A shareholder in a family business has legal shareholder rights and obligations as well as rights and obligations as defined by the family dynamic. Legally, as a shareholder, you have the right to receive any dividends declared by the board of directors, to vote for members of the board, to sue in the event of company mismanagement and to receive a share of the assets if the company is liquidated. Dealing within the family is another matter.
Communication
Unless you are a majority shareholder, your influence on the management of the firm is limited. If you are a board member in addition to being part owner, your influence is greater because you have the legal right to inspect the finances and demand management adherence to board-stipulated policies and performance goals. If the head of the family is running the firm, a diplomatic approach is probably a better tactic than a confrontational approach, unless all other board members are on your side. If a family argument occurs, it is common for some family members to sue others, so if you are on the board, be aware of your legal liability if the business fails or there is a fight for control.
Talent
If you are a board member in your family business, your duty to the business is to maintain the highest level of management talent possible. Family businesses have an advantage over competition because family members run the business, so their cost of management is often less than the market rate paid by non-family firms, according to a 2011 study by Sciascia and Mazzola published by the Family Firm Institute. This has the effect of limiting professional management competencies. In a highly competitive business environment, professional managers hired from outside sources tend to bring important contacts, advanced methods and strategies to a firm. However, family dynamics might preclude an outside manager's successful assimilation into the business even if the family is willing to pay for outside expertise.
Succession
A 2006 study by Vincent Molly and colleagues for Family Business Review found that company growth performance under second- and third-generation management normally did not meet the rate of growth under the founder of the company. Although growth slowed in the transition from first- to second-generation management, there was no further decline in the rate of growth. Management succession is a key concern for family firms, because family livelihood often depends on the income generated by the family business, and as a shareholder, the value of your ownership position and even your income depends on preparing a smooth succession.
Strategic Direction
PriceWaterhouse Coopers's 2011 survey of family businesses concluded that because of increased global competition in business, family businesses must focus on doing what is necessary to sustain their growth. Although taxes, succession and talent are common concerns for family businesses, survival may require doing things differently than they have been done in the past. The study suggests a focus on keeping technology updated with the latest developments and expanding into global markets. As a part owner of your family business, it is to your personal benefit to influence other family members regarding the wisdom of establishing a new strategic direction if it is needed.
And how a family business survives not only from the fierce market competition but pass on wealth to future generations? European Chamber Shenyang Chapter specially invite Fanhua Inc. to explore and analysis the secret behind.