Katy Caudle, Director of Research
Family-controlled businesses have
flooded global media outlets in the past weeks as Bernie Madoff’s
brother pled guilty to criminal charges last week and the Murdochs
squabbled over News Corporation.
Though business families like these often gain notoriety, it is just as
often that family run organizations are actually quite successful and
well managed (not to mention legal). Nearly 35%
of Fortune 500 companies are family-controlled, from Wal-Mart to Koch
Industries and Panasonic, proof that the family model can work.
Well, they work with the proper tools and guidance, that is. Given that only about 40% make it
from the first generation to the next, and only 13% of those are
successfully passed on to the third generation, there can be some
hurdles to clear on the way to a long lasting family business. Here, we
assembled some tips for the CEO patriarch or matriarch who wants his or
her legacy to be a healthy, prosperous organization.
1. Establish clear structure and norms.
Informality and lack of goals just because you’re family can set a low
standard organization wide. This goes double for establishing a chain of
command. Not everyone can be the leader, but everyone should have a
role. While dad may be CEO, one sibling could run sales while another
manages operations. A transparent, unambiguous pecking order and high
expectations helps ensure professionalism, from both family and
non-family employees. Along these lines, Aunt Sally’s birthday party is never the right time
to casually discuss an important business decision. Schedule regular
leadership meetings with detailed agendas to provide a structured
environment for business discussions.
2. Save the drama for your mama.
Family problems like divorce, finances, and who forgot to bring the
mashed potatoes to Thanksgiving can only affect your business if you let
them, so keep family issues separate from the business as much as
possible. If the differing opinions are about how the business should be
run, consider separating into subsidiaries or different businesses
altogether, like the Hunt family.
Originally founded as Hunt Oil Company, they branched out into multiple
divisions in energy and even separate organizations focused in real
estate and agribusiness as children and grandchildren independently
entered into other new ventures. For the most part, it has kept them out
of court and each other’s hair. Your familial relationship should be,
in the long-term, far more important than the business, and separation
may actually be the best way to keep everyone together.
3. Make hiring decisions based on talent, not blood.
Just because your son wants to work in the family business doesn’t mean
he’s necessarily qualified to be CFO. Hiring family members who don’t
have the appropriate experience can be risky to the bottom line, and
will ultimately cause stress in your organization. As Rupert Murdoch recently said
about News Corporation’s split, and his intention not to hand the
reigns directly over to his son, “Yes, as a father, I’d like to see my
children [involved], if they want to be. But we’re not holding that
position open for Lachlan or anyone else…they have to earn it”.
4. Get help from outsiders.
The best person to provide guidance to your business may be an
impartial third party. Business disputes among family members can be
more personal and emotional than among non-related coworkers, and an
outside advisor can help coach you through a disagreement without siding
with one person. As Eric Schmidt, Executive Chairman of Google said,
“Everybody needs a coach…Somebody who can watch what they’re doing and
give them perspective. The one thing people are never good at is seeing
themselves as others see them. A coach really, really helps.”
5. Develop a succession plan.
Less than 30% of family owned businesses have a plan in place for
handing power over to the next generation, and over half close because
the owner passes away without a named successor, according to the Family
Business Institute. Leaving control in the hands of one founding
individual who has no intention of retiring may seem like a fine idea
now, but the lack of a plan can actually cause political conflict and
divisions within your organization well before a successor is named. A
living, changeable plan that is frequently revisited and updated based
on changes in the company, commitment, passions, or even health will
help to diffuse clashes between potential successors.
6. Don’t cling to the past.
Many family businesses have traditions and ways of doing things, but in
order to move forward, you have to be willing to change too. No one
has grasped the importance of this
more than the most well-known family business in the world, The British
Monarchy, who has embraced social media and a more casual attitude to
better connect with their people. Who would have thought the Queen would
have a Facebook page?
The family saw a way to reach new heights, even though it was perhaps
outside their familiar comfort zone. Also, consider Joel Osteen, Pastor
of mega-church Lakewood Church here in Houston. Since his father’s
passing 13 years ago, Joel has taken it to an entirely new level, from
the feedstore where his father founded the church in 1959 to its present
home, the former Houston Rockets stadium. Your children may have more
strategic vision and appetite for your brand than you ever even
considered, if given the opportunity.
7. Do as the Waltons do.
Like the Wal-Mart family, keep all family members in the loop on
company decisions, even if they decide to be merely shareholders and not
part of the ultimate succession plan. Once a year, the Walton family
gathers at the matriarch’s house for presentations from senior
executives on issues or decisions affecting the company. Whether or not
everyone is directly involved, it is important for all family members to
feel a connection beyond just the dividends they receive. Chairman Rob Walton remarked, “"We want the next generation to be actively involved and to be good stewards of this company."
active involvement, discussion, and passion trickling down through the
generations, the family is much more likely to stay committed to the
organization and keep it healthy and successful for decades to come.