Balancing Liquidity, Growth, and Control

Abstract

Throughout the world and across the centuries, family businesses share a common set of challenges: liquidity for shareholders, capital for business growth, and responsiveness to shareholders’ control objectives. Let’s consider the case of Carwood, a U.S. family business:

Judging from their beautiful new headquarters on the outskirts of Cleveland, the future seems secure for Carwood, a third-generation automotive parts company. Founded in the 19th century, the company has sales of $250 million. Reflecting its strong cash flows, the company has historically paid generous dividends to shareholders.

Behind this healthy image lies a company very much at risk. During the last five years, sales have begun to stagnate, mostly due to lack of industry growth and stronger competition from large and well-capitalized global companies. To keep its competitive position, Carwood has continued to invest in new equipment and production facilities, which will keep Carwood competitive in cost and productivity, but only if and when the industry begins to grow again.

Three family branches own Carwood. At the last board meeting, one of the branches expressed their desire to sell their shares in the company—even if it meant selling the whole business to raise the cash. Members of that family branch feel detached from the business and the rest of the family.