Working and Non-Working Owners

Some families believe that owners should work in the business. The arguments in favour of this view are (a) that ownership should be earned (a work-to-own attitude) and (b) there inevitably would be conflict if some owners worked in the business and others who did not expected dividends or some say in how the business operated (as owners usually do).

A risk with the work-to-own attitude is that even the prospect of ownership might not be enough to guarantee that the most talented family members choose a career in the family business. The family members who pursue other careers and are as a result cut out of ownership may feel they are also being cut off from the family, especially if the business represents a significant portion of the family’s wealth. Alternatively, they might decide to take a job in the family business in order to qualify to become an owner but resent it because they feel they were forced to sacrifice their other career aspirations.

Some families use different classes of shares in an attempt to balance the interests of working and non-working owners. The working owners may own shares that confer voting control while non-working owners are entitled only to economic returns. This raises interesting questions; for example, what happens when either a working owner leaves the business or a relative joins the business?  Does the former have to sell their stake or does their ownership become non-voting, and how do the new joiners acquire ownership? 

Those in favour of owners not having to work in the business would argue that this is the ethos of capitalism, where owners provide capital in the hope of return and hire talented people to run the business. They would also argue that being a good owner of a family business is in fact a job, and that it should not be assumed that owners who do not pursue a career in the family business will inevitably interfere or demand unreasonable economic returns.

In this brief blog I have tried to be a reporter of the sides in this argument in the belief that there are always different truths to be found in different viewpoints. However, the argument can only be settled by each family doing that they feel is right for them, and others (including advisers) should respectively refrain from passing judgement.