Editorial By Dennis T. Jaffe, PhD.
Family enterprises form the majority of businesses large and small in every country in the world, but relatively few are able to sustain multigenerational success. Those that do, however, evolving to meet the challenges they face while holding on to the narratives that tie them together, share some common features – practices and policies that have helped them navigate the last century and more.
Through our multi-year project interviewing centenarian family enterprises around the globe, we’ve gained insight into the mechanisms that sustain them. Even if these features are constantly evolving and expressed in a variety of ways, these families have all defined their values and purpose, innovated across generations, expressed their social vision in philanthropy and sustainable initiatives, created family learning activities and a family council and passed their values, capabilities and commitment to the next generation.
We call the 100-year families interviewed “generative” because they continue to create further wealth, both financial and non-financial, over generations. The seven key features of their success are:
1. Build a Great Family Tribe
After creating great wealth, the family made a decision to invest in building a “great family” to use their wealth to develop capability and responsible behaviour in succeeding generations. They can be seen as tribes, or clans, with members dispersing but sharing common values and purpose as business and financial partners. Their definition of family is inclusive and expansive and often extends to include their employees, key advisors and even their home community.
2. Culture Change to Transparency and Collaboration
The family originates with a paternalistic orientation, taking care of family members, but by the second or third generation, the culture shifts to become more transparent, open and collaborative. This entails having clear policies, practices and organisation to set goals, define leadership, make decisions and hold people accountable. The family culture shifts from family to business first, a more professional orientation to business and investment and also toward transparency and collaboration.
These families are continually changing and adapting as their internal and external circumstances change. They evolve from a single legacy business, often to sell it and become a family office including multiple assets and a foundation.
New generations turn attention to implementing the family’s values and its social commitment. It links its values to its business and investment practices and becomes involved in philanthropic ventures. These build the identity and commitment of the family to remain together.
5. Family and Business Governance
They separate family from business affairs. They organise and make decisions about family activities such as shared education, family gatherings, use of family assets and special places, celebrating their legacy and getting to know each other deeply. There is consensus that families should form family councils and boards with independent members, family constitutions and that highly specific trust ownership are all best practices for families.
The development of family governance is parallel and interconnected with their business governance. It engages new family leaders and adds to the shared “capital” of the family.
6. Generative Stakeholder Alliance
Three groups of stakeholders are essential to resiliency:
- Elders: hold the legacy, wisdom and core values.
- Advisors: professionals who help the family develop business discipline and professionalism.
- Rising Generation: young people who are the future, with their own values and global experience.
The successful generative family enables each group to have a voice and develop structures and processes where all these voices are balanced, something that we call the “generative alliance”.
7. Develop the Rising Generation
The family invests in teaching, guiding and engaging members of their rising generations, seeking to recruit the most talented to roles within the family enterprise. They train them to become stewards and add value to the enterprise.
This article is based on Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises (Wiley, Feb. 26, 2020). The book presents the findings of a multiyear project of interviews with 100 business families around the globe that have succeeded for 100 years or more.
The families see their values as the key to their success, but each generation has to put the values into action by creating governance, communication and family education and development. Their stories help advisors and families make choices in their first and second-generation that can set them on a long-term path to success.
Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises can be found here.
Dr Jaffe, a San Francisco-based advisor to families about family business, governance, wealth and philanthropy, is a Senior Research Fellow at BanyanGlobal Family Business Advisors and the author of Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises as well as several other titles in the family business field.