Help Shape Family Business Advocacy in Washington, DC
Clear communication and strategy between the family and the business creates capable shareholders alongside a sustainable enterprise.
In brief
- A family business transition is vulnerable to disruption, from an expanding shareholder base to unclear boundaries between family, ownership and management.
- Parallel governance enables the family and business to work side by side with a clear understanding of operations and joint responsibility for long-term success.
- Managing family and business needs with an eye toward tomorrow educates the next generation while reducing the transition risk.
In recent years, family businesses have made headlines following their acquisition by private equity investors. This turn of events has become increasingly common for family businesses in the US, where multigenerational companies are more the exception than the rule. In fact, EY research reveals that more than 65% of family business owners express a desire to transfer their companies to the next generation, but fewer than 25% succeed in doing so. But the untold story behind each sale is why the transition from one generation to another can be such a vulnerable period.
The risks of failure are extensive. As generations pass, the shareholder base becomes more complex, with diverging interests between those working in the business and inactive shareholders who may be more concerned with short-term wealth management. Uncoordinated financial demands on business profits can arise as the business and family grow, leading to tensions between the need for capital and the shareholders’ need for liquidity. Navigating these pressures requires clear boundaries between family, ownership, governance and management roles to prevent confusion and blurred decision-making.
To address these risks and promote generational transition, many families with successful multigenerational enterprises have a strategy at the heart of their business that goes beyond tomorrow’s operations. They understand that transition planning is a process that can take a decade or more. When today’s owners mentor the owners of the future, they help provide for the cohesion, stewardship and competency needed to sustain a healthy business for generations.
The generational transition process is often best managed through the use of parallel governance systems. This means establishing separate governance structures for the family and the business, with clear communication and direction flowing between the two. The family governance focuses on developing a harmonious and capable shareholder base, while the business governance oversees strategy, growth and performance.
About EY
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Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.
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About EY Family Enterprise
As trusted advisors to ambitious business-owning families, including more than 90% of the world’s top 500 family enterprises, EY teams have the experience and know-how to support the entire family enterprise — family members, their family business, and their family office.
The EY approach to working with family enterprises is anchored in the EY Family Enterprise DNA Model. This model supports both the personal and business performance agendas of family enterprise leaders by pinpointing four key areas of focus to achieve their ambitions: family, values, business and assets. We combine our understanding of these focus areas with decades of experience working with the world’s most entrepreneurial families to create a framework for guided conversations on topics that matter most to family enterprise owners.
EY Family Enterprise professionals can support you in identifying and optimizing the drivers that impact family businesses’ growth and longevity, preserve wealth, and culture, and solidify intergenerational legacies. Family Enterprise Business Services | EY - US
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