Increased focus on equality between children and new family structures steer ownership transition away from the norms of the original farmer society. New ideals and new ways for families to run and own businesses are taking over.
The oldest son in the family is no longer automatically the first in line to inherit the ancestral farm or the family business as more modern ownership transitions of businesses to several heirs are gaining ground.
This is the opinion of Christian Gregersen, partner with Horten.
“There is an increasing demand for models where several children can own or run a business together when their parents are gone”, he says.
This creates more favourable terms for avoiding jealousy and envy among heirs to businesses.
”Today, all sorts of other things are important to maintain the values at the ancestral farm to enable it to survive. In many ownership transition models, it is not necessary to drive a wedge between the members of the family”, says the lawyer.
The world is smaller
Morten Bennedsen is a professor of economics at the University of Copenhagen and a researcher in family-owned businesses, including ownership transitions. He emphasises that there is not yet any research proof of a change in the ownership transition pattern, but that the tendency is known in research circles.
Internationally, the development goes back 30-40 years.
“What affects ownership transitions is for example changed family patterns, more divorces and fewer children in the families. The children do not live in the same village as their parents, and the world has generally become smaller. Of course, all this affects the way in which we carry out ownership transitions.
New considerations
In addition, the present leaders have experienced themselves what it means to inherit responsibility automatically and are therefore perhaps taking more sensitive considerations into account.
“Some of the eldest sons out there would perhaps have preferred to become a fighter pilot but had to take over the family business instead”, he says.
The corporate leaders thus do not want to burden heirs against their will, nor do they want to witness businesses perish with heirs who did not wish to continue them.
Avoid family feuds
The consideration for the prosperity of both the family and the business is a key element of modern ownership transition. The large elephant in the room is when family members are unable to work together in a poor or unsuccessful ownership transition.
According to both Christian Gregersen and Morten Bennedsen, it is the most risky aspect of a business when all siblings are heirs but do not show the same commitment or understanding of leading if involving themselves in the operation of a business.
“When disagreeing heirs choose to dispute through their board memberships, all development in the business stops, and this is the most effective destruction of value”, says Morten Bennedsen.
Separate operations and ownership
According to Christian Gregersen, expressed in popular terms, it is important to find a business model that takes into account both an equal treatment of the children which we would normally do in a Danish context, but also taking into account the same children’s interests and qualifications for taking over the ownership and/or the operation of the business.
“Assets are like a portfolio that may be owned equally by several people and where the governance model is used to ensure good management. This ensures that you are able to talk together as a family even if not all family members are equally committed or equally competent in the operation of the business”.
Governance is another term for management and is usually used in connection with the overall management of a business, e.g. in connection with the interaction between executive board, board of directors and shareholders.
Basically, it is important to compensate for the business threatening to bulldoze the family’s social life or the other way around when you carry out an ownership transition, says Morten Bennedsen.
"As a parent, you are thinking - rather oversimplified - that we love our children equally dearly, and we are worried about sharing our love differently". The second aspect is the business: we wish to provide a solution that ensures quality in life and growth and success for the business in the next generation. And there may be a trade-off.”
Are the young all set?
Morten Bennedsen points out that we have witnessed a wider spectrum of governance models for ownership transition. But in relation to the operation of the business and entry into the management, it also requires that the heirs actively select that life. Perhaps together with siblings.
“New ownership forms arise, and the most important consideration is whether the business should altogether be transferred to the children; are they even interested?”
But why are we still thinking along the lines of keeping all the company’s activities with one primary heir? Christian Gregersen has an idea about this.
“We are carrying some ideas around that date all the way back to the feudal age and the original farming society, namely that it is important to keep the business in the hands of one person", he says.
He gives an example.
“An owner of a large logistics company wanted to plan for the ownership transition well in advance but rejected the first three legal advisers. All three urged him and his wife to choose one of the two children to take over the entire business”.
He acknowledges that there are valid arguments for businesses being best able to survive ownership transitions by being transferred as one collective legal entity, “but you may still create effective ownership structures that take into account both the business transferred and the respective heirs and their competencies and interests. In this way, you also ensure at the same time a sufficiently large talent pool of family members if they are to play an active role in relation to the business.”