The World's Most Successful Family Businesses

We were lucky enough to be invited to appear at an extraordinary family business meeting. Campden Conferences of England pulled together notable family businesses from all over the world to meet together in Miami in February, 2008. The conference was unusual in that a family business couldn’t just apply, write a check, and sit in on the workshops. To get into a Campden conference, a family business has to qualify by virtue of the size and scope of its operation. This is quite rare in the world of business conferences, and many family business applicants had to be turned away. It was an impressive group to say the least.

There were closely held companies from Columbia, Mexico, Germany, Sweden, Argentina, Venezuela, and the USA. Among the group there was only one first generation entrepreneur; most of the companies were in their third generation or later, and one of the attendees was a sixth generation member of his family enterprise. The businesses ranged in size from about $70 million in sales to well over $3 billion. These were some of the most successful family and closely held companies in the entire world.

Their stories were all different and unique. At least one of the companies had gone broke in its not too distant past, some had been victims of political upheaval in their home countries necessitating the launch of new ventures in faraway lands, and some had suffered from untimely deaths requiring other family members to leap into the breach of leadership. There were, however, commonalities, some quite pronounced, among the businesses in attendance. Going further, it’s fair to say these practices were more than just “best practices.” They were universal; every single one of the successful businesses in attendance appeared to have the following characteristics. Here’s a quick rundown:

1.  Every business had an active Board of Directors with at least one outsider among the members. How did they define outsider? An outside director is an objective, non-affiliated person. By non-affiliated, we mean the person isn’t a family member, is not nor has ever been an employee, and is not a paid advisor to the family business (i.e. attorney, CPA, banker, investment provider, etc). The objective boards were instrumental in the transition and growth of these family businesses as competition and their needs changed over the generations. The boards provided an excellent balance point between the senior and junior generations as issues of modernization, globalization, technology, and transition planning took place. The boards were instrumental in helping these companies develop strategies for reinvention as time and people passed.

2.  Every one of the businesses in attendance had decided to be a “business first” organization as opposed to a “family first” organization. They had elected to put the needs of the business ahead of the needs of the family. That didn’t mean that family employment opportunities or wealth building opportunities were cut off – just the opposite. By focusing on the needs of the business first, wealth opportunities and success maximization opportunities were multiplied.

Being a business first organization means that family members aren’t employed in operations simply because of their bloodline. They have to qualify for their positions and be held accountable for their performance just as any other employee would (in fact, they may be held to a higher standard). Putting the business first doesn’t mean there can’t be love and harmony in the family. Rather, it is a pragmatic philosophy that separates the needs of the family from the needs of the business so that each can achieve its fullest potential.

3.  Every business in attendance had successfully recruited and hired excellent non-family managers of the highest caliber and rewarded them handsomely with competitive pay, benefits, and retirement packages. They recognized that, while the entrepreneurial energy and enduring sense of values came from the family which created the company, they couldn’t go to the next level of success relying solely on the talent of one or a small handful of closely related people. They needed to reach outside the family to find new strengths and bolster weaknesses.

4.  The businesses required, in fact mandated, accountability throughout their organizations including at the CEO and Board of Directors levels. On a true team, everyone has to pull his weight. When basketball teams compete, if one of the five players is lazy, doesn’t hustle, and doesn’t apply intensity to his defense, the other four players on the team suffer. It’s the same in business; you can’t have accountability on the shop floor or for your middle managers and not hold the CEO and the senior employees of the business just as accountable for their performance. It sends all the wrong messages throughout the organization.

What these multi-generation family enterprises had elected to do over time was undertake a serious effort at professionalizing their businesses. They all saw opportunities in the marketplace, and they concluded that it was in the best long term interest of the family to create a business which ran extremely well whether any of the family members showed up for work or not. They knew that by creating an entity which could at any time be put up for sale and be attractive to outsiders added to the opportunities and flexibility of the owning family. While many entrepreneurs fear that professionalizing their organizations and increasing accountability from top to bottom will choke off their entrepreneurial dreams and opportunities, these families have demonstrated that just the opposite is true; their opportunities have been multiplied by the fact they created independent, self-sustaining organizations.

Coming away from the conference we can’t help but be struck by the level of emotion, passion, and stewardship these families bring to their organizations. They’ve decided that they want to make their businesses perpetual and memorialize the family values that allowed them to become successful in the first place. By professionalizing their organizations, they found ways to maximize both. Organizing around the family business has allowed these families to continue to find an identity, share experiences, and share their uniqueness over the generations. Even though family members have elected to leave their hometowns or even leave their countries to pursue individual interests, the shared legacy of being a member of a business family allows them to come together periodically to enjoy each other socially and professionally, to preserve the values most near and dear to the family, and to enjoy the financial rewards associated with a multi-generation, sustainable closely held enterprise. To find the best of your family and your business simultaneously, it is wise to separate them so each can prosper while standing on its own.

Wayne Rivers is the president of The Family Business Institute, Inc. FBI’s mission is to deliver interpersonal, operational and financial solutions to help family and closely-held businesses achieve breakthrough success.

The Secrets to a successful family business

Everyone sees the family business as a safety net. If you fail in the corporate world, you can always put your talents to work at your dad's shop or snag a few hours at your uncle's place. But if your family doesn't prepare, that safety net likely won't be around for the next generation.

Family businesses are at the heart of corporate America. While you might think of a neighborhood bakery or restaurant, family shops are not just mom and pop shops. You might have heard of the Maloofs with the Palm Casino and Sacramento Kings, the Heinz family, or the Blocks of H&R Block- families are the foundation of billion-dollar businesses. Most of us are likely a long way from a global empire, but if you want to be the one of the three businesses which will survive to the second generation (from the Family Firm Institute), you should focus on the following three areas: individualization, Internet marketing, and succession planning.

To each his own

You may work in your father or mother's business, but that doesn't mean you share their talents. They might love numbers or be a junk dealer in Los Angeles, but odds are you're going to be good at something different than your parents. And that means, it's your job to carve out your niche in the business. Find your talent or passion and discover how to apply it to the family business. Maybe it's drawing menus for the Greek restaurant your family runs or launching a financial services add-on service to your family's sales company.

The key here is that you have a personal goal that you can achieve and the freedom to pursue your own dreams within your family's business. That goal will make you work harder and feel even more invested in setting things up for the next generation. So, establish your place and carve out your own niche.

Take your message online

People want to work with family businesses. They like knowing that a person will answer the phone and a name is attached to a service. So, it's your job to do everything in your power to help them find you and your family's business. There are template websites available for free and you can get online within a week. You should consider maintaining a corporate blog to help establish your family's brand and allow people to connect with your family. Tell your family's story, the history of the company. People want to hear about you, in your own words. Often, families are unwilling to sell their best asset- themselves. Tell people why they should do business with you. Guess what? They probably will...

The children are your future

According to a study from Oregon State University, fewer than 30 percent of business owners have put a succession plan in place. And that can lead to a difficult situation when a family member retires or passes away. Who will take over as head of the business? Who knows the right contacts and has the insitutional knowledge stored inside the brain of your father or mother? You have to ask these questions and get the answers in place well before the first generation is ready to step down.

When you start looking at the future of your business, then you're thinking like the Heinz family and the Blocks- and you're one generation closer to a billion-dollar business.

Got any other tips? How has your family found success or just the patience to work together?

FAMILY-OWNED BUSINESSES

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Family-owned businesses are recognized today as an important and distinct organization in the world economy. Family-owned businesses now operate in every country and may be the oldest form of business organization, but only within the last decade have their unique benefits been identified and studied. Family businesses have been described as unusual business entities. The description is due to their concern for the long-term over generations, their strong commitment to quality and its relation to their own family name, and their humanity in the workplace where the care and concern for employees is often likened to that of an extended family.

More than 90 percent of the companies in North America and a majority of businesses located around the world are family-owned. Some of the more recognizable businesses still managed by family members include Benneton, Beretta, Estee Lauder Inc., Tootsie Roll, Playboy, Gucci, Carnival Cruise Lines, Harley-Davidson, Inc., U-Haul, Ford Models, Forbes Inc., and Ford Motor Co. They vary widely in regard to the overlap of family and business issues, and much can be learned from studying their experiences.

Family businesses provide the only setting for an unusual social phenomenon, the overlap of family issues and business issues. The family business offers two separate but connected systems of family and business with uncertain boundaries, different rules, and differing roles. Family businesses may include numerous combinations, including husbands and wives, parents and children, extended families, and multiple generations in roles of stockholders, board members, working partners, advisors, and employees.

The two systems in a family business, described as the interaction of two separate but connected systems, are often shown as two overlapping circles depicting the unclear boundaries of family and business.

THE PROS AND CONS OF FAMILY
BUSINESS

Family businesses provide a number of advantages to family members, the most common being freedom, independence, and control. In addition, they also offer many lifestyle benefits such as flexibility,

Figure 1
The Unclear Boundaries
of Family and Business

prestige, community pride, and creativity. Family businesses normally provide for closer contact with management, are less bureaucratic, have a built-in trust factor with established relationships, and provide for hands-on training and early exposure of the next generation to the business.

On the other hand, family businesses also bring a unique set of challenges. Family businesses are often recognized in the popular press as a source of difficulty when it comes to succession issues, identity development, and sibling relationships. Succession is one of the largest challenges facing family businesses, and in most cases the process is resisted. Succession becomes an issue when the senior generation does not allow the junior generation the necessary room to grow, effectively develop, and eventually assume the leadership of the business. Often business relationships among siblings or between parent and child deteriorate due to an underlying difficulty in communication within the family. This behavior erupts into criticism, judgments, conservatism, lack of support, and lack of trust—all elements that affect the business.

Family-owned businesses typically have a set of shared traditions and values that are rooted in the history of the firm. Depending on how they are viewed, deeply rooted traditions and values can be a positive or a negative influence. In a changing world, family businesses can honor their traditions if they realize they can be guides to selecting the best course of action when there is a recognized need for change. It makes sense to honor traditions and trust them; they have survived because they have helped the family business prosper. It doesn't make sense to let traditions stand in the way of progress and change. Traditions themselves have evolved and changed over time. In fact, the best time to reaffirm the family business's tradition is when it is threatened or appears to conflict with the future prosperity of the business.

Family communication, conflict with relatives, and sibling relationships typically rank among the top ten concerns among family-owned businesses. When these issues conflict with shareholder value, it often becomes necessary to bring in an outside consultant to deal with them. The main issue in solving such family-related problems is to deal with them openly and begin communications within the family toward solving the problems. Other keys to a successful family business include mutual respect, the presence of good role models within the family, the ability to not take business issues personally, and the patience and ability to listen to others.

A history of the family business can be a useful tool to improve communication and understanding among family members. By telling the story of how the business was founded and its early struggles, the history helps members of succeeding generations better understand the values and attitudes of the family toward the business. In addition to transmitting family values, the family business history can be used to perpetuate a unique business culture and create cohesiveness among employees. It can also be used as a marketing tool to project a positive image of the company and the family behind it.

ROLES IN THE FAMILY BUSINESS

The most successful families in business have clearly defined roles and responsibilities for individuals involved in the enterprise. Most often these roles have fallen along gender lines. The most common form of family business is one in which a husband and wife are both involved. Often, such a business has typically been referred to as "his," while the wife's role is of helpmate. Women are often in the office, on the computer, or doing the bookkeeping and have even been described as "invisible." These same capable women, however, often become "instant entrepreneurs" when their husbands are ill or die, or when an economic crisis forces them to assume the husband's role. Such gender stereotypes are slowly changing.

The role of a father who is also the boss of his children is more often a difficult one to balance. One father shared the story of his son who was always late for work and provided a bad example for other employees. He called him aside one day and said, "Son, as your boss, I have to tell you you're fired, and as your father, I am sorry to learn you have just been fired."

Research indicates adult children describe their fathers as bosses in many different ways. One son's statement relates the patterns that repeat in families and therefore carry over to the business, "I'm stubborn just like him, and it is like looking in a mirror." In the ideal case, the father serves as a role model and trainer for the next generation. He treats both his sons and daughters equally and exposes them to various aspects of the business. He listens to their ideas and lets them make their own mistakes. He views the business as a team project rather than an individual effort and turns over the leadership reins before the children reach the age of 35.

Mothers are influential whether they work in the business or not, and their roles need to be recognized. Traditionally, mothers have worked behind the scenes supporting their husbands and maintaining the home. The changing roles of women have brought them challenges when trying to balance home and business. One woman said she wished she was more like Mrs. Cleaver, which seemed to reflect her confusion about not being a mother like her own, yet also not being comfortable in a leadership role in a business. Often women do not get equal credit in the role they choose. Just like the case of the fathers, these roles also carry over into the next generation and influence both daughters and sons.

Brothers and sisters usually disagree in their views of their mother, but agree in their views of their father. This might be explained by the fact that fathers are seen primarily as the leaders in the business, while the mothers play a variety of roles, and sons and daughters describe the role they are most comfortable with. For example, one son describes his mother as always being at home for him, while the daughter described her active role in the business.

FAMILY BUSINESSES AS A TRAINING
GROUND

Perhaps the best job training programs throughout history have been family businesses. Research indicates that over two-thirds of all people starting businesses today grew up in a family business environment. Many share stories from early childhood when they stayed at the family store, rode on the delivery trucks, or went to visit customers with their parents. This early exposure enables them to hear, see, observe, and absorb the business environment. This experience can teach children about the value of money, customer relations, dealing with employees, and how an organization operates.

A number of factors have been found that predispose children to be interested in the family business. The first is time spent with their father in the business. Most family businesses currently operating in the United States were started after World War II and most were founded by men. As more women start businesses, children will also benefit in this way from spending time with their mother in the family business setting.

Exposure to various aspects of the business positively affects children. As they grow they assume new and varied roles, developing skills in the business as they take on each new role. With encouragement and a positive attitude from the parents about the business, their interest is heightened. Along the way, as children work in the family business, their individual contribution to the team needs to be recognized on a regular basis.

Lastly, an opportunity to join the company needs to be presented to the children as a career option. Not all children will join the family business, but they should know how to fully take advantage of the opportunity if they so choose. Throughout this training process children and parents who see each other as peers have an optimal relationship.

Daughters have special needs when it comes to developing as leaders in family businesses. They normally spend less time in the business, develop fewer skills, and face a major obstacle right from the start because fathers typically consider sons over daughters as potential successors. The process of preparing daughters to join the business is often overlooked. A report from the family business workshops held at the Wharton School of Business over a three-year period showed that among female Wharton business students, only 27 percent planned to enter the family business and only 22 percent studied business in college.

Research shows a number of surprising factors which influence the leadershipinterest of women. Women tend to show an interest in leading the family business when their brothers are not strong leaders, when they do not have a spouse or children of their own, and when they are asked by the father to join the company. Women are found to be held back from leading the company when they lack skills and knowledge, experience constraints within their own family, or have little encouragement from their father or husband. Women who are not at all interested in the family business have not developed an identity in the business, have found better opportunities elsewhere, or are dependent on their spouse to satisfy their financial needs.

When it comes to sons, researchers found that the quality of the work relationship between fathers and sons varies as a function of their respective life stages. When sons are between the ages of 17 and 22, and they are in the process of establishing identity and separating from the family, poor communication is common. At this time, the father is typically in his forties and is also re-examining his identity and appraising his life. Here fathers want to give their life meaning and exert power and control, needs that are in conflict with the needs of their sons at this time. As the father reaches his fifties, and the son matures from 23 to 33, the father has become less competitive and with his experience he may have the inclination to teach. Sons during this time feel an urgency to focus their lives and settle in, re-appraising the past and considering the future. They strive for competence, and desire recognition and advancement. By 40 the goals of competence, recognition, advancement, and security become pressing, and the son struggles with authority if the father is still involved in the business. The father, perhaps in his sixties, is reminded about retirement and often death, which leads to a problematic relationship should he try to hang on to the business. There are numerous cases of sons in their fifties with fathers in their seventies and eighties who still are in control of the family business. This becomes problematic for the individuals involved as well as for the business itself.

Sibling relationships in the family business are important since these are the vehicles by which social skills are learned, and siblings often go on to work together. These relationships play a significant part in identity development, yet research is sparse in this general area. Sibling accommodation in the family business occurs when they agree on their relative positions of responsibility and power.

EXTENDED FAMILY

Extended family members can play a wide range of roles in the family business. Family businesses become more complicated in multiple generations when all of the family members stay involved in some manner. For example, a husband and wife start a business and involve their three children. These three children have six children each for a total of 18. These 18 have a total of 29 children between them. Within 50 years over 50 direct descendents could now have involvement, and that does not include in-laws.

In-laws are controversial in family businesses. Some businesses have a rule not to involve in-laws in either ownership or management, while others involve them to varying degrees. In either case it is best to have clearly defined rules when it comes to the role and responsibility of in-laws, and clear expectations of the consequences in the event of a death, divorce, or involvement of children. In one case, the son-in-law was asked to stay on in a management capacity in the business after the daughter divorced him, which caused friction between the father and his daughter for the next 20 years.

THE PLANNING PROCESS

Planning is more crucial to the family business than to other types of enterprise because most families have a majority of their assets tied up in their business. Estate planning becomes essential and is intertwined with succession planning,business planning, and family planning.

Estate planning involves the financial and tax aspects of the company. Families plan to minimize taxes at the time of the owner's death so the resources can stay within the company. Current tax laws provide disincentives for families wishing to continue the business.

Business planning often guides the entire planning process and sets the agenda for the future operations of the business. This process may be overseen by a board of directors, an advisory board, or professional advisors. Owners must ask themselves where they want the company to be in 5, 10, or 20 years, including the level of family involvement. Owners often have a mental picture of this, but unless a business plan for financing purposes is necessary, it is usually not down on paper.

Succession planning is a long process that owners normally wait too long to address. The grooming, training, and development of talent in the next generation should start in the preadolescent years.

Most family businesses do not have a succession plan. This becomes crucial in the event of a sudden death. Often the remaining family members do not know where to begin to pick up the pieces. This is the reason most family businesses do not succeed to the next generation. The issues involved in succession are too numerous to leave to chance, and without planning, it is likely the family business will not successfully continue.

The lack of planning, particularly in first to second generation businesses, is often the fault of the founder himself. Usually the business is such an extension of his life that he has few outside interests and cannot imagine leaving the helm. As a result, his business dies with him. Others who recognize these issues too late in life may hastily turn over the business to an ill-prepared child, only to have him fail.

Family planning takes into account the needs and interests of all family members involved with the business. The formation of a group called a family council often guides the communication process between family members and management. They address issues such as rules for entry, conduct, and community relations.

A 1999 survey of 500 family-owned businesses conducted by family businessconsultants Regeneration Partners of Dallas, Texas, found that the number one concern among family-owned businesses was planning for estates, taxes, andwealth. Ownership transfer or succession ranked second. In spite of the significance of these concerns, an estimated 25 to 50 percent of all senior-generation business owners have put off making business estate plans.

SYSTEMS FOR PLANNING IN THE
FAMILY-OWNED BUSINESS

There are numerous systems which can aid planning in the family-owned business. Estate planning is normally handled by a team of professional advisors, including a lawyer, accountant, financial planner, insurance agent, and perhaps a family business consultant. Estate planning normally begins with the success of the enterprise and is continually updated as the business and family change.

A professional family business consultant can be a tremendous asset when confronting these planning issues. The consultant is a neutral party who can stabilize the emotional forces within the family and bring the expertise of working with numerous families across many industries. Most families believe theirs is the only company facing these difficult issues, and a family business consultant brings a refreshing perspective. He or she can be involved at many levels, including working through the succession process. This may involve a variety of issues, such as training the children, selecting a successor, involving non-familymanagement, and facilitating the transition process. In addition, the family business consultant can establish a family council and advisory board and serve as a facilitator to those two groups.

Often the firm's attorney and accountant may see planning problems coming, but they are not prepared to face them directly for many reasons. Some do not feel they have the specialized understanding of family dynamics, while others fear they could lose a client when dealing with sensitive issues. Instead, they may make the recommendation to bring in an outside family business consultant for an interim period of time.

A family council is a system that encourages family involvement and communications. It allows for a regular meeting where family members can voice their opinions and plan for the future in a structured way. Ultimately a more organized and strengthened family will emerge. Children gain a better understanding of the opportunities in the business, learn about managing resources, and inherit values and traditions. Conflicts can be discussed and settled.

Topics brought to family councils can include: rules for joining the business, treatment of family members working and not working in the business, role of in-laws, evaluations and pay scales, stock ownership, ways to provide financial security for the senior generation, training and development of the junior generation, image in the community, philanthropy, opportunities for new businesses, and diverse interests among family members.

These family meetings evolve and change as the business evolves. A business in the first generation usually only involves a nuclear family, whereas a business in the second generation with a sibling team faces additional issues of family harmony, equal treatment, and the involvement of multiple children in the business. A family business in its third generation or beyond may include cousins, in-laws, and family members not working in the business. Issues in this case become much more complicated and may include commitment, traditions, community image, and resource allocation.

Family businesses typically evolve through three stages, and the type of leadership required at each stage is different. In the entrepreneurial stage, the business is designed around the founder or leader. It is driven by personal and family goals and depends on the leader's intuitive direction. Eventually the business evolves to the managerial stage, where it is more organized but still like a family. The firm begins to require outside expertise and financial discipline. Structure and accountability are established. Tension can arise as family members begin to lose some of their freedom from structure, but they recognize that a lack of structure is causing frustration, too. Finally the firm enters the professional stage, where it is driven by what is best for the business. More goal-setting and market-driven strategic planning takes place. In determining who will be the next leader of the family-owned business, it is necessary to recognize what stage the business is in and select the leader with the most appropriate strengths and characteristics.

Family members who participate in family councils find it a good forum to voice their opinions. They feel more like a team, and they see progress being made. Leadership of the family council can be on a rotating basis, and the family business consultant may leave the facilitating role once the forum is well established and emotions are under control. Stepping out too early, however, can lead to a collapse of the entire system.

Advisory boards can be established to advise the president or board of directors. These boards consist of five to nine non-family members who meet regularly to provide advice and direction to the company. They too can take the emotions out of the planning process and provide objective input. Advisory board members should have business experience and the capabilities of assisting the business to get to the next level of growth. For example, a company with five million dollars in annual sales should seek advisors who have experience with moderately more profitable companies. In most cases, the advisory board is compensated in some manner.

As the family business grows, the family business consultant may suggest many different options for the family. Often professional non-family managers or an outside CEO are recruited to play a role in the future growth of the business. Some families operate with few or no family members in the business and simply retain ownership. The family can retain ownership by serving on the board of directors or setting up a holding company, which may manage several companies and investments for the family.

One second-generation family in the steel business recognized a declining market for its product and decided to sell off their divisions and liquidate the remaining assets. The dollars generated from this process led to the sibling team staying together and forming an investment company. Today they are in the business of buying other family businesses and putting in professional managers to operate them. They now manage eight such companies in a variety of industries throughout the United States.

How to Keep Success in the Family

Some of the most famous and successful businesses are family businesses. Consider the media conglomerates built by Rupert Murdoch, Hugh Hefner, and the financial empire of Donald Trump. These high-profile businessmen have managed to keep their companies strong, in part, by involving their children in the administration of their business. But the family that works together does not always keep the business together.

Take the example of U-Haul. The Schoen family turned U-Haul into a small business run from the family garage into a leading nationwide transport service. However, conflicts between the Schoen siblings led the company into Chapter 11 bankruptcy. So what separates successful family businesses from those that flounder and fail?

Succession is a crucial issue. For those family businesses that stumble, the vulnerable period often comes when the older generation turns control over to the younger one. Sibling rivalry can create bitterness and resentment among the major players.

Successful family businesses negotiate the tricky issue of succession by keeping issues of family and business separate. A business owner may be tempted to hand the reins to the oldest sibling because that seems most "fair". However, catering to the vulnerable egos of one's children can be deadly to the continued health of a family business.

In a successful family business, control of the company is handed over to the family member with the greatest desire and aptitude for the job. Rupert Murdoch has chosen his younger son James as successor over his older brother Lachlan, who was once the heir apparent.

Despite the public's romanticized view of the father-son relationship, a smart businessman does not let gender deter him from doing what is best for the company. Hugh Hefner turned Playboy Enterprises over to his daughter Christie, and Sumner Redstone of NewsCorp passed over his son for his daughter Shari when choosing a successor.

Kids should be favored in the home. In a successful family business, however, the CEO's children are subject to the same meritocracy as everyone else.

Children should be actively involved in the business from a relatively early age and given the opportunity to prove themselves. Donald Trump realizes this; that is why his children play such a high-profile role in company operations. Trump's children are subject to being fired, just like everyone else. Under no circumstances should the company business be foisted upon a child who does not want it.

Successful family empires put the business before family pride. It is better to hand the company over to a cousin or in-law than to a son who wishes to pursue a different career.

Tradition vs. Merit in Family Business

An Emiriti entrepreneur (we'll call him Ibrahim) had worked industriously his entire life to provide a valuable business to pass to his sons. Through shrewd trading, adherence to conservative financial management principles and hard work, and aided by an outgoing personality and endless energy, Ibrahim had amassed a network of enterprises that generated many millions of dollars in annual sales. Now in his mid-60's, he faced the challenge of passing the mantel of leadership and the responsibility of ownership of the company to his children.

Two of Ibrahim's nine sons worked in the business with him, each managing a separate company. His eldest son, Salem, ran the smallest of the companies and his second eldest son, Hassan, ran the largest. Salem was a devout Muslim and a mediocre businessman. He was content to run his company so as not to lose anything and to maintain his comfortable lifestyle. Hassan was the opposite, lukewarm in his religious convictions but naturally charming and filled with the fire of commerce.

The traditions of Ibrahim's culture and belief system suggested that he pass the torch of his legacy and leadership to his eldest son. But Ibrahim feared the inertia of Salem's natural complacency would cause him to simply stand still. He would focus his time on merely protecting the torch flame from the gathering winds of competition. Hassan, on the other hand, would carry the torch forward courageously, using his talents and entrepreneurial drive to take the company into new markets, create fresh ideas and earn higher gross margins.

As the sun rose behind me, warming the shoreline air, I remembered why Ibrahim had hired me. He needed someone to help him think through this pending generational transition, identify possible options for dividing responsibility and ownership, analyze those options according to the guiding principles of the family and suggest the best possible solution.

I watched an apparently exhausted sea snake struggle to swim through the constant crash of the small waves near the shoreline and thought of what I would do in his place.

Strategies for Success in Family Business

Families rule the world of business. Their firms make up more than 2 out of 3 companies across the globe and employ over half of the world's industrialized workforce. They produce 65% of the Gross National Product in the United States. Their names are some of the world's most famous brands -- Marriott, Disney, Ford, Nestle, Anheuser Busch, Ferrari, and Levi Strauss.

Family businesses are leaders in their particular industry (think Washington Post, Dell, Johnson & Johnson). When compared to their non-family competitors, they are more than 5% more profitable, achieve higher annual revenue and income growth, provide higher annual shareholder returns and are valued 10% higher by the equities markets. *

Family business leaders are often the best and brightest executives in their industries. They run professional, innovative, aggressive companies that expand the horizons of productivity and efficiency. J. W. Marriott, Jr. for instance, succeeded his father as CEO of the Marriott Company in 1972 when revenues were nearing US $200 million. Today, in the twilight of his career, Bill Jr. leads the US $9 billion, 140,000 employee international company. Under "Junior's" guidance the company grew to 45 times the size of the company his father passed on to him.

Family businesses are also known by many to be a minefield of complex relationships and competing norms. Employee/manager relationships in any company are difficult. Add to the mix a manager who is your father, or aunt, or owner's son, and going to work becomes more complicated. Family norms often run headfirst into the demands of the business. Issues related to fairness between siblings can easily spill over into the workplace, increasing tension and anxiety among employees and family members. The challenge of passing the business to the next generation in a fair and logical manner can cause immense tension and stress.

Based on these challenges then, it is not surprising that 7 out of 10 family businesses fail to make the transition to the second generation. And only 1 of 10 makes it to the third generation. That's a discouraging 60 + % failure rate per generation that leads to a number of perplexing questions.

Why do so few survive the transition from one generation to the next? And when they survive, how is it that family-businesses outperform their non-family competitors? What principles do they follow to help them overcome family business challenges?

Four Principles of Family Business

Based on my research and experience in working with over 55 families from 13 different nations, I believe that adherence to four straightforward and simple principles will benefit any family business system, regardless of its size, industry, generation or location.

Form a Firm Foundation

Forming a firm foundation means answering three questions;

1) What do we believe is important and right?
2) What are our objectives?, and
3) How do we plan to achieve them?

The best organizations make decisions based on what they believe to be important and right. In 1982, seven people in the Chicago area died shortly after taking poisoned Tylenol products. . There remained the possibility that more would perish or be seriously injured if the leaders at Tylenol didn't act fast. Jim Burke, then CEO of Johnson & Johnson who produced the painkiller, made the decision to pull US $150 million of Tylenol from the shelves of drugstores and pharmacies across North America because of a J & J guiding principle that named customers their number one priority.

Family business leaders must identify and prioritize the guiding principles that they want to form the foundation of the family's legacy. Guiding principles are those principles that 1) you want to teach to your children and grandchildren, 2) will be just as important 100 years from now and 3) you would stick to even at your own financial peril. Most importantly, they must be more than just a nice frame and calligraphy. Leaders must create and follow a plan to make them useful to any family member facing an important question. They should provide guidance and inspire excellence in every aspect of life, whether related to the business or not.

Make it a Meritocracy

Seemingly at birth we begin to believe in the "Norm of Equality", which states that our parents should give us gifts, benefits, advantages, opportunities, affection and time in the same allotments as our siblings. The Norm of Equality is deeply ingrained in any sibling, but is completely impossible. No two siblings throughout history have been treated equally, ever. Not even twins. One is born before the other, thereby receiving more time and attention than the second; forever throwing off the balance.

Family business leaders must protect their businesses from inappropriate family intervention by developing a meritocracy; a system that recognizes and rewards achievements rather than birth rights. Whereas equality means treatment based on circumstances, meritocracy means treatment based on results.

If the business is to continue to provide benefits to the quickly expanding family, it must grow and remain profitable. As such, it must hire and keep talented managers and shed family and non-family members alike who are not achieving desired results. So often multi-generation family companies struggle under the weight of a top-heavy organization chart filled with underachieving family members. In an increasingly competitive global economy, no business can afford the risk of burdening itself with the suffocating overhead of fat salaries for inefficient leaders.

Communicate consistently and constantly

Communication in a family business means two things: information sharing and openly discussing important issues. Families are generally terrible in both areas.

Family leaders too often hide important information from other family members, including spouses and children. Some family business leaders withhold financial and business related information associated with estate planning and personal assets because they don't want their children to overestimate their wealth and believe they will never have to work hard. Others, particularly in Latin and Central America, fear that their children could talk too much about their money and thereby put themselves in jeopardy of being kidnapped.

While both are legitimate concerns that warrant careful consideration, secrets and confidentiality breed mistrust in any organization. And high mistrust in a family is a big step towards the edge of the succession planning cliff. Fall off the cliff and find yourself looking down at the jagged rocks of accusation, shareholder conflict, legal disputes and eventual bankruptcy.

Certainly, some information is confidential and should be kept close to the vest, but spouses and children of family business leaders often need information in order to make decisions about their future. Education and career choices, for instance, are often influenced (and rightly so) by the financial situation of the family. "Do I have enough financial security to pursue my dream of teaching disabled children, or do I need to focus on a higher paying career?" is an example.

It is the responsibility of senior family members to identify what information should be shared with children and at what age (I am convinced that children can handle more truth and information than we give them credit for) and then do it! Plan and carry out a one day, quarterly family council meeting that brings the family together to share relevant information and discuss important issues. This will give them the chance to learn about what's going on in the business and allows family members to ask the delicate, potentially combustive questions in a safe and predictable environment. Junior generation members cannot lead this effort because their questions about wealth and succession planning in the family is often misconstrued as greed or impatience.

Put a Process in Place

One of my client families was at an exclusive resort in Thailand the day the tsunami struck. They happened to be there at the same time as a branch of a well-known American business family that had just gone through a terrible, intra-family dispute. As a result of the dispute, some major assets of the family had been sold to pay off a disgruntled shareholder. As my client and a leader of the other family talked about the family business challenge, my client asked the other what would have staved off the crisis. "Some sort of process to get us to work together, communicate better, think through issues together and make decisions together would have kept things together," came his sad reply.

Beginning a process that is designed to protect the well-being of the family, the success of the business and the education of the shareholders group is a logical thing to do. But it's daunting because it means bringing family members together to discuss difficult issues. And the family members who take charge of the process are too easily seen by siblings and cousins and aunts and uncles as having an ulterior motive, though there is rarely any political power associated with starting a coalition to protect the family business. So what's a family to do?

Find and hire someone to help you as a facilitator; someone who is a trusted advisor to the family and is not easily associated with one generation or the other. This person could be an attorney, religious leader, consultant, family friend or distant relative. Explain to them your particular situation and ask them to help you begin a process of understanding future challenges, evaluating options for alleviating them and deciding on a long term plan for guarding and enhancing the family, it's company and the company owners.

Conclusion

In the end, Ibrahim's dilemma was solved to the blessing of the whole family. Together we undertook a process of teaching his children the unique challenges of family business, opening their eyes to the fact that the financial and social benefits they receive from the business are only available to them because it is growing and profitable. We then included them in a family business governance process with the objective of designing a long term plan to protect and enhance what Ibrahim was leaving to them.

Over the course of 9 months we met regularly in workshops, family council meetings and individual work sessions with that goal in mind. And in the end it was not me or Ibrahim who decided that Hassan was his most logical business successor, but Salem, the eldest son, who said "what is best for the business is also best for the family; that I take over as leader of the family and protector of our guiding principles and that Hassan lead the family business, even though he is my younger brother."

Successful family businesses, those that enjoy profitable, growing businesses, educated and committed shareholders and a healthy, balanced family, apply these four time-tested principles. When rightly and correctly integrated into the family and business, they act as a road map, guiding the business and family leaders as they work together to improve the well being of the entire system.