Evaluating Emerging Ownership Alternatives for Family Businesses

WashU Business professor Peter Boumgarden and I are curious about why family businesses owners, many of whom will reach retirement age in the coming decades, might consider alternative ownership structures, such as conversion to employee ownership. Below is an initial abstract of our project, supported by Schmidt Futures and Institute for the Study of Ownership and Profit Sharing.

Family businesses considering intergenerational transfer of ownership have four basic options: Sell out, go public, hand it down, or close shop. In a 1990 article in Family Business Review, Dirk Dreux identifies seven nonpublic alternatives, puts forward four sets of questions for business owners to ask as they consider those alternatives, and identifies three fundamental issues underpinning those questions: control, liquidity, and the capital needs of the business. 

This paper revisits the question of ownership alternatives available to family businesses. In the last thirty years, the range of financing options available to private firms has exploded, ESG and impact investing have gone mainstream, fewer companies are listing on public markets, and a global pandemic has accelerated the planned retirement of an increasing number of family business owners. We put forward the current range of options available to family businesses and review what is known about each. We then present a reimagined version of Dreux’s original evaluation of ownership alternatives, organized around the views of multiple stakeholders and incorporating the question of purpose, a fundamental issue for many family businesses.

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