By Pierre Mudet, partner at Ginestie Magellan Paley-Vincent
Article reproduced with the kind permission of the Letter of Business Lawyers
The renewed interest in family businesses can be explained by the increase in intergenerational transmissions. But not only.
In a rapidly changing economic world, with traditional benchmarks challenged, facing a growing environmental emergency and an unprecedented health crisis, family businesses present sustainability, resilience et Responsibility Law. There is often a special mission or role that responds to the growing search for meaning by employees and customers. In this context, the family character of a company has become a real asset.
We still have to agree on the name of a family business.
An essential criterion: to lead or to be able to appoint the leaders. From there, a distinction can be made between companies with a family interest, with family control and with a family culture. In concrete terms, a family group appoints the leaders of the first, effectively exercises control over the second and imprints a family culture on the third. Whatever the type of business, the natural development of generations leads to an exponential evolution of the family group. Inevitably, a transition takes place. From a confusion of three circles (family, shareholders and company) to a progressive distinction imposing, over time, the structuring of a more or less complex governance.
Guidelines for good governance
Whatever the means used, governance must, to ensure the sustainability of the family group, imperatively respect four principles. Forget the branches to get out of intra-family divisions and know only the members of a family. Exit behind closed doors by looking for external people (freelancers, referents, experts, etc.). Enable the emergence of talents, that is to say, detecting the talents that are needed, at the right time, based on meritocratic criteria. Organize the management of the family itself by ensuring the constant involvement of members in regular meetings, through fair information and consensual decision-making.
The opening of the capital
Even of a family nature, a company does not escape this problem. The risk of dilution exists. But controlled, the entry of minorities can be an advantage. This is to provide growth opportunities for the business and liquidity for family members. This breathing is essential for members who, for a personal or other professional project, do not intend to remain in the capital. Preventing them from doing so harms the proper functioning of the group. For this, reimbursement funds or family scholarships make it possible to depersonalize the exit operation by pooling its funding. Another a priori counter-intuitive solution consists in resorting to the listing of securities of the company. There are many examples of listed companies having perfectly succeeded in preserving their family character. This option has the major advantage of an objectification of the price by the market and the sale of shares outside the family, without the constraints linked to the entry of private investors.
The sponsorship opportunity
From the Dutreil pact to the sustainability fund of the Pacte law, various mechanisms have been introduced into our law. When studied, however, an old tool turns out to be extremely effective: sponsorships. These companies are based on a dichotomy between the control of capital and that of management. The distinction offers infinite possibilities for bringing together the members of a family who are called upon to intervene in management and those who are more passive. Sponsorships also allow a controlled and organized opening of the capital to a third party: extracting management control from capital control offers the possibility of guaranteeing family control over the long term. Many family groups have made this choice.
Pierre Mudet works mainly in the areas of stock market law, mergers and acquisitions and company law with clients of listed and unlisted companies in the context of national and international transactions.
He advises industrial groups, banks, investment funds and innovative companies in the new technologies sector.