Starbucks leadership had failed its employees and families which as a moment of vulnerability turned out to be the beginning of the company’s turnaround and subsequent success.

 

Be consistent

I find it a great demonstrator of trust when someone is consistent in their actions. Meeting commitments, whether that’s arriving on-time to meetings, fulfilling promises or completing work to agreed deadlines allows other people to believe you when you say you will do something.

 

Meet face-to-face

In today’s digital world it is very easy to communicate and conduct business online and over the phone but I think face-to-face meetings shouldn’t be underestimated. Meeting business contacts in person allows for candid conversation and shows people that you value your relationship with them enough to make time to sit down and give them your full attention.

 

Be generous with your time and help

Having built a strong relationship you shouldn’t take it for granted. This means nurturing your relationships and not just calling on contacts when you need their help. I find that offering to help others in a way that provides no direct benefit to myself builds their trust in me – from which I derive benefit.

 

In my business of connecting people and facilitating deals trust is at the heart of all that I do so I hope you found this article useful and that you can apply it to your own business relationships. Please let me know if you enjoyed reading it by leaving a comment. I very much appreciate it.

Fiducia Partners Insights - Why Integrity is Crucial in Business

Why Integrity is Crucial in Business

October 11th, 2018 Posted by Business 0 thoughts on “Why Integrity is Crucial in Business”

For everyone in business, personal integrity is crucial for having a good reputation, self-respect and achieving long-term success. There are of course many examples of successes won by cheating and lies, but these will always be temporary. Consider the case of Theranos, a blood-testing start-up once valued at $9 billion and subsequently found to have misled investors out of $700 million. Both its founder and former president are now facing criminal charges of wire fraud after they schemed to defraud investors, doctors and patients. Its founder, Elizabeth Holmes, is also banned from serving as an officer or director of a public company for ten years but even after that, I doubt she’ll ever raise any money from investors again.

Therefore to achieve long-term success, integrity is a crucial element. For entrepreneurs it is important for gaining and keeping investor and team member support, for companies it is important for gaining and keeping employees, customers and suppliers, for investors it is important to consider an ethical investment strategy since a portfolio reflects the investor’s values despite the prospect of attractive returns.

The standard definition of integrity is the quality of being honest and having strong moral principles. It is a state of mind rather than situational, meaning you are consistent in your actions at all times, not just when others are looking. We all face integrity-based choices on a daily basis and in reality we all define integrity differently. For example I’m sure Elizabeth Holmes justified her actions because she thought that her blood-testing device, if it worked, would revolutionise the diagnostic industry and ultimately save lives. Therefore, while we all think we know what having integrity involves, I have listed below what I think are some of the crucial aspects of integrity in business:

 

  1. Meeting your commitments

    Whether turning up to a meeting on time, completing work on schedule or in my case, making the promised introduction, fulfilling promises and meeting commitments is important for your reputation and how likely people are to do business with you again.

 

  1. Being honest

    This means admitting mistakes and telling the whole truth however painful this might be in the short-term. It involves not overselling an outcome and not telling people what they want to hear since these create a short-term perception in you that can be your undoing if expectations are not met. I believe that underselling is more honest since the outcome is more likely to be exceeded and therefore your reputation enhanced instead of the other way around. Essentially being honest with yourself and others will help protect you from being held to account and as a result you can’t go too far wrong in business or in life.

 

  1. Working by a strong and consistent moral code

    By setting yourself certain standards of behaviour to stick to you should avoid unscrupulous or immoral others and build a positive reputation.

 

  1. Being authentic

    Essentially, be yourself.

 

  1. Treating others with respect

    We all know business is as much, if not more about relationships than anything else. Being courteous and considerate to all those you meet and work with need not compromise being tough and frank. Respect also involves not doing things which disrespect yourself or others such as bullying, deceit, infidelity or fraud. Such honest dealings do not go unnoticed or unremembered.

 

  1. Building trust

    Doing all of the above will help inspire the trust of others, both in you and your business. We all know however that trust is much harder to build than to break. One instance of dishonesty, of not meeting a commitment, of wavering morals can lead to a break down in trust. As William Godwin once said:

    “No man knows the value of innocence and integrity but he who has lost them”.

 

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