"Unfortunately, the family business that survives the founder --let alone… prospers [in] the third generation… is still the exception. Far too few… accept the one basic precept that underlies all… [success]… Both the business and family will survive and do well only if the family serves the business. Neither will do well if the business is run to serve the family."
"The mother wants to keep… everyone happy… not exercise appropriate controls… and hold [children to]… written expectations… [I]n her concern for preserving the family, the mother often… corrupt(s) the business. A business has to be managed as a business, and if it's not… it [will not] survive… [T]he business [will not] do anybody any good unless it continues to be a business… Taking care of family [must be]… secondary, and…not… at the expense of the business."
Recent news has led me to reflect again upon family businesses, and why some defy the odds to prosper over long stretches while others struggle to survive. The answer can't be that one family business has access to resources that another doesn't.
There is no shortage of written material advising business families on a host of timeless issues. Countless university "family business forums" provide opportunities for face-to-face dialogue, experience-sharing and exposure to "experts." Then what is it? Is there something fundamental that can account for the stability and longevity of an Anheuser-Busch or Steelcase, versus the vicious, never-ending contentiousness of a Koch or Dart Industries? How, after all these years, can the Belk family accomplish an historic roll-up of one hundred fragmented corporations into a unified whole, while family squabbles continue to haunt Dow Jones and Kohler?
STANDING FOR SOMETHING
In television ads August A. Busch, III presented a glimpse of what he believes has been the foundation of Anheuser-Busch's success since his grandfather ran the business. The themes were hard to miss: hard work and perseverance, a reverence for heritage, uncompromising commitments to product quality, and the integrity of the Busch name.
Steelcase's recent steps toward transition from family to non-family ownership perhaps overshadowed another honor bestowed upon the company - being named to Fortune's "100 Best Companies To Work For" list, a selection based on tributes from employees themselves, presumably most of whom were not family. Fortune noted a common characteristic among the "100 Best" -- each "stood for something" its employees were proud of and could embrace.
FAMILY BUSINESSES: AN ECONOMIC FORCE
That so few family businesses survive into the third generation is not to say that it would not be better if more did. Comprising more than 95% of all U.S. companies (80% worldwide) and employing more than 50% of our people, family firms are clearly an economic force. It seems obvious that increasing the number of Drucker's "exceptions" would be in the best interests of many. Why, then, is it so hard?
A late second generation manufacturer of mid-priced early American case goods, Armisten was a well-known, if stodgy, firm in a difficult industry. The business was financially stable, though performance had gradually deteriorated to below the industry median. Sibling relations had been strained for years, openly erupting into visible feuding more than once. Employee morale and energy gradually had sagged, and insiders no longer agreed on what the company stood for. Armisten was headed nowhere, except perhaps to the investment banker's office.
But hidden inside the family baggage was hope. Both siblings wanted the company to remain a family business. Each believed that if expectations were raised, a new era of growth and revitalization was possible. Eventually, they came together on the business strategy, at a personal sacrifice to each. Perhaps most remarkably, they agreed on which third generation member was the obvious succession choice.
Dangerously close to becoming the rule, Armisten Furniture became an "exception." Deep down, when it counted, there was no question that the business came first.
CENTRAL VALLEY FOODS
Something was clearly wrong at this third generation food distributor. Finances had deteriorated, customers were unhappy, lenders were restless, and minority shareholders were securing lawyers. As always, employees knew what the trouble was.
Third generation family members were in key positions way beyond their capabilities, and had never been held to any performance expectations. Non-working family members and their outside interests were known financial drains. Attempts by a non-family manager to halt this situation were quickly reversed by mother.
When asked the company's mission, demoralized employees' most frequent answer was "provide money for the family to take out." Old timers knew it once had been different. But, the founder's values of "the troops eat first," or "one's word is one's bond" had long since been corrupted by his descendants, who some employees now ridiculed as "playing at business."
No amount of family business panel discussions or attempts to appease the stated wants and desires of family members was going to save a business being destroyed from within by selfishness, greed, and incompetence. Absent a radical restructuring and some new faces committed to high expectations, the only answer was a sale.
PRECISION MACHINES, LTD.
One could sense from the receptionist's smile that this was a special place. A sixth generation manufacturer of high technology machine tools, usually under international license, PML was already an "exception." From customers who used the words "honorable," "responsive," "trustworthy," "capable," and "talented;" to long-standing employees who would "walk though a wall for that family," the company's reputation for excellence and integrity stretched far and wide.
No one worked harder or loved the business more than the father and son currently in charge. And while there had been some financial strains over a century-long existence, the business was currently doing well. Three dozen family shareholders rarely had a cross word for one another. There had never been any family business forums or outside consultants.
Due to new corporate governance requirements imposed by some leading licensors, Precision's owners found themselves facing an unwanted crisis not of their own making. In order to maintain alliance relationships critical to the businesses' future, the ownership structure would have to change. There were only two options: (1) most shareholders selling to a few; or (2) selling the entire company, thereby breaking the chain of family CEO portraits in the board room.
The decision process was remarkably easy. With agreement on two basic objectives (do what's right for the business and employees, and try to keep it in the family), a plan was developed for a small group to buy out all others. No fighting, no arguing, no pettiness; just unanimous shareholder approval and a smooth closing. A card on flowers sent to each primary family the next day read, "You're a tough act to follow. You've shown how to do it with grace and style."
WHAT'S RIGHT FOR THE BUSINESS
It was easy for PRECISION MACHINES, Ltd. For them, "doing what's right" was second nature. Selfish alternatives were never considered, and would have been summarily dismissed if they had.
While a little harder for Armisten Furniture, where serious family conflict had been part of the history, in the end two individuals were able to set aside personal agendas and old bitternesses to do what it took to ensure the competitive health and future of the business. A rejuvenated company is now in a growth mode.
Few companies have higher expectations of themselves than Anheuser-Busch. Steelcase is an exceptional family business in part because non-family employees are proud of what the company stands for.
In the end, it comes down to character and agreement on values. Where a family and its business have these things, there is likely to be an "exception" to the rule about the survival of a family business. Where they don't, family business consultants or university family forums will have their hands full.
The three vignettes are fictionalized adaptations of real situations.
Drucker, Peter F. August 19, 1994. How to Save the Family Business. The Wall Street Journal.
Levinson, Harry. Fall 1997, Volume 7, No. 4. Where Family Business Succession Goes Wrong
How Psychology and Technology Can Gum Up the Works. Family Business Quarterly. Boston. Northeastern University Center for Family Business.
Fisher, Anne. January 12, 1998. The 100 Best Companies to Work For. Fortune.
Kilman, Scott. March 23, 1998. Family Squabble Brews at Kohler Over Control of Plumbing Firm. The Wall Street Journal. A4.
Reilly, Patrick M. February 10, 1998. Dow Jones Posts Losses for 4th Quarter and Year. The Wall Street Journal. B2.
Prince, Russ Alan. October 1996. Understanding the Eight Types of Family Business Owners. Trusts & Estates
Danco, Leon A. December 1996. This Company Can Continue Forever. Agency Sales Magazine.