Value Management Conflict arising from dividend demands or perceived/real wealth destruction.
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Value is in the eye of the beholder. Many firms have a market mechanism to set that value – most Family Business Systems do not. Family conflicts regarding value can arise from multiple sources. Some might question whether the business leaders are managing to full potential. Others might have personal liquidity desires that are out of sync with the free cash flow at a particular time. For some families, the growth potential of the business cannot match the growth of the families’ needs/wants. For all of these issues, and others, a System-wide value management assessment and program is necessary to maximize family wealth and to respond to unique situations/constraints.A value management system can be simple or complex. At a minimum, a successful value management system should:
- understand what drives value in the business
- articulate what level of risk is acceptable for the family and what return on capital is expected
- set clear expectations for what level of investment is required to properly maintain and profitably grow the business
- require detailed strategic plans for each business
- evaluate outcomes and adjust plans/expectations as needed, and properly incentivize and reward performance.
Social returns and personal growth opportunities for family members should be an explicit component of a properly designed value management system.
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