IPO and listing for sustainability of family-owned businesses
Initial Public Offering (IPO) and listing have the potential of creating opportunities to address issues that are specific to family firms.
Succession - understood as the transfer of leadership in a company’s management - is an important moment for any firm. However, because of the specific attributes of family firms, succession moments may be particularly fraught.
Despite the fact that family owners/managers generally wish to transfer the family business to their offspring, most family firms do not manage to survive succession, and very few family firms last beyond the third generation. The transfer of leadership can generate conflict and tension among family members.
The chosen heir(s) might not feel suitable for the role, or might simply feel compelled to continue their parents’ activity despite their desire to pursue alternative projects.
Family members who are not selected to take over the firm might feel as if they are being side-lined, or treated unfairly.
Finally, family members may wish to exit the firm and thereby sever their relationship with either the family or the firm.
As a consequence, the moment of transferring the (leadership of the) company is a crucial one in the life of a family firm, and one that may present opportunities for change. Listing could provide family firms with the tools to manage the organisational change that the succession moment necessarily causes.
Disinterested heirs (or other family members) would be able to take advantage of the increased liquidity of their investment to easily sell their stakes.
Incoming family owners/managers could take advantage of listing to gather funding for their own entrepreneurial projects, and to set their own vision for the firm.
IPO and Listing, together with the required corporate governance practices and the level of external monitoring, could also bring greater structure to family firms and limit the ability of family owners/managers to use corporate resources for family or personal targets. The enhanced visibility may enable the company to attract external and perhaps more professionally qualified employees.
Listing the company could, therefore, be a way to professionalise the firm and remove some of the excessive informality that too often characterises family businesses. There is some (limited) evidence in support of these propositions among our survey respondents.
A recent WFE survey indicated that both listed and unlisted firms agreed that listing would or did enhance the company’s ability to attract external talent (49 percent of unlisted firms and 86 percent of listed firms), and 52 percent of listed firms said they thought listing helped to resolve conflicts among family members. Generally, research indicate that the thought of listing is becoming more palatable over time. However, over 50 percent of unlisted firms surveyed disagreed with the proposition that “the next generation will list the company on a stock exchange”.
Increasing the attractiveness of listing for family firms
The discussion above suggests that unlisted companies have specific family-related perceptions about the potential impact of listing on their ability to retain control on the firm, and their freedom to operate, and are concerned that listing could challenge the family/business values and long-term strategic focus of the business.
Listed companies, however, seem to be satisfied with their listing overall, and did not experience the negative consequences that unlisted firms anticipate.
When asked, in the survey, about what they associated with being a ‘publicly listed company,’ unlisted firms cited many of the positives identified by listed firms - yet still mention family-specific negatives such as ‘external control,’ ‘conflicts among family members’ and ‘more difficult decision making!’
