New Survey Pinpoints What Keeps Family Businesses Going For Generations.
As many families on FORBES’ World’s Billionaires list might admit, one of the trickiest things about business success is maintaining it — especially over generations.
Family businesses make up as much as 80%-90% of all firms worldwide and the top 500 largest family-owned firms
account for a combined $6.5 trillion in annual revenues, a sum that
would be the world’s third-largest economy behind only the U.S. and
China.
An upcoming survey co-developed by Kennesaw State University’s Cox Family Enterprise Center and EY’s Global Family Business Center of Excellence sheds light on one of the biggest keys to longstanding companies’ everlasting success: They are able to efficiently hand control of the company to the next generation, a task easier said than done.
“Transitions are difficult because every relational and egotistical issue that hasn’t been resolved, or that the family hasn’t agreed on how to handle, tends to come out,” says Joe Astrachan, Wells Fargo Eminent Scholar Chair of Family Business and professor of management and entrepreneurship at Kennesaw State University.
The survey used data from phone interviews with 1,000 of the world’s largest family businesses from the top 21 global markets (Australia, Belgium, Brazil, Canada, China, France, Germany, the Gulf Cooperation Countries, India, Indonesia, Italy, Japan, Mexico, the Netherlands, Russia, South Korea, Spain, Switzerland, Turkey, the UK and the US). The responses of the 25 largest and oldest family-owned businesses in each of the markets were taken into account.
Overall, two-thirds of the world’s billionaires are self-made;
many of them are looking to pass their companies on to a family member.
In fact, a 2012 survey of 241 family businesses with at least $5
million in revenues conducted by market research and consulting firm
R.A. Prince & Associates found that 82% of respondents were very
interested in passing control on to the next generation of family.
“It’s arguably the most important thing for a business to think about because when done poorly it’s so devastating,” says EY’s Americas Family Business Leader Carrie Hall, who helped develop and analyze the new study.
One of the biggest lessons from the responses: The best companies clearly define who is responsible for handling the succession process. In some cases it’s the company’s founder or CEO, but most often — 44% of the time according to the report — the board of directors is tasked with overseeing the transition of power. The lesson here is pretty simple: The buck must stop somewhere.
Of course it’s not enough to just put someone, or a group of people, in charge. According to the survey, the families that handle transitions well recognize that succession is a lifelong process and they often start thinking about the next generation early on.
Family businesses should start thinking about succession as soon as possible, according to Astrachan. He says the most successful businesspeople who want to pass their company on to their children instill in them a clear set of values and teach the basics of business, collaboration and decision-making from a young age.
“If you live next to the ocean you’re going to have to teach your kids to swim,” says Astrachan. “Likewise, if you own a family business you’re going to have to teach them the equivalent.”
Carl Pohlad (d. 2009), billionaire financier, Minnesota Twins owner and longtime Forbes 400 member, was careful to think about his successors early. His ability to cleanly pass the torch to his three sons was due to his focus on cultivating good business acumen and discipline, according to Bert Colianni, CEO of Marquette Companies, a holding company for many of the Pohlad family’s ventures. (FORBES estimates the Pohlad family’s fortune to be $3.6 billion today.)
“Carl was a very, very principled man,” says Colianni. “He was always giving lessons about how to treat other people in business dealings — he wanted comfort that his sons would take to heart how to run a business well.”
He started his sons out early, encouraging them to get a good education and gain experience outside of the family business before returning for long careers at various outposts in Pohlad organizations. He then worked with them over three decades, sitting down to discuss business practices, providing them with mentors and including them in the decision-making process.
“Carl had a great tendency to include his three sons — and all of his advisors — when any big decision was made,” says Colianni. “Big decisions always involved long and deep, thoughtful family consultations.”
It’s a common theme that the world’s leading family businesses emphasize communication. According to the survey, 90% of respondents have regular family or shareholder meetings to discuss business issues and 70% have regular family meetings to discuss family affairs. The Pohlads have informal, monthly family board meetings to encourage close dialogue between family members.
The need for effective communication ties into a larger point: Family cohesion is paramount. In the end, the families that successfully pass the baton are the ones that find ways to get along and work out the disagreements that inevitably arise when the stakes are so high. Identifying who is in charge of succession and applying a long-term approach to properly grooming the next generation of leadership could mean nothing if larger, underlying relationship problems between family members are not addressed, according to Astrachan.
“We have observed that you always need a bonding element in the family to strengthen the family ties and to define clear family values,” says Peter Englisch, the global family business leader of EY’s Global Family Business Center of Excellence.
Besides highlighting regular family meetings, the survey indicates that those behind leading companies encourage cohesion by engaging in activities that keep the family focused on its legacy. For example, 81% of respondents say they engage in philanthropy, and 85% have a code of ethics (in contrast to just 57% of the world’s biggest companies overall). Just over three-fourths of companies surveyed say they engage in “family business branding,” meaning touting their status as a family business in ads, on websites and social media, or in press releases or other promotional materials. This seems to indicate that families that take pride in their relationship to their company (and their company’s relationship to its community) are particularly well-suited to maintain the cohesion necessary for long-term business success.
Ultimately, there is no one-size-fits-all rule for how to best structure your company to ensure a smooth succession. For some families, it might work best to encourage potential successors to gain work experience outside of the company; for others it may be best to keep your family members close, according to Astrachan. One common characteristic of all of the family businesses that have stood the test of time:
“They recognize the need for succession,” says Hall. “And with all of that good planning, they have contingency plans as well. The world is not static — a plane crash or unexpected disaster could change everything. You have to recognize that things change.”
An upcoming survey co-developed by Kennesaw State University’s Cox Family Enterprise Center and EY’s Global Family Business Center of Excellence sheds light on one of the biggest keys to longstanding companies’ everlasting success: They are able to efficiently hand control of the company to the next generation, a task easier said than done.
“Transitions are difficult because every relational and egotistical issue that hasn’t been resolved, or that the family hasn’t agreed on how to handle, tends to come out,” says Joe Astrachan, Wells Fargo Eminent Scholar Chair of Family Business and professor of management and entrepreneurship at Kennesaw State University.
The survey used data from phone interviews with 1,000 of the world’s largest family businesses from the top 21 global markets (Australia, Belgium, Brazil, Canada, China, France, Germany, the Gulf Cooperation Countries, India, Indonesia, Italy, Japan, Mexico, the Netherlands, Russia, South Korea, Spain, Switzerland, Turkey, the UK and the US). The responses of the 25 largest and oldest family-owned businesses in each of the markets were taken into account.
Joseph Kennedy, Sr. is shown surrounded by
his family. The Kennedy family still controls assets dating back to Joe,
Sr. (AP Photo)
“It’s arguably the most important thing for a business to think about because when done poorly it’s so devastating,” says EY’s Americas Family Business Leader Carrie Hall, who helped develop and analyze the new study.
One of the biggest lessons from the responses: The best companies clearly define who is responsible for handling the succession process. In some cases it’s the company’s founder or CEO, but most often — 44% of the time according to the report — the board of directors is tasked with overseeing the transition of power. The lesson here is pretty simple: The buck must stop somewhere.
Of course it’s not enough to just put someone, or a group of people, in charge. According to the survey, the families that handle transitions well recognize that succession is a lifelong process and they often start thinking about the next generation early on.
Family businesses should start thinking about succession as soon as possible, according to Astrachan. He says the most successful businesspeople who want to pass their company on to their children instill in them a clear set of values and teach the basics of business, collaboration and decision-making from a young age.
“If you live next to the ocean you’re going to have to teach your kids to swim,” says Astrachan. “Likewise, if you own a family business you’re going to have to teach them the equivalent.”
Carl Pohlad (d. 2009), billionaire financier, Minnesota Twins owner and longtime Forbes 400 member, was careful to think about his successors early. His ability to cleanly pass the torch to his three sons was due to his focus on cultivating good business acumen and discipline, according to Bert Colianni, CEO of Marquette Companies, a holding company for many of the Pohlad family’s ventures. (FORBES estimates the Pohlad family’s fortune to be $3.6 billion today.)
“Carl was a very, very principled man,” says Colianni. “He was always giving lessons about how to treat other people in business dealings — he wanted comfort that his sons would take to heart how to run a business well.”
He started his sons out early, encouraging them to get a good education and gain experience outside of the family business before returning for long careers at various outposts in Pohlad organizations. He then worked with them over three decades, sitting down to discuss business practices, providing them with mentors and including them in the decision-making process.
“Carl had a great tendency to include his three sons — and all of his advisors — when any big decision was made,” says Colianni. “Big decisions always involved long and deep, thoughtful family consultations.”
It’s a common theme that the world’s leading family businesses emphasize communication. According to the survey, 90% of respondents have regular family or shareholder meetings to discuss business issues and 70% have regular family meetings to discuss family affairs. The Pohlads have informal, monthly family board meetings to encourage close dialogue between family members.
The need for effective communication ties into a larger point: Family cohesion is paramount. In the end, the families that successfully pass the baton are the ones that find ways to get along and work out the disagreements that inevitably arise when the stakes are so high. Identifying who is in charge of succession and applying a long-term approach to properly grooming the next generation of leadership could mean nothing if larger, underlying relationship problems between family members are not addressed, according to Astrachan.
“We have observed that you always need a bonding element in the family to strengthen the family ties and to define clear family values,” says Peter Englisch, the global family business leader of EY’s Global Family Business Center of Excellence.
Besides highlighting regular family meetings, the survey indicates that those behind leading companies encourage cohesion by engaging in activities that keep the family focused on its legacy. For example, 81% of respondents say they engage in philanthropy, and 85% have a code of ethics (in contrast to just 57% of the world’s biggest companies overall). Just over three-fourths of companies surveyed say they engage in “family business branding,” meaning touting their status as a family business in ads, on websites and social media, or in press releases or other promotional materials. This seems to indicate that families that take pride in their relationship to their company (and their company’s relationship to its community) are particularly well-suited to maintain the cohesion necessary for long-term business success.
Ultimately, there is no one-size-fits-all rule for how to best structure your company to ensure a smooth succession. For some families, it might work best to encourage potential successors to gain work experience outside of the company; for others it may be best to keep your family members close, according to Astrachan. One common characteristic of all of the family businesses that have stood the test of time:
“They recognize the need for succession,” says Hall. “And with all of that good planning, they have contingency plans as well. The world is not static — a plane crash or unexpected disaster could change everything. You have to recognize that things change.”
forbes.
