Build a Lasting Legacy

How to hand a family firm to the next generation with its values intact.

October 22 2010 by ChiefExecutive.net


At age 10, Blake Cooper started working in the family business. It took another 27 years before he received his first compliment from his hard-driving dad.

“I heard praise for the first time in 1990,” recalls Cooper, president of Cooper Music in Atlanta. “Only when I became the company’s No. 1 salesman did my father respect me.”

Yet Cooper isn’t bitter. Indeed, he’s grateful that his father and grandfather set high standards and pushed him to excel.

In 1991, Cooper became the firm’s president when his father retired at age 65. As part of the fourth generation of his family to run the 104-year-old music retailer, he says he subsequently thanked his father and grandfather for “making life so hard that it prepared me.”

For many family enterprises, drama and profits go hand-in-hand. Strong personalities clash. Dysfunctional family dynamics undermine the business. And long-simmering and often unspoken resentments fuel communication breakdowns.

Sustainable family businesses, by contrast, articulate and preserve core values across generations. Succession proceeds smoothly because all parties know what’s important, how to conduct themselves and why the business matters. This shared knowledge helps separate the 30 percent of family businesses that survive the transition from founder to the next generation from the 70 percent that do not.

Values That Live On

For Cooper, he developed self-reliance and perseverance from the example set by his forebears. His 83-year-old father still visits the office and “yells at me and tells me what we could’ve done better,” Cooper says with a laugh. But he understands that behind his dad’s punishing criticism lies a voice of strength and support.

Some CEOs of family businesses like to quote their parents, in part to keep their values alive. David Voss, president and chief executive of Miron Construction, a Neenah, Wis.-based firm with $555 million in annual sales and 1,200 employees, often reminds staffers of one of his father’s favorite lines, “Dave, don’t ever forget where you came from.”

“We’ve grown to a size where it can be easy for our people to forget where we came from,” Voss says. “But I want our project managers to know we’re a full-service company that’s here to serve the community, whether it’s a $300 repair or a $100 million job. Both customers are just as important.”

Other family businesses formalize their values to maximize the odds that future generations will share them. At J.M. Smucker Co., for example, Paul Smucker wrote a memo to employees in the early 1980s that summarized lessons he learned from his ancestors who ran the company. Entitled “Our Commitment to Each Other,” the memo captures “the ‘Midwestern nice’ feel of the company,” Fortune reports. All new hires receive the memo, which urges them to listen well, express thanks for a job well done and look for the good in others.

Similarly, a framed sign about teamwork hangs in the front hallway of Agar Supply Co. in Taunton, Mass. Karen Bressler’s father put up the sign in the 1970s. His call for team collaboration remains a visible reminder today.

“He wants us to build the best team we can build,” says Bressler, Agar’s CEO. “Everyone sees that sign. It reinforces the values that he gained from his father [who founded the company].”

The most enduring values remain in place even as business models, strategies and technologies change. Family enterprises tend to communicate their principles through multiple channels so that employees’ attitudes complement the company’s longstanding, cross-generational ethos.

“The values of family firms are more human, more emotional, more fundamental,” writes John L. Ward in Family Values and Value Creation. “The values expressed in value statements of non-family firms are more transactional, more impersonal, more driven by outcomes. I believe this difference is instrumental in the stronger cultures found in family firms.”

Facts & Figures about Family-Owned Businesses
  • Families own their businesses for an average of 78 years.
  • Nearly a quarter of U.S. family firms are in the manufacturing industry, 17 percent in wholesale/distribution, 12 percent in construction and 11 percent in retail.
  • The typical U.S. family business has 50 full-time employees; 6 percent report having 500 or more employees.
  • American family businesses report mean revenues of $36.5 million, up more than 50 percent since 1997.

Source: The Raymond Family Business Institute (www.raymondinstitute.org/facts/family.asp)

A Smooth Succession

To pave the way for a smooth transition from one generation to the next, leaders of enduring family businesses instill certain values in their children. Examples include a commitment to honesty, integrity and hard work.

By modeling ethical decision-making and raising kids to follow the Golden Rule, you help them adopt such behaviors as they mature. If they choose a career in the family business, they’re more likely to grow into fair, judicious, well-regarded managers.

“It’s important to educate children early on about the business and its values,” says Ed Hess, professor of business administration at the University of Virginia Darden School of Business. “Engage them in creating a family code of conduct and rules for hiring a family member. By getting these issues to the surface as soon as you can, you put in place a process of managing the family that’s more important than managing the business.”

Using a written code of conduct to codify the values that shape a family’s approach to each other, as well as to the business, creates a kind of constitution for each generation. Holding an annual family shareholders meeting enables younger members to help set the company’s future direction, adds Hess, author of The Successful Family Business.

“Engage family shareholders in the business so that they know what’s going on,” he says. “And invite spouses of family shareholders as well. Keeping everyone informed and involved makes succession easier.”

Family Business Succession: Two Trends

Family businesses, which account for more than half of GDP, range from small mom-and-pops to about one-third of Fortune 500 companies. Two trends will influence the role of family enterprises over the next decade:

  • Baby Boomers retire. As family business owners from the Baby Boom generation (born 1946-1964) retire, a wave of ownership changes will occur. The Boomers’ children will step into leadership roles as part of a generational handover. The uptick in family transitions will test whether the Baby Boomers did a good job stoking their kids’ interest in running the business and preparing them to serve as effective CEOs.
  • Daughters take over. As more women enter the executive suite, it’s fitting that more family businesses are passed down to daughters. A groundbreaking 2003 survey conducted by MassMutual Financial Group and the Raymond Family Business Institute found that woman-owned family businesses had increased 37% in just five years.
Links and Resources

Websites

1) Family Business Institute provides consulting, white papers and other research on its website (www.familybusinessinstitute.com). It also offers a “Performance Roundtable Program” in which CEOs of family businesses in noncompeting industries meet twice a year to discuss business challenges and review best practices.

2) Fambiz.com offers a free monthly collection of news briefs on family business topics (www.fambiz.com/news.cfm).

3) The IMD Family Business Center provides articles, case studies and other research on family business (www.imd.org/research/centers/lodh/Family-Business-Research.cfm).

4) Family Firm Institute, a membership organization, has gathered instructive resources such as case studies of family businesses from Harvard Business School and other global business schools (www.ffi.org).

5) Family Business Experts compiles an exhaustive body of knowledge about virtually every aspect of family business (www.family-business-experts.com).

Books

1) Family Business Succession by Craig Aronoff, Stephen McClure & John Ward (Business Owner Resources, 2003) is a 74-page book in its second edition. It focuses on practical steps to plan and manage succession from generation to generation.2) 9 Elements of Family Business Success by Allen Fishman (McGraw-Hill, 2008) is a 304-page book that addresses daily operational challenges that family businesses face and proposes solutions.

Morey Stettner is the editor of Managing People at Work and the author of five business books, including Skills for New Managers (McGraw-Hill). Based in Portsmouth, N.H., he coaches executives on their communication skills.