• Trevor Dickinson

THE ‘KEEP OR SELL’ DEBATE

Updated: Apr 28

Business families can get stuck on emotional issues when weighting the sale of an ancestor’s legacy.


When family members debate whether to keep or sell their business, anger and tears often are part of the process. Differing interpretations of the family’s legacy or level of wealth cause family members to take sides against each other. Often these battles include arguments over a deceased patriarch’s or matriarch’s true intentions.



Unresolved bitterness over these ‘keep or sell’ issues can last for generations. Hard feelings can arise even when one simple course of action would have made all the family members wealthy and free to spend the rest of their lives doing whatever they pleased.


Sometimes, those who want to keep the business make personal and emotional decisions that may not be grounded in the best business judgement. The argument to ‘keep’ can be driven by insiders who want to preserve their jobs and lifestyles. On the other hand, some family ‘sellers’ may naively view the grass as greener someplace else and may not understand the potential for greater wealth accumulation by keeping the family business interests. Inactive family shareholders may demand a sale for diversification, to create liquidity, to reduce risks or to have a better financial “return” on their capital. The pressure by some to sell their interests may put a capital drain on the business at a time when capital is needed for other purposes.


These tensions in the later cycles of a family business may require the CEO to spend part of their time on family shareholder coalition building. For some family CEOs, this part of the job is both unwelcome and unproductive, further fueling shareholder tensions.


What are the Real Motives?


Smart families with a history of successful business decisions sometimes get stuck on emotional issues. These emotional (and sometimes bad) decisions can take a toll on the family for years to come. For example, the CEO of a family-owned business turned down a large cash offer for his company from a large conglomerate because his son wanted to run the business (even though other family members thought it was an extraordinary opportunity for diversification). Some family members argued that Dad could use some of his after-tax cash to buy a new company for his son. The son, who held a small number of shares at the time, later confided that he thoughts his own lifestyle would suffer if the company was sold. The new owners would have retained him as a consultant in an arrangement that could have been terminated if he didn’t perform – so he successfully lobbied Dad to reject the offers.


Some may contend that outside buyers’ money really isn’t important. They might argue that the family’s reputation, the jobs the business provides in the community and the quality of the company’s products may all suffer in the hands of a new owner. These are legitimate arguments, but sometimes they mask deep issues. For example, the family member making these points might be an aging patriarch who resists change and is unsure how he would spend his time after the business is sold.


Sometimes the decision to keep the business is a smart strategic move – if the company is an industry leader and can leverage its reputation and grow, or if the company is on a growth curve and its product or distribution channel has great potential. In these cases, the company will need capital to grow, and family capital is generally the least demanding and least expensive. But there are hidden costs in using family capital. Other needs often must be met – for example, the ongoing need to educate family members about the risks and rewards of business ownership and the need to provide for outside family shareholders to be bought out in the future if they so desire. Nothing accelerates tension in a family system more than telling someone his “inheritance” is locked up in the family business.


A Plan for the Family’s Wealth


Selling a family business shouldn’t be viewed as the end of the world. Sometimes it’s the right decision, given everyone’s circumstances. The founder’s wishes should not always be the overriding factor – and no one knows what course of action the founder would have chosen in the current situation, anyway.


When analyzing ‘keep or sell’ options, family members should keep the family’s overall goals in mind. A family’s financial capital is a means of building its human and intellectual capital. Viewed in this way, your family business may be only a current manifestation of your family’s wealth. If a great offer comes along, why not consider a sale and then use your newly acquired liquid wealth to continue realizing the family’s goals? What course of action represents the best interests of all family members? If your family hasn’t set family wealth goals, then you may consider the future of your business only from a financial perspective, or only from the viewpoint of a few family members who are active in the company. Later, you might come to see this as a mistake.


Some family-owned businesses make it a point to tell their children that the business may someday be sold. This keeps everyone open to the possibility of a sale. It encourages open discussion and may help to reduce some of the emotional issues if and when a legitimate buyer comes along. Teaching the younger generation about industry consolidations, strategic mergers and other market forces may help them view a sale of the business as a value-realizing event for the family – a positive accomplishment rather than a loss. Sometimes ‘keep or sell’ tensions are triggered or exacerbated when there is an unexpected death, an unprepared widow and no succession plan.


Formula for Family Conflict


Conflict over whether to keep or sell the family business generally occurs when one group (typically the inactive shareholders) experience one or more of the following:

  • Limited liquidity options.

  • Distrust of management practices (such as compensation) coupled with limited ability to force change.

  • Differing perceptions of company value.

  • Disagreements over company strategy (too risky, too conservative, etc.).

Increased tension often arises when these issues combine with conflict-inducing family dynamics, such as the following:

  • Poor communications and listening skills.

  • Inability to accept change or differences.

  • Unwillingness to compromise.

  • Lack of respect for others.

When a breakdown in communication is coupled with an inability or unwillingness to create organic business change, then the only question is how long it will take for frustration and lack of progress to lead to litigation. When a warring family member hires an attorney, he or she often doesn’t realize that this first move will escalate a competitive struggle, ultimately extracting a devastating financial and emotional price on both the family and the business.


Conflict can be avoided through frequent family communication. The family must develop a willingness (and the ability) to set emotions aside when making business decisions – easier said than done, since solutions require trust and commitment from both sides.

Family Legacies www.family-legacies.com is a multidisciplinary family business consulting company. Our consultants are leaders in their respective fields including; Family Business Consulting, Strategic Planning, Financial Planning, Wealth & Risk Management, Corporate Finance, Business Transitions & Exit Planning - Buy, Improve, Grow & Sell Businesses, Commercial & Family Law, Executive Coaching, Leadership Development & Facilitation, providing our clients with a professional and integrated multi-disciplinary service.