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What happens when a family owns a large business over generations?

By: Dennis Jaffe | 15 Aug | 2 comments


See page for author [Public domain], via Wikimedia Commons

Why was the sale of the Washington Post such a media event when struggling businesses are sold every day? Attention was paid because of the special nature of the business—a corporation owned and controlled by a very public family who had put their stamp on it and upheld their values, over four generations. While the paper remained profitable, the decline of the industry made it increasingly difficult for the family, some of whose livelihood depended on the distribution, to uphold their values profitably in the product itself—a world-class daily paper.

Over four generations, the family leadership of the Washington Post embodied social responsibility even before it was fashionable.  The Graham family is not an isolated instance of the special nature of a family as long-term stewards of a large and successful business. All over the world—from candy, food and beverages, to cars, to agriculture, a majority of the world’s wealth is under the active control of a family of owners, who want to align a set of family core values about people , profits and community, with the demands of a profitable, professional, adaptive business.

As anyone in a family knows, a family with several generations is anything but unified about anything. The proverb “shirtsleeves to shirtsleeves” conveys the wisdom that when a family creates wealth, the next generations are very likely to use it up and not replenish it. So when a Graham, Ford, Rockefeller, Smucker or Cargill family manages to grow its wealth and express its values over generations, it is something to take note of.

Family ownership (or control in the case of public companies) is fundamentally different from an impersonal business where the owners have no personal connection, because the personal connections can either be a source of added positive value, or a source of conflict if the family intrudes negatively on the business (think excessive spending, little innovation or incompetent family employees). In the case of the Washington Post-type family enterprises, we see a special benefit from values-based family ownership that enables them to manage threats and challenges. Though the family has sold its flagship business, the family, unusually, will remain in key leadership positions, and they will also continue to manage their family wealth and other investments with an eye on their values.

Over the past two years, I have worked with a team of researchers to study the nature of successful family businesses that have lasted over at least two generational transitions—approaching 100 years as a shared family activity. These families defy the shirtsleeves prophecy and sustain their commitment and develop new leadership in each generation. How do they do this? We first surveyed 200 such families, and then talked to the next generation family leader from 38 of them, to learn in depth how they organized themselves to meet the challenges they faced from outside and within.

We call them Generative Families, because they have not dissipated the family wealth, but rather used the wealth as a creative force to allow them to grow, develop, innovate and share the benefits of their wealth widely across several generations. This study presents their stories—in their own words—about how they approached each transition (the whole study Good Fortune: Building a Hundred Year Family Enterprise, can be accessed in the link below, and found on the web sites dennisjaffe.com, wisecounselresearch.com, and familywealthadvisor.com).

Our key finding is that multi-generational survival is not primarily a financial matter. Many families create great wealth. What our families have done is a second, less public achievement: a conscious decision to commit themselves to creating a great family. They avoid dissolution because they build shared values, commitment, and organization. They also allow family members, or even branches, leave the family enterprise if they wish. They become, as Jay Hughes and others have noted, a “family of affinity” rather than of blood.

By coming together and deciding to create a great family, the family engages each other in a range of activities that help define and nurture both the business and the family.  Each generation cannot just passively be consumers of what they inherit, they must actively manage and define what they want from their family wealth, and act as active managers of what they have. For each new generation, this means that they have to learn to act as a collaborative team, that they have to educate themselves about what is needed, and they have to find the energy and commitment to respond to the challenges facing their one, or often many, family enterprises.

Each new generation must look at their legacy of values and success, and decide how to move forward. Sometimes, as with the Graham family, they have to decide to sell their legacy asset. They also have to decide that they want to remain partners with one or several assets that they manage together, or to separate into individual families. Each of the successful families had to reaffirm their commitment, and then establish policies, practices and regular engagement as a family, each generation. If they decide to continue, they have to agree to work together on a variety of stewardship activities as a family, in areas like philanthropy, developing next generation family leadership, and oversight of the professionalization and diversification of their family enterprises. These are not easy or simple tasks, and as more family members enter the family each generation, the complexity increases.

In addition to attending to “the business of the family”, the successful enterprises are able to sustain the positive benefits of family ownership—long-term commitment, patient capital, clearly defined values, ability to take action and adapt—while developing an increasingly professional business that is independent of the family.  Non-family leaders need to be developed, family employees need to be held to account, and the board needs to appoint independent board members who are able to make sure that the family values and involvement does not interfere with the effectiveness of the business.

Our research presents the challenges facing each generation of a family enterprise, including the portraits of 18 of the families we interviewed. While only a few families realize the success of our 100 year old generative families, non-family corporations and first generation businesses who want to see the next generation maintain family ownership, can learn from this study and these practices.

Read other posts by Dennis Jaffe


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