Marco Villas Boas – Senior Partner at DMS PARTNERS
In previous texts published on this blog (1), we observed, in the growth trajectory of a family business since its foundation, the need to make changes in at least three relevant aspects: the family issue, the management issue and the patrimonial issue. These are difficult aspects, sometimes full of conflicts.
In the previously posted chapters, the path showed some choices summarized below.
In the family field, the choice was to keep the founder as an agent of corporate governance (he took a position on the recently created advisory board, together with two independent external members).
In the managerial field, the founder was replaced by a manager captured in the market, with one heir assuming a position in business operations (due to his experience) and the other having been supported to undertake or seek a position in the market.
In the patrimonial field, the usual solution prevailed: part of the quotas was transferred by the founder to the two heirs, the company now having three shareholders, allowing for a change in this corporate configuration if new times so suggest.
These and other solutions, although they may seem commonplace, are difficult and specific to each case. In due course, we will be able to explore the conditions, pains and opportunities involved in the decision-making process of each of these three themes.
Next, we will examine how a change in the competitive business scenario ended up causing another change in the company's governance and management: the evolution to a company with an external partner, and the future possibility of becoming a publicly traded company.
The company in question, in the poultry sector, occupied an enviable position in the country's market. It was when an international producer - a potential competitor - realizing the good competitive factors of the business in general and the company in particular, suggested an association to expand capacity production, creating a modular platform for export.
The dilemma arises: reject the association or accept it?
What would need to be analyzed in each alternative? What are the risks, pitfalls and
benefits of alternatives? What is the path to good decision making? This is a topic that generated long and fierce debates in the advisory board, a fundamental agent in defining the strategic paths of any organization.
The evaluation and decision process began, appropriately, with the board's review of the company's values, beliefs and general objective, summarized in the manifesto that had been created when the founder left management roles. Despite having an advisory board made up of three members, two of which are independent, the manifesto was widely discussed and validated, creating space for maintaining the company's spirit and culture. This point became a link in the discussion of risks and opportunities for any decision.
The board – although with some reluctance on the part of the founding member – recommended the hiring of external technical and financial support to support the strategic analysis, which, among other topics, included the evolution of the domestic and international markets, the business model and the capital structure (“Are we going to be partners, partners, buyers or buyers in this 'association'??”), the possible governance consistent with the capital structures under analysis, the present and future competitive position of the company as it is and the future associated company , the strategic, marketing, financial and other risks involved, and much more.
This work was a significant challenge taken on by the company and, in particular, by its advisory board. In short, after intense negotiations, the corporate model prevailed with the majority of the local company (in view of the greater value of its physical assets and the potential of the internal market), with the recommendation that, after two years of operation of the new company, evaluate a possible second expansion via IPO. For now, the company, now with a non-family, minority external partner, needed to organize its governance and management.
We will see this path in future posts!
Count on the advice of DMS’ team of Corporate Governance experts
Partners.
1. Previous texts
https://www.dmspartners.com.br/post/governança-evolutiva-caso-prático-parte-1
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