830 THE ADVOCATE
VOL. 77 PART 6 NOVEMBER 2019
The ownership subsystem comprises the actual equity owners of the family
enterprise. Business ownership can be seen as a package of rights and
responsibilities. In most jurisdictions, in exchange for capital, shareholders
are given rights, such as rights to attend and vote at shareholder meetings,
to receive dividends and to elect the board of directors, which has the primary
responsibility of managing the business.
Ownership in family businesses tends to progress through a sequence of
1. owner-managed businesses in which ownership of the company is
in the hands of just one person;
2. sibling partnerships where ownership has been divided more or
less equally among a group of siblings, some or all of whom work
in the business; and
3. cousin companies (third-generation firms and older) in which
ownership has been spread across a group of shareholders, a significant
proportion of whom take no part in the day-to-day management
of the business.20
An owners’ council or shareholders assembly consists of representatives
elected by the group of owners. This council is the foundation of the governance
system for the business. The ownership council has the ultimate
authority to choose members of a board of directors or a board of advisors,
as well as the chairperson of a board. If the business is still in the inception
or owner-founder stage, an ownership council could include family members
who are not technically “owners” to prevent decision-making power
from being concentrated in the hands of a single owner-founder.
There is a clear link between business governance and continuity planning.
The key question in any continuity planning exercise is whether the next
generation is ready to assume management responsibility in the business.
The reverse side of this question is whether the current generation is ready
to let go of responsibility for the family business. Failure to address these
issues often means that real decision making resides in the hands of the
first generation founder-owner, with the remaining family members holding
nominal positions and playing supporting roles.
Board of Advisors
The board of directors, a legal requirement in most jurisdictions, is the primary
governance structure for any family business. During a family business’
early stages the board is foremost a statutorily required legal entity