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A Business Forum Book Review:
Between 65 and 80 percent of all businesses worldwide are owned or controlled by families, including 40 percent of the Fortune 500® corporations. In the United States, family businesses employ more than half of our workforce and generate more than half of our gross domestic product (GDP). Indeed, family-controlled businesses are the dominant form of business throughout much of the world. Family businesses are truly very big business.Generation to Generation: Life Cycles of the Family Business by Kelin E. Gersick, John A. Davis, Marion McCollom Hampton and Ivan Lansberg (Harvard Business School Press, 302 pages, $29.95) is an incisive analysis of the way in which the family-controlled business differs fundamentally from the public corporation. The four authors are seasoned management consultants whose focus has been family-controlled business enterprises. Out of their unavoidably practical work coupled with their academic research has emerged the development model of the family business presented in this book.
The model of the public corporation encompasses two dimensions or axes -- the business axis and the ownership axis. The goals, expectations and demands of these two axes are frequently in tension; continually resolving these tensions in constructive ways is the job of the senior executive.
The model of the family-controlled enterprise embodies three dimensions or axes -- the business axis, the ownership axis and the family axis. Even in the healthiest organization, there are inevitable tensions between the goals, expectations and demands of these three axes. The authors explore the family business along these three axes: the business over time (from Start-up, to Expansion/Formalization, and Maturity), ownership over time (Controlling Owner Companies, Sibling Partnerships, and Cousin Consortiums), and the family over time (from the Young Business Family, to Entering the Business, to Working Together, and Passing the Baton).
This perceptive analysis uses case studies liberally to examine the real life interactions between these three dimensions. It is emphasized that "[f]amily businesses draw special strength from the shared history, identity, and common language of families. When key managers are relatives, their traditions, values, and priorities spring from a common source. ... However, this same intimacy can also work against the professionalism of executive behavior. ... Roles in the family and in the business can become confused. ... When they are working poorly, families can create levels of tension, anger, confusion, and despair that can destroy good businesses and healthy families amazingly quickly."
The substance of this thoughtful investigation cannot be portrayed accurately by simply extracting a few snappy aphorisms. However, a primary conclusion is that a robust business rarely springs from an unhealthy family. The business cannot be used to "solve" or mask family problems. The senior executives in the family business must be able to confront the request to employ or promote an unqualified family member, to make an ill-advised payout or dividend distribution, or to embark upon an imprudent strategy. Nurturing one’s family is as important as working resolutely within the business enterprise.
A significant suggestion is the formal establishment and use of a family council. This enables business matters affecting them to be discussed openly with non-participating members of the family. The family council also helps to define the boundary between the family and the business. It offers the structure to create a shared vision and a "code of understanding" -- a family plan. The family business introduces an added dimension of communication -- both ways -- within a family. If a family cannot communicate openly and effectively, the family business exacerbates a situation that is already unhealthy. The first priority and greatest challenge to the senior executives in the enterprise is to foster a vigorous family.
The authors examine the issues of leadership, organizational structure, strategy, organizational behavior and financial management that are unique within the family business enterprise. The issues of bringing family members into the firm, promotions, and planning for succession are explored carefully. This work concludes with two pithy lessons:
- Lesson 1: Treat the Business Like a Business, the Family Like a Family, and Ownership with Respect; and
- Lesson 2: Keep in Mind the Inevitable, Constant Nature of Developmental Change.
This development model of the family enterprise is grounded in reality with all its richness and diversity. It offers anyone working with or connected with a family-controlled business vivid insights into the special dynamics and challenges they confront moving through their life cycles.
Your comments and suggestions for these pages are most welcomed!
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Revised: May 12, 1999 TAF
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