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."

With 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.