Amrop tracks some critical forks in the road, setting the scene for our next articles. 

1 - Foundation: Key positions held by the family supported by one or more trusted advisors. 

2 - Succession: 30% of FOBs survive the 1st generation and between 10% and 15% reach the 3rd. Only about 3% reach the 4th and beyond. Critical factors: Successor aptitude, motivation, early exposure to the business, education, entrepreneurial/ownership attitude, owner resistance, the dilution of decision-making as a family grows. 

3 - Finance & ownership: Generational share transfer, or no successors, taxation, industry dynamics, the imperative to transform, complexity, all impel the FOB to seek external resources. Critical decisions: Approach banks or private equity? Create, join or appoint a family office? Or go public, whilst ensuring the continuation of the firm’s founding purpose and values? 

4 - Transformation: Shifts in the operating environment spur a new stage. Digitization and new competition threaten legacy territory. Critical issues: Portfolio re-engineering, diversification, streamlining or divestment, elevating talent capacity, re-engineering organization design, digitization, energy transition, incremental innovation. 

5 - Governance: Prior to listed status and compliance with codes, FOBs face unique challenges to assure the smooth running of the business. Critical issues: Board positions created/assigned to family members to involve and remunerate them. Role proliferation. Phased family exit after ownership transfer. C-suite re-engineering. 

6 - Standardization: With listing, and beyond a certain size, many distinctions between an FOB and non-family equivalents begin to dissolve. Critical factors: Compliance with governance codes, regulatory constraints, ESG imperatives and shareholder scrutiny, whilst still retaining the family’s founding values. 

The Robinson Lumber Company was born in 1893 and is owned and managed by the 5th generation. The Harvard Business Review9  describes how it “puts long-term survival above short­term profits. Like many family businesses, it limits borrowing from the bank. Whilst debt is a great way to fund growth and return on equity, it also puts the company at risk during economic downturns.” However, “Family businesses last longer because they are able to pay the price that longevity requires.”  

Whilst it operates outside the capital markets, free from quarterly results, an FOB can more easily retain its long-term focus, higher financial stability and the space to make streamlined decisions that benefit staff and other stakeholders, directing investments and resources in line with its purpose and goals. But as one Amrop Partner says, even very wealthy FOBs may have limited ability to “raise capital for major acquisitions by going to the financing market or issuing new shares. Nor do they want to renounce ownership.”  

A generational change may force hands. If one generation wants to buy out the previous one, financing the share transfer incurs additional debt. When such issues intersect with economic or sectoral turbulence, the FOB enters perilous waters. Pre-occupied with internal matters, it risks becoming inward-looking.  

What happens to the quest for investment if the competencies of the new generation are dubious or unproven? Time to open the rucksack. For it is the family’s values, longevity and long-term perspective that will underpin the value proposition for investors.  

Private equity: The inability or unwillingness of the next generation. Punitive taxation, industry dynamics, the imperative to transform. The FOB may now seek an alternative investment model and share its equity, bringing in capital. In this case, one Amrop Partner observes, the family typically remains for 3-5 years to assure continuity, then disappears. It is essential to establish clarity and alignment prior to the deal.  

Family offices: Confiscatory estate taxes, regulations, overwhelming family or business problems. All may lead an FOB to create or appoint a family office: a private wealth management firm handling matters such as investment management, charitable giving, budgeting, insurance, wealth transfer planning or tax.⁹ Offices are single- or multi-family. Kirkbi was established in 1995 as a family office for the Kristiansen family, who own 75% of The Lego Group. An investment management company managing the family fortune, it appoints one person from each generation as active owner - currently Thomas Kirk Kristiansen. 

Listing: At one point the family may decide to go public. The business changes structure, takes on more debt, dilutes and reduces its equity. One Amrop Partner asks: “If families give up 90%, I sometimes question whether they should stay at all. What will be the role for the family representative?”