The art of dealing with your business “what ifs”

The following are just some of these that you may face: 

• Falling out amongst shareholders. Everybody starts in business with the best of intentions, but history is littered with disputes amongst shareholders leading to businesses either suffering or even failing. 
• One shareholder wants an exit while others are perfectly happy to continue with their business “as is”. It is entirely normal for shareholders to have different agendas and for these to push and pull in different directions and create tension.
• The divorce of shareholders. Family businesses are most prone to this eventuality and when divorce happens, it can create chaos amongst the shareholder base and needs to be dealt with.
• Management disagreement on strategy. While the Board of Directors has a duty to promote the success of a business, quite often disagreements as to which direction to take, cause arguments and can be quite destructive for the progress of that business. 
• Arguments over succession or Board appointments. In a similar vein, it is very subjective as to who, in a family business context, should be the best person to take the business forward. Often these decisions are hugely contentious and just because someone is family does not necessarily make them the right person to be part of the Board or to make such decisions.
• The involvement of family members in the management/employment. A similar issue as to whether or not blood should be thicker than water.

For all of these highlighted issues, one answer is to try and predict what should happen in any of the above given examples (or others that might be imagined). These are often encapsulated in a shareholders’ agreement or, in the context of a family business, in the form of a “family charter”, an agreement which goes beyond the normal shareholder issues.  Both types of agreement can deal with objective setting and can dictate how the Board relates to family members. It can go into more detail around how the family can be involved, whether a family council is to be consulted every year to gain support for the following year’s trading and can confront many of the more emotive issues, for example, such as whether family members have a right to be involved in that business going forward, and it is clear to what the rules of engagement are.

Having seen many of these unfortunate situations occurring, and the chaos these can cause, I would advocate that these things are brain-stormed, and an agreed code of conduct is thought through and documented. If nothing else, think of it as sensible insurance for the future.

If you would like any further advice or support on future-proofing your business, please contact the author of this article.