The Only Way Out Is Through

There may be nothing quite as contentious or polarizing for a business as an old-school equity tussle. Tensions, tirades and tears can take hold as otherwise cool heads find themselves in a pressure cooker situation.

It doesn’t happen overnight. Disagreements over the distribution of equity may simmer for several years, finally reaching a boiling point that can have dire consequences for a firm.

An individual’s perception of their value to a firm, their expectations and their aspirations for future ownership can create an emotionally charged situation. If you’re an owner or an aspiring owner right in the thick of it, you will probably relate.

I often encounter ownership struggles among consulting clients seeking advice on business growth or human capital issues. These firms are generally managing over $1 billion in assets, usually with multiple owners. Often there is a majority owner planning to retire in a few years, give or take.

It’s the “give or take” that can be problematic for firms. It is common for soon-to-retire owners to start working fewer hours or spend less time with clients or managing the firm. After all, haven’t they earned the right to do so after decades building and leading the business?

I would argue yes, they do deserve to take the proverbial foot off the gas. But that’s a somewhat simplistic answer that ignores some important points. There are other things to consider.

It’s not unusual for majority owners to receive greater compensation for their labor than similarly experienced partners or people with comparable roles in the firm. In some cases, it could be a whole lot more compensation. That has obvious implications for firm economics.

Let’s take this common scenario one step further. What happens if a majority owner, in the twilight of their career, prefers to sidestep important decisions to maintain the status quo? They may reject the growth plans of minority partners, defer the adoption of new technologies or fail to formalize succession details.

You can see why tensions might start to intensify, right? This is the type of scenario...

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