Engaged Ownership

Chapter 18Bringing in Outside Investors

Bringing in an Outside Owner

Whereas the family owners have a shared interest in the human capital of the business and the wider family and an appreciation of the human and enterprise capital that make up their shared legacy, an outside investor is primarily concerned about a financial investment.

Granting shares to a long-term employee, starting an incentive stock option plan, creating a qualified employee stock option plan (ESOP), bringing in an angel investor or a private equity firm, or undertaking an initial public offering (IPO): these decisions can motivate employees, provide investment capital, or generate cash for the owners. All of them will also bring outsiders into the ownership group and thereby change the ownership dynamic. What impact will outside owners have on the family ownership group, and how should an Owners Council be structured to accommodate the interests of outside owners?

Whereas the family owners have a shared interest in the human capital of the business and the wider family and an appreciation of the human and enterprise capital that make up their shared legacy, an outside investor is primarily concerned about a financial investment. An outside owner will be motivated to make decisions that enhance that investment and will have less concern for non-financial interests. An outside owner will want information about the business and its financial and strategic plans. He may request—or require as a condition ...