The Dangers of an In-Law Becoming a Shareholder

By Prof. Enrique Soriano

After writing about a subject related to in-laws for three consecutive weeks and given the high stakes involved in share ownership, I decided to provide a real-life case study by collating specific emails coming from concerned business owners going through rough patches with their in-laws.

Inheritance of shares by an in-law can be mired in a difficult situation that requires careful collaboration, management, and action by the family. It is vital for family members to work together, communicate openly, and take decisive actions when necessary to protect the business’s future and ensure that it remains a source of pride and success for future generations.

I’ll start by sharing this particular email from a concerned matriarch: “Dear Sir, the family business that was established by my late husband is at risk of changing ownership all because my eldest son is a henpeck. His wife somehow controls the shots in the business as she is assigned to finance and administration, and sadly, my son just follows her. Even the relatives of his wife are already working in our family business and my son, as president, can’t do anything about it. Even major decisions require his wife’s approval. I am 76 years old, already retired after handing over the business to my two sons more than 6 years ago. With so many problems in the business caused by my daughter-in-law, my other son is pressuring me to decide before it’s too late. I have been reading your columns regularly and I have finally decided to share my concern. Can you help us, please? I don’t know what to do anymore.”

I am unsure what the matriarch’s role was as she did not mention if she was still the Chair or an active member of their Board, assuming it is a corporation. Nonetheless, please see my reply to her frantic request for intervention.

Urgent Family Meeting

“In such a scenario, you and the family members need to take several steps to address the issues and ensure the future success of the business. The first step is to gather family members and discuss your son’s current state as president. Is he still capable of making decisions without his wife’s interference? Is he qualified to continue as president? Does he need intervention and counseling to address his wife’s domineering nature? Should the family, as a whole, confront the daughter-in-law about her if your son cannot handle her? These are usually initiated by the family if they are capable of talking about sensitive issues. Otherwise, it pays to invest in a qualified third-party facilitator.”

Board and Ownership Intervention

“If there are no clear decisions and mandates related to the first step, the next option is to pursue revisiting ownership laws, and the best way is to check if the business is a corporation. There is a world of difference between a single proprietorship, partnership and corporation. Let us assume it is a corporation; therefore, by law, it has shareholders that elect representatives to sit on the Board. We usually refer to these representatives as Directors, though there are various types, with the two most prevalent being family and non-family directors.

Typically, non-family directors can be elected as nominees and/or independent directors, sitting on the Board clothed with the same rights. They are also empowered by law to set policies, approve budgets and evaluate the senior management team on how they run the day-to-day operations of the business.

In the case of your henpecked son and his domineering wife, it is important to determine whether they have the necessary knowledge and experience to manage the business effectively. If the performance of the business has been bad since they (the son and the daughter-in-law) assumed management and their presence continues to create problems in the organization, your shareholders represented by the Board of Directors may need to consider other options, such as hiring professional managers to replace your son and his wife, reorienting and upskilling them, and, in the extreme, buying back the shares that have been passed on to them. By the way, do you already have family agreements like a constitution and a legally enforceable shareholders agreement?”