Soriano: Is it equal, equitable or merit based share transfer? (Part 1 of 2)

As family-owned businesses transition from defining roles and responsibilities to more concrete governance structures, the establishment of clear and well-defined policies becomes critical in ensuring effective ownership governance. These policies must be comprehensive, providing explicit guidelines on the transfer of shares, setting qualifications for ownership and implementing mechanisms for resolving conflicts.

Share transfer policies: A preventative measure

One of the most critical aspects of ownership governance is the formulation of transparent and formalized share transfer policies. These policies act as preventative measures to avoid disputes over inheritance and ownership rights—common triggers for conflict in family businesses. In my experience guiding family-owned businesses across Asia, I have observed that share transfer policies can take on various forms:

Equal distribution: The majority of families (around 70 percent) choose to transfer shares to their offspring for free and in equal proportions. While this may seem fair, it often leads to disputes, especially when siblings with unequal contributions or qualifications hold equal ownership stakes.

Equitable ownership: About 20 percent of families implement a more strategic approach, allocating a larger share to the most qualified individuals, also for free. This method ensures that the most capable family members assume greater ownership and leadership responsibility.

Merit-based distribution: The remaining 10 percent adopt a merit-based policy, where only those actively working in the business receive shares, while non-participating members do not.

Regardless of the distribution method, these transfers are typically subject to vesting processes grounded in criteria such as seniority, performance, qualifications and adherence to vesting policies. This structured approach ensures that ownership transitions are aligned with the business’s long-term goals while minimizing the risks of entitlement or mismanagement.

Gender equity in share transfer policies

A persistent cultural issue in many family businesses in Asia is the unequal treatment of female offspring in share allocations. In some cases, daughters receive significantly fewer shares—or none at all—based on the belief that they will join their husbands’ families and businesses. While this practice is deeply rooted in tradition, it risks alienating capable and committed female family members who could contribute significantly to the business.

However, in advanced economies where I operate, share transfers are increasingly gender-neutral. There is no distinction between male and female offspring, reflecting a growing recognition of the importance of equity and inclusivity in ownership governance. Businesses that embrace this approach ensure that ownership decisions are based on qualifications and contributions rather than outdated gender norms. By promoting gender equity, family enterprises not only uphold fairness but also tap into a broader pool of talent, enhancing their long-term sustainability.

To further avoid ambiguity, family businesses must establish a process that specifies:

• Who will receive shares?

• Under what circumstances shares will be transferred?

• What qualifications are required for ownership?

By creating a well-defined framework, family businesses can mitigate potential conflicts and ensure that ownership transitions are purposeful and equitable.

Qualifications for ownership:

Competence and commitment

To protect the future of the family business, it is crucial to define qualifications for ownership. These qualifications should be explicitly stated and aligned with the family’s vision for the enterprise. Common qualifications may include:

• Relevant experience: Prior involvement in the company or industry expertise.

• Demonstrated commitment: Active participation and alignment with the family’s core values.

• Strategic alignment: A clear understanding of and dedication to the long-term goals of the business.

By setting these standards, the business ensures that ownership is entrusted to individuals capable of stewarding its growth and legacy. Without such a framework, ownership may fall into the hands of those who lack the necessary competencies or dedication, jeopardizing the future of the enterprise.