Navigate this decision carefully, and you could have the best of both worlds
Most family businesses try at all costs not to go public. Image: Shutterstock
Most family firms do what they can to maintain control of their destiny. Still, some firms eventually find themselves at a difficult inflection point: considering whether to stay a private family business or to go public. These inflection points often occur around generational transitions, exit of family branches from ownership, or external events such as seismic shifts in an industry—and the difficulty of the decision is often compounded by the family’s close emotional connection to the business.
But even in the best of times, these decisions tend to be complicated.
“Going public as a family-owned business can open up Pandora’s box,” says Jennifer Pendergast. “You may start out by taking 10 percent of the shares public so the family still retains control, but you’ve opened the door to public ownership and all that comes with it.”
Even when a family retains effective control through ownership of voting shares, which allows them to elect the board and make other significant strategic decisions, they are still beholden to information-disclosure requirements and scrutiny of public-market investors.
While most family firms view offering shares in the public markets as a negative, there are upsides to consider. Doing so gives firms access to growth capital, the opportunity to buy out disinterested shareholders, a liquid market for family-owned shares, and more rigorous governance standards.
[This article has been republished, with permission, from Kellogg Insight, the faculty research & ideas magazine of Kellogg School of Management at Northwestern University]