The third rule for building a group of companies without signs of artificial fragmentation.

Let’s turn to business process notation again. Earlier we decided on the inputs, the activity itself, and the outputs (goals). However, in arbitration practice on artificial fragmentation of a business, there are several criteria at once for charges related to management and ownership. Rule # 3 is about management and owners.

What’s wrong here:

in order to avoid interdependence between the companies of the group, so-called proxies are introduced into the ownership structure – nominal, that is, they do not really participate in business processes, packaged in a specific legal entity. Obviously, this is not done for the sake of effective management, but rather for reasons of loyalty exploitation, since you do not know any other means of ensuring ownership control, or you consider the use of trust to be the best tool.

since it is scary to make those people who are really responsible for a specific business process by the executive bodies of a legal entity, and even more so to introduce them into the ownership structure of companies, over time, a paradoxical situation develops: the company becomes overgrown with characters involved in making the most important decisions and in the distribution of profits, but they are not responsible for the decisions they make and they are not eager to lean against the coverage of losses.

The founders of the company complain: when the result of the activity is profitable, the key employees want to pinch off a piece of the earned profit; but when losses are generated, they are divided only by the owners, the TOPs do not take responsibility for them, although in fact it was they who made the decisions.

But this is not enough. As evidenced by the arbitration practice, selected according to the context of “splitting” and analyzed by us in a continuous way (see the Guide to charges of artificial crushing), the diversification of the ownership structure of the group’s companies in itself is almost 100% proof of the existence of business motivation, a business purpose. “Almost”, because it works only if real managers are included in the ownership structure, who are the owners of those key business processes that are separated into a specific subject of the group.

Therefore, in order to extract the maximum from the considered rule and to include key persons for the business in the ownership structure and / or the structure of the official governing bodies of the company, we need several steps:

Step 1. It makes sense to start by introducing the principle of personal responsibility of key persons for the resources provided or spent. This is still the mental, managerial level.

Step 2. It is impossible to assign additional responsibility without “candy”, which means that you will need to take this new approach into account in the motivation system.

Step 3. Decide on candidates for introduction into the ownership structure. We choose only from those who are the owners of the processes, which are segmented into separate subjects of the group of companies. In this way, the list of candidates includes either business founders (if they oversee certain processes / areas of activity), or actual managers.

Important! There is no task to achieve 100% diversification of ownership of the group’s companies. This may not be possible to collect a list of candidates. In addition, your goal is to improve the efficiency of processes (Rule # 1) or other business motivation (Rule # 2), not a diversity of ownership in itself. Therefore, mixed or partial diversification can also be your goal.

A few more words about the candidates who can be considered for the status of “junior partner”, including in the ownership structure of the group’s companies. Here, three defining points should be noted:

Competencies.

The Peter principle (this is a surname, not a city) says: in a hierarchical system, each individual tends to rise to the level of his incompetence (https://ru.wikipedia.org/wiki/Peter_Principle).

The effect of the Peter Principle is easily detected in large corporations, because there, unlike private business, a person leaves the system mainly by retirement or head-on. Thus, over time, large companies tend to acquire incompetent people.

So, the competent ones get into the queue for partnership.

Trust and dedication to the company.

To quote Nicolo Machiavelli: “Mercenary … troops are useless and dangerous; the power that relies on the mercenary army will never be either strong or durable, for mercenaries are ambitious, licentious, prone to strife, cocky with friends and cowardly with the enemy, treacherous and ungodly; … in peacetime they will ruin you no worse, than in the military – the enemy. … They really like to serve you in peacetime, but as soon as the war begins, they show the rear and flee. ” (quoted from the free edition on Liters, N. Machiavelli “The Sovereign”).

Loyalty

Loyalty is not only competence and not only trust. This is also a coincidence of long-term interests, at least taking into account each other’s interests when it comes to business partners, as well as mutual consideration of the long-term interests of the company and the key employee.