Client Situation
The patriarch CEO of a large family-owned conglomerate was asked by his heir-apparent son to form a subsidiary in fish farming, a new, little known, and risky business for the diversified family company. The patriarch agreed, thinking it would soon spin off cash to the parent group and provide great personal development experience for his 28-year-old son. The son had good leadership talents, was very quick to learn, and had great passion for the new business. However, as CEO of the new subsidiary, the son soon found that the new business was going to require large and continuing amounts of capital investment and the father was preventing this investment by stripping cash from the new business to fund other units within the conglomerate. The son’s wife was also involved at a senior level in the subsidiary, and the two of them became frustrated to the point of considering leaving the family group, in which they owned substantial interests. This was something the father wished to avoid because of his dreams for his son to take over his position someday in running the family business empire.
Solution
An outside business consultant, now a E78 team member, was called in by the son to sort through the complex ownership and financial support issues between the subsidiary and the larger family group of companies. After looking at the competitive situation and the resources needed to survive, as well as the expectations of the larger family group, the consultant finally reached the same conclusion as the son and his wife: the new subsidiary needed to separate and stand on its own. The question was how to untangle the ownership interests of the son and his wife from their interests in the larger family group, and the rest of the family’s interests in the new subsidiary.Â
The consultant became a trusted advisor of the son and other family members, and was able to negotiate, over an extended period, a relinquishment of family group interests in the fish farming subsidiary. This was a painful process because the patriarch father had to alter his plans for succession in leading the larger family conglomerate. And from the son’s perspective, he and his wife had to relinquish part ownership in lucrative and appreciating family assets to concentrate all their holdings in a high-risk, highly competitive, and capital-intensive new business.
Results  Â
The consultant continued to advise the now-separate fish farming company and position it to gain access to capital, which allowed it to excel over the competition and grow rapidly. The company eventually went public, and many years later is still led by the son and is in a dominant position in its sector. Leadership of the family conglomerate was eventually passed to a series of professional managers, with the patriarch’s daughter becoming chairperson of the board. Many of the conglomerate’s businesses were later sold because they had been treated primarily as financial investments with no active interest in growing them, whereas the aquaculture company continues to grow.
