Family group constitution and shareholder agreement

The situation

A GCC-based family conglomerate welcoming the family’s second generation into the business ranks was experiencing discord and divergent interests among the beneficiaries.

With 25 family members between the ages of 20 and 50, a complex ownership structure with 30 companies and different levels of ownership, a large amount of illiquid assets, ad hoc distribution of dividends, and an inequitable system of disseminating information among the siblings, the family had been struggling for some time to institute some form of governance. The client tapped Strategy& to help develop a family constitution and shareholder agreement with an eye toward formalizing family governance institutions.

How we helped

The Strategy& team interviewed the family members to identify the problems and needs. They identified the services that the family should offer its members, such as wealth management, philanthropy, education, and a venture fund. To provide these services, they suggested a governance framework that ensures stewardship of family affairs, with business affairs on one side headed by a shareholder council, and a family council on the other to oversee a development and employment committee, a venture committee, and the family office.

The team recommended an employment policy and compensation structure for all family members. They advised the family to regulate share exchanges and develop a transparent and fair sale and buyback process, with a dividend policy based on the performance of the business, which balances the amount of dividends to pay (enough to satisfy shareholders) with a reserve amount maintained for share buybacks (to provide liquidity when a shareholder wants to exit). They set up a simulated shareholder council composed of current family shareholders and current board members, then drafted a family constitution that will pave the way for a formal shareholder agreement.

Results

At an inaugural family assembly, organized by Strategy&, the team presented their recommendations and an implementation road map.

The family agreed unanimously to the proposed constitution and the strategic direction for the shareholder agreement, and began immediately to follow the road map.