Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / The Family Business Paradox That Keeps Companies Private
Transcript
- Lucas: Here is a question that keeps family business owners up at night, and it has nothing to do with quarterly earnings. It is about whether to go public or stay private. Most people assume the answer is obvious: go public, get rich, celebrate. But in September of twenty twenty-six, we are seeing a quiet trend where some of the biggest family empires are doubling down on staying private, not because they can't afford to list, but because they refuse to lose control. Luna: Right, and I have always found that counterintuitive. Going public seems like the ultimate validation of success. Why would you turn down that liquidity? Lucas: It comes down to time horizons. Public markets demand quarterly results. Family businesses often think in decades, sometimes centuries. When you go public, you hand the steering wheel to shareholders who want returns now. You lose the ability to make decisions that pay off in ten years but look terrible in Q3. Take the Simplot family and their potato empire. They built a supply chain so integrated and efficient that competitors couldn't touch them, but that kind of efficiency requires patience that Wall Street doesn't have. Luna: So it is less about money and more about tempo? Like, they just don't want to rush? Lucas: Exactly. It is about tempo. Let us look at the numbers. A study by Harvard Business Review showed that family-controlled companies outperform public peers over a five-year period by about fifteen percent. The reason is simple: they can invest in R&D or employee training without explaining every dollar to an analyst call. But here is the catch. Staying private is harder than it looks. You have to find your own capital, and you have to manage internal conflicts without a market price to settle disputes. Luna: That second part sounds like a nightmare. How do you value a share when there is no stock price? Lucas: You use a discount for lack of marketability. It is called the DLOM, which stands for Discount for Lack of Marketability. It can be anywhere from twenty to thirty percent. So if your company is worth one hundred dollars per share in a public market, your private shares might only be worth seventy dollars on paper. That hurts when you are trying to pass wealth to the next generation. You end up with fewer shares, lower valuations, and a lot of family arguments. Luna: I did not know there was such a penalty for being private. That feels like a hidden tax on loyalty. Lucas: It is a hidden tax on loyalty, yes. And that brings us to the Bezos family and Amazon. Jeff Bezos stepped down as CEO in late twenty twenty-one, but he stayed as Executive Chairman until recently. During that transition, he held onto enough voting power to block any major strategic shifts. If Amazon had gone public earlier, or if he hadn't structured those super-voting shares, the company might have pivoted much faster toward short-term profits. Instead, they kept investing in AWS and logistics for years, knowing the payoff would come later. Luna: But doesn't having all that voting power create a risk? What if the founder makes a bad call and no one can stop him? Lucas: That is the classic agency problem. In a public company, bad management gets voted out. In a private family firm, you are stuck with them unless you have a very strong board. Look at Walmart. The Walton family controls the company through dual-class stock. That means they can reject mergers, block acquisitions, and keep the company out of reach of hostile takeovers. It worked for decades, but now they face pressure from ESG investors and younger consumers who want different things. Without public scrutiny, those changes happen slower, or not at all. Luna: So the downside is rigidity. You protect the legacy, but you might also protect inefficiency. Lucas: Precisely. Rigidity is the enemy of innovation. But let me pause here for a quick note on how we fund this show. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that is literally what funds making this many of these. No ads, just listener support keeping the lights on. Luna: Yeah, and it is amazing how much that helps us dig into these deeper stories without chasing clicks. Lucas: Back to the topic. So if staying private protects control but risks rigidity, what is the solution? Some families choose a hybrid model. They take the core business private but spin off divisions to go public. This is called a carve-out. It lets them raise capital for specific projects while keeping the heart of the family intact. General Motors did something similar with its tech investments, though they were not a family business. But for family firms, it is a way to have your cake and eat it too. Luna: That makes sense. It is like diversifying your ownership structure. You get public money for growth, but keep the family vote for direction. Lucas: Exactly. And this is where the Mars family comes in. Fredrik Mars took over after his father, John Mars, died. John ran the company with an iron fist, keeping it strictly private. Fredrik had to navigate a massive leadership change without the safety net of a public market. He had to prove himself to employees and suppliers who were loyal to his father. By staying private, he could restructure slowly, firing or promoting people without worrying about stock price dips. It was a high-wire act, but it worked. Luna: I remember reading about that transition. It felt like he had to rebuild trust from scratch. Lucas: He did. And that is the emotional cost of private succession. In a public company, you can hire a professional CEO and step back. In a family business, the new leader often has to prove they are worthy of the name. That pressure is immense. It leads to what researchers call 'dynastic decline,' where the second or third generation loses the entrepreneurial spark. They become managers, not builders. And once that happens, the company starts to stagnate. Luna: So how do you prevent that loss of spark? Is there a mechanism to keep the fire alive? Lucas: There are a few mechanisms. One is a family council. It is a formal body where family members discuss values, governance, and philanthropy, separate from the business operations. It helps align the family before they enter the boardroom. Another is an external advisory board. These are non-family experts who challenge the status quo. They bring fresh perspectives that insiders miss. It is a way to inject public-market thinking into a private structure without actually going public. Luna: That sounds like a good compromise. You get the best of both worlds, sort of. Lucas: Sort of. But it requires discipline. Many families set up these councils and then ignore them. Or they invite outsiders who are too polite to speak up. The key is autonomy. The advisory board must have the power to say no. And the family council must have the power to remove family members from the business if they are not performing. It is harsh, but necessary for longevity. Luna: Removing family members sounds brutal, but maybe it is kinder in the long run to save the company. Lucas: It is brutal, yes. But look at the Johnson & Johnson family. They used a charitable trust structure to separate ownership from control. The company went public, but the family trust holds a majority of the voting shares. This allows them to benefit from public markets while retaining control. It is a clever workaround. It gives them liquidity and prestige, but keeps the family voice dominant. It is a model that many other family firms are studying right now. Luna: So the trust is the shield. It protects the votes even when the shares are sold. Lucas: Exactly. The trust is the shield. And that leads us to a bigger question about the future. As interest rates rise and capital becomes more expensive, will more family businesses consider going public? Or will the cost of capital force them to seek partners instead? Right now, in September twenty twenty-six, we are seeing a mix. Some are selling minority stakes to private equity firms. Others are raising debt to fund expansion. The path is getting more complex. Luna: It feels like the old playbook is outdated. There is no single right answer anymore. Lucas: There isn't. And that is why succession planning needs to start early. Not when the founder retires, but when the next generation is in their twenties. They need to learn the business, understand the financials, and build relationships with employees. If they wait until they inherit the company, they are already behind. Education is the most important asset a family business can pass down. Luna: So it is about preparing the person, not just transferring the assets. Lucas: Always. Assets are easy to transfer. Wisdom is hard. And that is the real gap between successful family businesses and failed ones. The ones that survive are the ones that treat leadership as a craft, not a birthright. They invest in their people, they respect the market, and they never forget why they started. Luna: That is a powerful way to end it. Success is not just about staying private or going public. It is about staying true to your purpose. Lucas: Exactly. Purpose outlasts profit. And that is the lesson for every family business out there. Whether you are running a potato empire or a global tech giant, the goal is to leave something better than you found it. Luna: I love that. It really puts the whole discussion into perspective. Lucas: It does. And for our listeners, I hope this gives you a new lens on your own career choices. Are you working for a family business? Or are you building one? Think about the trade-offs. Control versus capital. Legacy versus liquidity. There is no wrong answer, only the one that fits your values. Luna: Agreed. It is a deeply personal decision that shapes not just a company, but a family's future. Lucas: Well said. Thanks for listening, Luna. Let us keep digging into these stories. Luna: Thanks, Lucas. See you next time.