Leaving The Family Business—A Best-Management Practice

A recent Wall Street Journal article, The Truth About Failing Spectacularly* highlighted two issues I find not uncommon in family businesses: the value of experience and the rewards of failure. In today’s article I am addressing the first of these.

The experience connection for family businesses relates to the best-management practice that requires next-generation leaders to gain work experience outside of the family business. This practice adds value by ultimately bringing in skills and knowledge beyond that which had been fueling the family business up to that time. It provides third-party recognition of leadership abilities. It alleviates the concerns of non-family leadership about the value that then next generation can bring into the business. And it reassures them that they won’t be reporting to someone who doesn’t have enough experience to lead.

These advantages are absent when this best-practice is omitted. Working only within the family business can be insular and perhaps even incestuous. The door is closed to new knowledge and fresh ideas.

Attitudes differ widely with regard to these two practices.

I recently had a conversation with a young man who is second generation in his family’s business. His father is adamant that he should not work elsewhere. Respecting his father’s wishes, he doesn’t push the issue, though he would gladly accept an offer of outside employment.

Mindful of fostering sustainability in the family as well as the business, some families not only require ‘working somewhere else,’ they also require that a candidate son or daughter have the necessary experience for the position, within the family business, that they are applying for. This places the child on the same playing field as a potential non-family candidate. For other families providing opportunities for all family members is a priority, and this practice would be unacceptable. The more successful family businesses have found ways to balance these two approaches to next-generation employment.

In striving to achieve this balance, the axiom a strong business supports a healthy family is not to be overlooked.

In my next article I will go into the rewards of failure.

* https://www.wsj.com/articles/the-truth-about-failing-spectacularly-11550293225?mod=hp_lead_pos9



Best Practices Common To Successful Family Businesses

“All happy families are alike; each unhappy family is unhappy in its own way

—Leo Tolstoy, Anna Karenina

 I recently read, again, this first sentence from Anna Karenina. Thinking about the truth of this statement as it pertains to family businesses, I have found much inspiration in: Perpetuating the Family Business, 50 Lessons Learned from Long-Lasting, Successful Families in Business by John L. Ward—quoted liberally here—to present six best practices common among successful multi-generational family enterprises:

  1. Establish a shared Intention to become a multi-generational concern.

By establishing an intention we declare an objective and foster a determination to succeed. This creates a focal point around which family members can coalesce, facilitating the birth of a long-term vision for the family and the business. Critically, this established intent places the responsibility on each new generation of leadership to pass the business on to the next in better condition than that in which they received it.

  1. “…Develop policies for family participation in the business -before the need.”[1]

“Long before the second generation is ready to come into the business, for example, the first generation develops and writes down on paper an employment policy that sets forth the requirements for family members who want to join and move up in the business. And long before the second generation enters the business, the first generation puts on paper a policy that guides decision making on compensation and performance appraisal issues.”[2]

  1. “…Enduring family businesses work very hard at defining a Sense of Purpose.”[3]

“They ask and discuss such questions as: Why are we doing this? Why are we working so hard? Why are we spending the time to develop policies? Why are we exerting so much energy to prepare for the future?”[4]

  1. Build Processes

“The capacity of a family to deal”[5] continually and “effectively”[6] with issues as they come up “will be a function of its skills as a group to communicate, solve problems, reach consensus, develop win–win solutions, and collaborate.”[7] It is “all the thinking and meeting and discussing that family members do together to resolve issues.”[8]

  1. Next-generation responsibility and leadership starts with good parenting.

“…One of the things that we can never underestimate is how much good parenting affects the future of a family business. After all, what is a family business about if it is not about the next generation?”[9]

  1. “Communication is Indispensable.”[10]

“Successful families recognize how profound, complicated, and perilous–and rewarding –communication can be. Business families with a long history of success are families that work very hard at communication.”[11]  They do this by maintaining open dialogue between family members—sharing family stories, writing family newsletters and other creative strategies that work for them. “Some once-successful family companies that lost their ability to continue as family firms lay that to a lack of sufficient communication.”[12]

Each of these practices is a scaffold upon which to build an enduring multi-generational family business. They are easy to write about and difficult to achieve. But having examples of workable strategies set by successful long-established businesses takes the guesswork out of what is necessary and provides guidelines to the possible.

[1] John L. Ward, 2004. Perpetuating the Family Business, 50 Lessons Learned from Long-Lasting, Successful Families in Business, Palgrave MacMillan, p. 23

[2] Ibid, p. 23

[3] Ibid, p. 24

[4] Ibid

[5] Ibid, p. 26

[6] Ibid

[7] Ibid

[8] Ibid

[9] Ibid, p. 27

[10] Ibid, p.15

[11] Ibid

[12] Ibid


Benchmarks for Family Enterprise Survival

In September, 2012, Dennis T. Jaffe, Ph.D., of Saybrook University and Jane Flanagan, of Family Office Exchange published Best Practices of Successful, Global, Multi-Generational Family Enterprises. Responding to the lack of solid research into strategies that support long-established family enterprises, they undertook an academic-level study with the goal of benchmarking best practices for multi-generational longevity.

Their research confirmed what has long been known among family-business advisors about best practices of family-enterprise governance, family relationships and development of next generation members:

Nurture the Family
Steward the Family Enterprises
Cultivate Human Capital for the Next Generation

Jaffe and Flanagan found that successful family enterprises strive for a balance among the three. If problems arise in any of these areas, the family does not see itself as successful.

In upcoming blog articles I will expand on each of these best practices areas, and finally discuss the importance of balance among them.