Keeping the Family and Business Together
The economic benefits of keeping the family and business together are clear: scale, synergy, diversification, reputation, and brand. Given the significance of these potential benefits, the negative consequences of not staying together are more severe in globally competitive industries and in more rapidly changing times.
Nonetheless, so many business families split and partition. We estimate more than half of all sibling partnerships end divided, and most often with bad family feelings as well. More dramatically, we know when there is one family split a pattern is established that is likely to recur in future generations.
There are two common misconceptions about business family splits. One is that splits are more prevalent in trying economic times. From what we know, that doesn’t appear true: families actually have more conflict in good times than in bad. During tough times, family partnerships usually pull together. It’s in
good times when there is more conflict over less important issues.
The other misconception is that money – wealth – motivates family groups to stay together. I don’t believe that’s true either. In fact, having a large proportion of wealth tied up in an illiquid, not fully diversified asset is a good reason to seek financial independence.
What holds families together as business owners are the non-economic benefits they derive from this investment. The strongest, longest-lasting business families see the family business more as an “emotional asset” than a financial asset. Then why such frequent splits? And what is an “emotional asset?”
Siblings – though from the same family values and background – are very different from one another. Their personalities are often mirror opposites. That leads to more style conflicts. And, if the siblings don’t have excellent skills and proven confidence in managing their conflicts, eventually they break apart.
This dynamic is compounded as families tend to avoid conflict in any way they can. Consequently, the siblings are commonly separated by strategic design: each runs their own, personal business – their own fiefdom. This structural separation avoids much ongoing, daily conflict (and creates opportunities for individual freedom and differentiation) yet makes the eventual dividing of interests particularly stark at a time of inevitable conflict.
A better, long-lasting design is where the partners have significant joint responsibilities, where they work together on overall strategy and culture and governance. Then they practice common interests and collective decision making frequently. Whatever the design, working hard to develop team skills and team
commitment is essential to lasting unity.
The other essential ingredient to unity is a shared passion for something of special meaning. Maximizing share value together, we find, is insufficient. There must be something more. If there is, then the “emotional asset” adds much glue to the partnership and a higher purpose for tolerantly working through the interpersonal problems and stressful business times.
Family businesses that last through multiple generations manage the “emotional asset” very proactively. They usually articulate shared purpose and meaning through various documents:
· Family Mission Statements
· Family and/or Business Values Statements
· Philosophic Rationale for Ownership; some do so through a collection of letters over time, some through archives or company museums.
We find families with missions focus on common themes:
· To provide a legacy of values or,
· To make a difference in their community or in society or,
· To nurture the personal growth of each family member
Some families find that how they do business has purpose: how they treat their employees; or how they strengthen their suppliers or distributors; or how they create jobs and jobs with dignity. Some families emphasize and focus on their values. The values of business owning families and family businesses
tend to be more personal (i.e., “doing the right thing,” justice, etc.), rather than transactional (i.e., innovation, quality, etc.).
Long-united families feel a deeper commitment to the social capital and reputational capital they have earned through decades than on the financial capital they have gained.
Over time it becomes increasingly important for the family to actively invest in nurturing the shared purpose, as with each successive generation more and more of the family members’ sole tie to the business is as owners, as most members of successive generations will pursue different vocations than
that of the business. In this situation, the glue that will hold a family (and the ownership group) together will be this more social and reputational capital than job opportunities and income alone.
Unity leads to great economic benefits and family results. Through division is better for some, we strenuously emphasize that families work long and extra hard to make unity work, if at all possible. Because once there’s division it is almost impossible, we find, to reunify in the future. And future generations wonder what might have been possible.
This article is reprinted from the EconomicTimes of India,
where it originally ran on March 1, 2009.