Best Practices of Successful Family Businesses

The Power of Family Business

According to research conducted by John L. Ward, Co-Director of the Center for Family Enterprises and Clinical Professor Kellogg School of Management, who analyzed 80 publicly-listed, family controlled companies out of 1,000 largest publicly traded companies in the world, family controlled companies outperformed the other 920 companies by a 30-35 percent return on investment, truly superior performance.

Family business power also can be measured in other ways. For example, family businesses dominate the annual “Best Places to Work in America” list compiled by Working Mother magazine. In 2006, 28 percent of the companies on the list are family-controlled companies; and 26 percent are founder-controlled, which means that more than half of the companies that made the list are owned or controlled by families.

Every company has its unique personality and issues and not all best practices work for all companies, but this article provides insights into some of the practices that may work for your family business.

Professionalize the Board of Directors

According to a recent poll conducted among family business owners and family members by the Kellogg Center for Family Enterprise, 26% of family businesses do not have any independent, outside directors on their major board. Does a family business need the perspective of outside board members? It depends. Generally speaking, having a strong board with unaffiliated members can help company performance.

An independent board brings skill sets and knowledge from other related industries to bear on company issues. An independent board can free up a CEO to focus on running his or her business, provide oversight on compensation, strategic planning, and audit and financial issues, and help with management succession and board succession issues. Good boards provide considerable support and assistance to the CEO without being adversarial, although board members may also provide an objective reality check on family assumptions.

It’s important to choose the right board members---whether family or independent. Consider identifying a set of qualifications which encompass work experience, education, and qualitative characteristics. New board members need to be able to work successfully with the existing board and management, but feel comfortable expressing themselves independently. A candidate with the right skill set on paper may not have the personality to work will on the board of a family company.

Family Meetings and Family Councils

A family meeting is an opportunity for the youngest members of the family to hear about the importance of the family’s company in an environment that is warm and loving, generally with family around.

A family council is an excellent structure to help families accomplish a number of things that need to be addressed within a more formal structure. It can enhance the communication from the company to the family and from the family to the company and provide a forum for family members who are not involved the family business to express and debate their views, offer ideas and raise issues which should be addressed the company. Within a safe and fair environment with reasonable structures and processes, family members can discuss concerns without being adversarial. In a sense, a family council is a moving, living organism which may be vested with certain rights such as the power to nominate candidates for family-member director positions, or identify charitable undertakings for the company. A council also may be employed in developing and educating the next generation of owners, or to set standards for treatment of employees, involvement in communities, and creating and refining family mission statements and value statements.

Family Values Statement is Key

The mission or value statement of a family, whether it has been expressed or written, is a key notion. The value statement or mission statement can seek to guide company decisions and help resolved though issues among future generations of family business owners.

The following is an example of how powerful a value statement is to a family-run business.

A family firm we work with was formalizing its policy for employment of family members. First, they laid out the standard requirements: education, skill-set, work experience and so forth. In this case, they were seeking candidates with a couple of years of related work experience outside of the family business before being hired. In addition, the family was creating a leadership program for its strongest family members. And again they were trying to identify the skills and qualities necessary to make someone eligible for this particular program. As they were gathering all of this fairly objective information, the question came up as to whether or not include family member spouses. They struggled with the answer, but ultimately returned for guidance to the value statement that had been created by the founders of the company. The company’s written values stated that descendents and their spouses would have absolute equal opportunity to work and hold leadership positions in the company. In this case, family members were able to go back five generations to make a decision consistent with the family’s values, which would lead them into the future.