Capitalizing The Human Asset for Family Owned Enterprises

Assets are the most crucial element on the balance sheet of every firm. Be it a physical asset or an intellectual asset, every organization plans for its protection and growth. Having more focus on continuity and long-term planning – the important aspects of a family-owned enterprise mandate it for these organizations to develop a productive plan for the growth of the left-hand side of their balance sheet.

One of the key assets of any family-owned enterprise which is absent from the balance sheet is their human capital – the family members of the business. Such businesses can always provide the platform to nurture their upcoming generations as an intellectual asset. That’s why, it’s very important to formally structure the policies for the training, induction, delegation of roles, formalizing the hierarchy and planning the compensation plans in alignment with their performance accordingly.

Here are a couple of examples that can help to preserve and flourish the human capital of family owned firms:

Family Owned Venture Capital Invested In Next Generation Startups

Families let their next generation pursue careers in the field of their interest. Let’s refer to a case study of a textile factory owner has two sons and a daughter; the eldest son willingly joined his father’s business, whereas his younger son who completed his undergraduate degree in software engineering wanted to initiate a software development start-up.

The founding owner, the father of the two sons, gave his younger son a task to come up with a tech-based solution for the factory to automate the management functions like inventory management and accounts management. Once he deployed the software, he gained confidence and requested his father to invest in the start-up company – a venture for which he had a business plan. His elder brother came up with a solution that it will be a family investment through venture capital. As the lead person will be younger brother, he will be allocated working partner shareholding, while the rest of the proportion will be based on the family shareholding. In this way investment in human capital will lead them in taking steps in the diversification of family investments.

Family Members Stock Option Tagged To Their Performances

Employee stock option is the performance rewarding tool adopted by many corporations. Similar to that, executive family members can be offered family members stock options. The class of such shareholding could be different from the family firm owners.

The benefits of family members stock option are improved performance of the executive family member, debates like “what extra I am getting for my efforts from the growth of the company as compared to my other siblings?” will be successfully countered and most importantly the next generation will be motivated to join their family business.

To sum up, since the family firms have features such as the long term sustainability, transfer of legacy as well as ownership, these entities should focus more on options to invest in human capital for its continuity, sustainability and growth which will in return be beneficial for the family owned businesses.