Protecting the Golden Goose: What we have learned over the past 37 years about shareholder conflict in family businesses – and what to do about it

by John McAlister and Chris Beringer

The objective of this white paper is to suggest ways for family businesses to maximize financial objectives while minimizing family conflict.  There are inherent conflicts between active and inactive shareholders.  There are also deep seated emotional conflicts that may go back generations.  These issues can be dealt with, but they need to be understood, acknowledged, and discussed.

Protecting the Golden Goose should be the first and foremost concern.  It is the financial engine that drives nearly every major decision the family makes. If the family business has been around awhile, there have been times cash has been needed for growth. Many companies, whether publicly or privately held, cannot afford to pay dividends while in growth mode. When a privately held company begins down the path of paying high dividends to its shareholders, it is likely that the company is missing out on key growth opportunities. This is a key reason why ALL shareholders’ long-term interests need to be in alignment. If they are not, the Golden Goose either slowly ages – or it dies quickly.  At that point there will be very little for the shareholders to argue about valuation.

The family business is always in transition. Families grow and change, as do industries and people.  Sometimes the transitions are extremely pronounced, like a sudden death or an internal buyout; other changes are far subtler.   Transitions can lead to resentment and conflict.  Most family businesses have some undercurrent of resentment and conflict, so the key is how to manage it.

In family owned businesses that have active and inactive shareholders, issues of employment, growth vs. dividends, or shareholder distributions can be the topics of heated discussions, just as politics or favorite sports teams are for other people. However, political or sports arguments don’t create the hurt feelings that a wrong move in a discussion about money with a family member involved in the family business will.

Both sides have very reasonable viewpoints.  It is often frustrating for an inactive shareholder to see active family members receiving, in their view, frothy salaries, company cars, and large bonuses, while at the same time the company is not paying dividends or distributing any cash flow.  Yet active shareholders need capital to retain key talent, meet bank covenants, and grow the business.  The fundamental disconnect between what to do with cash flow is a massive driver of conflict.

This conflict will exist, so the key questions are how and when to deal with it?  Ideally, the first generation should do it, before shares get distributed to children, cousins, or other family lines.  A family mission statement goes a long way to minimizing future conflict.  The family mission statement should discuss the genesis of the family wealth and the values that should be passed on (to family and community).  It should also create governance and mechanisms that will allow the family to deal with conflict as it arises, whether over financial reasons or personal issues.  The longer a family goes on with family values undocumented, the more inevitable conflict can become, and those values become lost.

Often the struggle between active and inactive shareholders will end in an IBO (internal buy out).  There are multiple reasons why these negotiations are extremely challenging:

  • Disconnect on price (difference what a strategic buyer would pay vs. what a company can borrow from the bank and pay the inactive shareholder)
  • Deep rooted conflict
  • Conveyance on seller paper (do the actives really want the inactives to maintain board seats?)
  • Family members of inactives who still may be working in the business
  • Perks, community and otherwise, that go along with being an owner, even an inactive owner!

Valuation is the cornerstone of any internal buy out.  As discussed during The Beringer Group’s webinar sponsored by Family Business Magazine, the valuation of a privately held enterprise is more of an art than a science.   There are really only four times you should be seeking a valuation, and pursuing them other times can cause issues:

  • Upon the death of a shareholder
  • If you are “actively” seeking to sell the family enterprise
  • If you are seeking financing to buy another business enterprise
  • If you are actively trying to buy the shares of either an active or an inactive shareholder. Find out FIRST what a financial institution might be willing to lend before you go down the path of a valuation in this case!

Consider the following couple of true scenarios, and you will appreciate the complexities involved.  In fact, it could become one of the worst nightmares imaginable.

A business owner of a very successful family enterprise attends a seminar about how private family companies are valued. Intrigued, he agrees to a valuation, only to have the value become a centerpiece in a highly contested divorce a couple of years later.

A business has four siblings who were owners; the oldest sibling has children who want to come into the business, the other three do not. A meeting takes place at their law firm, and it is agreed that the oldest will buy out his siblings. They start by getting the company valued by an outside valuation firm through the law firm – but “too early” in the process. Once the three siblings hear the valuation number, it creates a massive conflict.  The expectation of the three sellers in this case could NOT be met financially by the eldest sibling and his children who wanted to come into the business. Here’s the bottom line truth about business valuations: every valuation will produce a different result and for very different reasons.

The Beringer Group, in conjunction with Family Business Magazine, produced a one-hour webinar titled “Family Business Transition Strategies that turn Conflict into Opportunity.” It was one of the highest rated webinars ever done by FBM.  The number and complexity of the questions asked was quite a surprise to the staff at FBM; to us here at The Beringer Group, these are the types of issues we deal with every day. The webinar, list of questions, and corresponding answers are available on the homepage of TBG’s website, There are a variety of reasons why many successful family enterprises make it to the next generation.  Many do not.  The material covered in the webinar explores in depth the ideas presented here, in addition to ways to access capital for expansion or to help cash out a family member’s interest.

Numerous parallels of a successful family business and everyday life can be drawn to understand why there are enterprises that are successful and thrive, and there are those that fail miserably after the first generation. A TBG client whose family has been cultivating land and timber assets across five generations put it this way in a recent meeting. “We have to constantly look out 25-35 years in our tree rotation schedule (from planting to final harvest). If a family member or generation becomes too short sighted and wants to speed things up to get more cash (like thinking of themselves first by shortening the rotation schedule) the cash account will look really nice for a short period of time. However, in ten years, maybe a bit longer, our beautiful land will become sick and then become worth very little to the entire community.”

The best thing of all, for active and inactive shareholders, is to think about how to make the Golden Goose bigger and stronger to provide benefits for generations to come.  Whether in art, music, film, architecture, or business, masterpieces have been created when the artist’s true passion came through without regard for fame or fortune. They gave the world what they loved. The family business not only supports multiple generations, but often whole communities, while also providing critical services to customers.  Dealing with family conflict and shareholder issues is essential for insuring that the Golden Goose provides benefits for multiple generations.


The Beringer Group, based in Radnor, PA, with satellite operations in Mt. Laurel, NJ, Tampa,FL,  Atlanta, GA,  and Chicago, IL  has been working exclusively with some of America’s finest family-owned and operated enterprises since 1979.  Focusing primarily on business succession and transition issues, which include many types of conflict resolution, The Beringer Group has served over 2,000 families, over multiple generations. The Beringer Group itself has also successfully transitioned to its second generation.