want to be owners of minority shares in SGS, and if
so, under what conditions?
3. Meet separately with the company lawyer and
accountant to make it clear that as a family
business mediator, you are not there to usurp
their roles, but to work together with them to help
the family and the business.
4. After the mediator gives Bob and Bill a summary
of the general tenor of the discussions (with
confidentiality respected as to each participant
unless he or she waives it), they, along with the
mediator, should meet with all children separately.
At that point Bob and Bill may decide jointly to
make tentative decisions as to how they would
like to see an ownership transition for themselves,
and proceed to develop the specific plan with
their lawyers. The plan may include mechanisms
to protect minority interests, such as buy-sell
provisions, super-majority (e.g., 75% ), approval
for certain transactions, nominations to board of
directors, mandatory sale requirements on certain
conditions (known as “tag-along” and “
bring-along” provisions), dividend expectations, and price
formulas for voluntary and involuntary sales .
5. Once the legal structures are decided, the
mediator should facilitate a family meeting to
discuss the legal and other aspects of the plan. In
many cases it is also useful to create additional,
less formal structures, such as regular family
meetings among the family members to keep the
family informed, give feedback about the business
and share family concerns (e.g. environmental
concerns, dividend policy and charitable giving).
SGS is a small company. It has provided a good livelihood
for Bob and Bill. However, its continued prosperity is dependent upon two key, non-family employees, Hackett and
Winslow. It is unlikely that the current business operation
has the resources to meet the multiple objectives of:
1. Keeping Hackett and Winslow motivated and
2. Providing substantial annual retirement income to
Bob and Bill; and
3. Providing for each of Bob’s and Bill’s four children
and their respective families, through employment
and/or ownership (i.e., distributions).
Given those facts, Bob and Bill would be well advised to
consider a transfer of ownership to a third party in a transac-
tion that is structured to achieve the objective of maintaining
SGS as a family-owned business and satisfy the potentially
conflicting objectives of individual family members, thus
avoiding disputes that could cause irreparable harm to the
family and to SGS.
JLS, SGS’s competitor in Albany, NY, would appear to be a
candidate for a merger with SGS. The two companies are in
the same industry, operate in contiguous geographic markets, and have some complementary products. Moreover, JLS
is already interested in Hackett and Winslow because JLS’s
current management is nearing retirement age. Through a
merger with SGS, JLS can “acquire” the Hackett/Winslow
management team, and SGS can obtain the resources to adequately compensate Hackett and Winslow while still providing
substantial retirement income to Bob and Bill and employment
or ownership benefits to the children of Bob and Bill. In short, a
merger presents the opportunity to become bigger and better, and to become more stable, resilient and profitable.
The owners of small companies rarely consider a merger
as a family business strategy or solution, even though it can
offer many advantages. Why? Because the threshold issues
that arise in connection with the consideration of a merger
are overwhelming to most small business owners. Who
will control the merged company, and how will decisions be
made? Who will manage it on a day-to-day basis? How will
equity in the merged company be allocated? Will the cultures
of the two companies be compatible?
A family business mediator can create a process for
addressing these threshold issues, and then successive
issues such as valuation, organizational structure, shareholder rights and deal terms, on a step-by-step basis, in a
fashion that is manageable. A mediator has the ability to do
what a representative or advocate for one company or the
other cannot do: facilitating—and improving—the negotiation
by continuing to keep the discussion focused on the important issues; preventing focus on an individual who is perceived
as being unreasonable; providing options and alternatives;
ensuring that decision making is informed; ensuring that the
term “deal breaker” is not in anyone’s vocabulary; eliminating
ego as a factor in the discussion; providing insulation for the
owners; and providing the ability for each company to “
caucus” with the neutral to review options and test ideas outside
the presence of the other company.
Transactional experience, mergers and acquisitions skills,
and industry knowledge are important in order for a mediator to be successful serving as a family business mediator in
the context of a merger transaction. However, armed with
this experience, knowledge and skill set, combined with
strong mediation skills, a mediator can play an invaluable role
in the context of a transaction. The mediator can thus help
ensure that a family such as the Simpson family will maintain its business, avoid disputes, and satisfy the objectives
of individual family members.