Family-owned businesses are economic powerhouses. They employ 53 percent of the workforce, represent one-third of all companies in the S&P 500 index and account for half of the U.S. Gross National Product. A list of the largest family-owned or -controlled businesses in the U.S. includes Wal-Mart, Ford, Cargill, Koch Industries, Carlson Companies and Comcast Corp.
According to McKinsey research, to be successful, a family-owned business must meet two challenges: achieving strong business performance and keeping the family committed to and capable of carrying on as the owner. The average lifespan of a family-owned business is 24 years and approximately 40 percent of family-owned businesses turn into second-generation businesses, while only 13 percent pass down to a third generation.
Naturally, family-owned businesses face the complexity of challenges that happens when family dynamics and business issues collide. How people communicate within a family may not be appropriate in the business context. Personal differences and/or rivalries may undermine professional etiquette and undermine the advancement of important strategic goals.
Family members must understand that their rights and responsibilities are different at home and at work; at work, the best interest of the business takes precedence.
Successful multi-generational family-owned businesses create a strong sense of purpose and master the challenges of compartmentalizing personal and professional relationships. They keep the lines of communication open, and provide sufficient capital for growth without relinquishing business ownership.
An informal survey of family businesses in Milwaukee and Madison revealed that communication, leadership succession and attracting talent were top priorities. Let’s take a deeper look at each of these.
Communication
In a family business, it is essential that performance expectations be clearly defined and communicated, and feedback be provided in the same manner that it would be delivered to any employee. Rules of engagement need to be clear and fiercely enforced. Violations without accountability, by default, reinforce the behavior.
If a conflict between family members arises, leadership must intervene and make decisions that protect the company’s best interests. It must be made clear to all family members that personal disagreements will not be allowed to interfere with work priorities.
Succession
The key to avoiding conflicts about who will take over a business is having a well-defined succession plan in place. An estimated 40.3 percent of family business owners expect to retire in five years, creating a significant transition of ownership in the U.S. Less than half of those have selected a successor.
It’s interesting to note that 24 percent of family businesses are led by a female CEO or president compared to 4.8 percent in Fortune 500 companies, and another 31.3 percent of family businesses indicate that the next successor is a female. Nearly 60 percent of all family-owned businesses have women in top management team positions.
The growing concern, however, is that the next generation isn’t as interested in the family business as previous generations.
If the founder of a firm intends to keep the business in the family’s hands, he needs to be proactive in how he attracts future generations. Exposing family members to all aspects of the business and giving family members outlets to explore their ideas, interests, and concerns helps promote interest.
Talent
Every business needs a good mix of people in order to grow. Non-family employees can offer valuable input because they have an ability to view the business from an objective perspective. Family members can feel pressured to hire relatives or close friends, but they may lack the talent or skill that the business requires. Adopting a strict policy of hiring only people who possess the right competencies will avoid such problems – but only if the policy is applied without exception.
A young Madison family business leader said, “There’s something compelling, a responsibility that you feel in your bones, when your name is on the outside of the building. Every decision you make takes into account the possible and probable consequences that might result. It’s not always easy doing the right thing for the business when your relatives want what’s in their best interests. For us, who we hire is as critical as how we go to market.”
A strategic resource
The Family Business Center at the University of Wisconsin-Madison is a membership community of learning.
“The Family Business Center puts on educational programs from experts in various fields, including succession planning, estate planning, communication, board development, strategic planning, wealth management, compensation, etc.,” said Executive Director Deb Houden. “In addition, the center offers confidential peer affinity groups, such as the CEO group, two Future Leaders Affinity Groups, and a Key Non-Family Manager group. Last year we kicked off the Next Generation Leadership Bootcamp, where Next Gen-ers can do a deep dive into areas that they normally would not (explore).
“The center is an opportunity for members to learn with each other, and from each other, in a non-solicitous, safe environment,” Houden said. “We want families to experience it together. We have one family who the parents and the kids come to every meeting. They have a shared vision of how they want to work together (and) they have appropriate boundaries, while maintaining strong family relations. They recently went through some challenges when the patriarch fell ill, and the kids really stepped up. They looked to other center members for support and help, and they graciously stepped up. It really was a wonderful testament to the community that exists.”
Every business is unique and complex in its own way; issues can become even more complex, however, in a family-owned business when the three levels of interests collide – family issues, business issues, and ownership issues. Having a strong network of people who share similar experiences can help family business leaders make smart and informed decisions – that’s the inherent value of what the UW-Madison Family Business Center offers.
Christine McMahon is a business strategist who offers sales and leadership training/coaching and is a co-founder of the Leadership Institutes at Waukesha County Technical College’s Center for Business Performance Solutions. She can be reached at (414) 290-3344 or by email at: ccm@christinemcmahon.com.
