FAMILY BUSINESS DYNAMICS

Thomas Sages looked stern and preoccupied upon his return fromthe funeral of his friend David’s wife,
Laura. When David died a few years earlier, the shock was great forThomas, and this new loss revived
the wound.
David had been Thomas’ closest friend since they were young; healso was his business associate –
contributing 10% of the business equity when Thomas started theexpansion of his supermarket chain.
And the ties were further strengthened when David and Laura’s sonmarried Thomas’ daughter.
As Thomas’ thoughts wandered, he found himself thinking about thefuture of the business he had so
successfully built. Two of his children worked in the business, andhe felt rather comfortable with their
ability to lead it forward – even though he had occasionaldisagreements with them about new
developments. His concern, revived by the funeral, was more aboutthe transfer of his ownership stake.
He had written a will many years ago, and he thought that he shouldrevisit it.
The high quality grocery store that Thomas launched in 1954 hadquickly developed into a very
successful supermarket chain thanks to his entrepreneurial drive.While his son Louis, born from a first
marriage, had never been included in the business, the threechildren from his second marriage had all

of the consumer credit division and Timothy of the supermarketoperations. Their older brother Charles,
however, had left the business after some tension. When hischildren joined the business, Thomas gave
each of them 5% equity, to link the responsibility of ownership tothat of management. His wife Martina,
his friend David, and a fund for the managers, each owned 10% ofthe capital.
David’s shares had gone to his only son David Jr who was married toCaroline. Thomas wondered how
he should transfer his own shares, which represented 55% ofcapital. One of his first questions was
whether or not to link ownership and leadership of the business:Caroline and Timothy would probably
not wish to deal with a “sleeping partner” such as Charles,especially given the fact that Charles had left
the business with some bitterness. An option would be to giveCharles some real estate, and to give
shares to the other two. Splitting the real estate from theoperations had been done by other family
businesses for similar purposes. Maybe Charles should even beencouraged to trade his 5% stake against
some real estate. Thomas then wondered if the business should befurther split: real estate to Charles,
“bank” to Caroline, supermarket operations to Timothy. However, thefact that David Jnr. (Caroline’s
husband) owned 10% of the shares, and that the management fund alsoowned 10% of the shares
meant that the matter needed to be closely examined. At this point,Thomas also realised that he
needed to better understand the consequences of the latestinheritance laws – they had recently
changed and he was not sure what his wife Martina should receiveshould he die before her. He also
needed to think about Louis, his elder son, who never receivedshares from the business but was
entitled to a share of the inheritance. Their relationship had beendistant for many years, but they had
grown closer recently and Thomas wanted Louis to be part of theplan. Thomas decided that he needed
to discuss these issues with his trusted advisor, and picked up thephone.

1. Describe the how successful Thomas manage the familybusiness and what options should Thomas
consider when planning for ownership succession.

2. Evaluate in how the best practices implemented by thesecond generation entrepreneurs including
high quality were influence the business. Also State your personalexperience and tailored estate
planning advice.

3. Explain what advice/guidance have you found useful orpitfalls that you have experienced through
this case.