Everywhere in the world there are family businesses. When we enter a restaurant and see parents cooking and serving and their children doing homework, when we buy clothing or cars, when we visit a resort or convenience store, we are frequently interacting with a family business. Seeing the family there, personally responsible, causes us to hold the family in special esteem, as the family commitment and visibility seem to guarantee quality and care. Families lie behind our food supply, manufactured goods, as well as service companies.
Many became huge global enterprises while others are tiny but sustainable, with several family members helping out to earn a livelihood. We look with admiration and a touch of envy at the success of long-lasting families that parlay business and financial success into a glittering life of privilege, status, and power. But we also read about families diminished by dysfunction or by displaying and using their wealth to no discernible purpose. We are sad for these families, but maybe we also experience a bit of schadenfreude about their misfortune. How did they begin with so much and end up with so little? Despite the existence of some troubled families, many of the best families sustain themselves as families over multiple generations and raise successful children who both enjoy their wealth and pursue philanthropic and socially responsible ventures. These families appear to be both blessed and good. We wonder that makes some families great and others dissolve into dysfunction.
When it comes to global commerce, the impact of family enterprise is inestimable. Networks of business families, many of them having grown over several generations, form the economic, social, and political infrastructure of every nation. While there are different ways of defining such enterprises, estimates in every country are that a majority of businesses, and of the economy, are family-based. In developing countries, a majority of the large businesses are owned by families. As I will show, these businesses are based on more than economic return. While some are self-centered, even corrupt, a theme of social values and responsibility echoes throughout many global business families. They want to see their businesses as contributing to the well-being of their community and nation.
All over the world, uncountable families create successful businesses that they want to see continue and benefit their successors. But few are able to sustain themselves even into their second generation with the same level of wealth and success. If such success is a marathon, how do these most successful long-term families prepare themselves for the rigors they will face? Many of these families learn from the envy and admiration of their communities; they strive to live up to their reputations. They also want to learn from successful families, how to express their values and succeed across generations. Professional advisors also want to know what these families do so that they can guide their client families along this path.
Every culture has a proverb akin to âshirtsleeves to shirtsleeves in three generations.â Why is this observation so universal? Is family wealth really so ephemeral? While probably not meaning that third-generation families enter poverty, it does suggest that sustaining shared family wealth after the third generation is immensely improbable and difficult. While every new family of wealth would like to outlast this prophecy, only a few succeed. If they do, they enter largely uncharted waters.
Many wise voices propose paths these families can choose in order to avoid this fate. This study adds a new perspective. It recounts in their own words the practices and stories of more than one hundred large, global families that have successfully transitioned significant businesses or financial wealth through at least three generations over a century or more. They have lived what others have wished for or talked about. Theirs are the stories of those families that recognize the âshirtsleevesâ possibility and respond ânot yet.â
What Is a Family Enterprise?
It's easy to spot family businesses but harder to define what they are. In smaller family businesses, family members work together across generations as owners and operators. How do they pass skills and sensitivity to each new generation so that the inheritors can grow and sustain themselves? When families get larger, not all family members can work in the business. Over time, many family businesses turn operations over to nonfamily leaders. But the extended family, whose members have a familial relationship with one another, remain majority owners and actively engaged in the enterprise.
- The first defining quality of a family business is that they are a business where the majority owners share a personal relationship, which usually includes shared values and nonfinancial goals that are as important as making a profit. This bond among the owners makes family business very different than a public corporation where there is no personal link among shareholders.
- A second defining quality of family business is that young family members who are not yet owners are preparing to become owners. Because of their future ownership, they feel some connection to the business, which must be taken into account. The current owners are concerned about their future and take active steps to prepare the future owners for their stewardship. Owners are concerned not with today but with the future; their self-interest is to pass a âgiftâ to their children, and prepare them to receive it.
Over time a family may sell its initial legacy business and then choose to remain together to become a financial family entity. Or it may acquire and share ownership of multiple businesses. It may add property and a philanthropic foundation out of profits. Thus, a family with a single family business may evolve into what I call a family enterprise, containing a portfolio of jointly owned assets. In this book, I look not just at family businesses but at the multiple family-owned ventures that evolve from a single family household owning a single business to shared ownership of a growing, diversified, expanding extended family enterprise.
My focus is on the extended family moving across generations. Along its journey, such a family may come to own multiple family assets, including:
- Privately held companies
- Public companies with the family remaining in control
- New ventures started by family members or new businesses bought by the family
- A holding company for multiple family enterprises and assets
- A family office to manage and coordinate family assets and activities
- Trusts that own assets for beneficiaries
- A family foundation for charitable and philanthropic endeavors
These asset types often overlap. For example, a privately held family business might include a few nonfamily owners or investors. Stock in a public company may be held by a family trust or a family holding company. The family might own several business entities, each with their own boards but with family owners making the major decisions.
A family enterprise is characterized by shared, collective leadership by a related family that wants to continue into the next generation. Along with its ownership, the family exercises discretion and control over the use and development of a variety of assets.
Family enterprises form the majority of businesses large and small in every country in the world. Since they involve related family members, they need to be understood as more than just businesses in isolation but as an expression of the intention, identity, and legacy of the families that own and operate them. They are disciplined businesses, and they are also families that care about each other. What is the nature of this complex hybrid?
The impact of the enterprise on the family can be positive or negative. The family enterprise can offer a lifetime livelihood for generations or can be fought over and cause permanent family rifts. The family enterprise can be an icon of high quality and offer employment and status to villages and nations, but the enterprise can also exploit people and destroy the environment. A family enterprise doesn't run on its own forever; it needs regular rebuilding and renewing. By their action or inaction, next-generation family members can add significantly to the family enterprise's success or destroy it.
Successful family enterprises are incredible engines for generating wealth and expressing the owning family's values about people, business, and the community. These values are the basis for the quality of their goods and services, for their relationships with employees, other businesses, and the entire community, and for their philanthropic work.
But only a small fraction of the families that create businesses sustain them for more than a single generation. The few surviving enterprises are h...