Key Ideas for Family Businesses & Their
Brought to You by Jane Hilburt-Davis & Key
At the beginning of this brand new year, Key Ideas bring good news
about family businesses. This issue will explore some of the factors
that give family businesses the edge over their non-family competitors.
In this issue
Managing Conflict Creatively in Family Business
Did you know what two abilities have the most
to do with longevity and success in family owned businesses? Well,
if you guessed strategic planning and conflict management then, you're
correct. In the last issue of Key Ideas, we discussed strategic planning
in family businesses. Now, we take a close look at the issue of conflict
management in family business.
What's So Important about Having a Conflict Management Process?
You've probably heard the saying "the bone is strongest where
the break heals" (that is actually medically true!). The same
applies to relationships, and this may, if fact, give family firms
a competitive edge...
the Full Article >
Centuries of Success: Lessons from the World's Most Enduring
by William O'Hara. (Published by Adams Media,
Avon, MA 2004)
In this remarkable book, the author shares his experiences traveling
the globe in search of the world's oldest family businesses. If
the odds are that only 12% of the family businesses will make it
to the third generation, what must it take for one to survive say
since its beginning in 578, such as Kongo Gumi, a temple restoration
company in Japan? With each chapter, the author introduces us to
one of the twenty companies that he discusses, covering such topics
as "meeting the new leader", the history of leadership,
industry timeline, passing the torch, looking to the future, and
the next generation.
Centuries of Success is beautifully written and wonderfully
researched. As I read about these businesses, I felt as if the author
had invited me along on his travels to meet the families who own
them. I felt as if I was walking through the countryside of Northern
Ireland to visit William Clark & Sons, one of Ireland's last
linen manufacturers, or touring Norwell, just south of Boston to
visit the Avedis Zildjian Company, the oldest in the US, a manufacturer
of cymbals. But this is not just a description of the companies
it is also a thoughtful exploration of what makes them survivors.
Calling on his experiences as an arbitrator for the American Arbitration
Association, his term as president of Bryant College, and having
established the Institute for Family Enterprise at Bryant in 1991,
O'Hara presents a multidimensional look at these history-rich families
and their businesses.
What are his conclusions? What can we learn from his research,
interviews, and experiences? O'Hara concludes with a core group
of eleven attributes associated with old family businesses, although
not all families in the book share all eleven. Furthermore, the
author concludes that 'family unity' and 'a commitment to continue
the legacy' are the bedrocks of survival. He puts these in context
in the last chapter as he compares them to the findings of the 2002
MassMutual/Raymond Institute American Family Business Survey.
He also describes the exceptions he finds and concludes: "It's
been a unique opportunity to chronicle and recognize twenty extraordinary
family businesses and their astonishing records of endurance."
Thanks, Dr. O'Hara for looking at the strengths of these long surviving
Family, Inc. Surprise!
Week reports on the success of family business, 11/10/2003
Surprise! One Third of the S&P 50 companies have founding families
involved in the management. And those are usually the best performers,
according to "Family, Inc.", a special report from Business
Week November 10, 2003 (100-114).
Expanding on a study in the June issue of the Journal of Finance,
which found that the performance of family companies in the S&P
far outstripped that of non-family companies. "Family, Inc."summarizes
their findings (those in which the founders or their families maintain
a presence in senior management, on the board, or as significant
- Annual shareholder return averaged 15.6% in family firms compared
with 11.2% for nonfamily companies.
- Return on assets averaged 5.4% per year for the family group
vs. 4.1% for non-family companies.
- Family firms "trumped the others on annual revenue growth,
23.4% to 10.8%, and income growth, 21.1% to 12.6%"!
So what gives family businesses the edge? "In part, it's having
managers with a passion for the enterprise that goes far beyond
that of any hired executives, no matter how much they are paid.
That's especially true for the more than 100 companies in our ranking
that still have a founder on the scene
" Even though family
influence can sometimes work against success, as in the case of
Rite Aid, in which Marin Grass former CEO and son of the founder,
who pleaded guilty to conspiracy to commit accounting fraud, having
tight-knit family leaders at the top that can make faster, easier
decisions, motivation provided by legacy, loyalty, 'in for the long
haul', and a collective desire of family members to maintain unity
and preserve their wealth, to get through the bad times.
Five Key Factors That Give Family Businesses
1. Born to lead -
With Cintas and Comcast as examples, Business Week authors challenge
the adage that you should work out side the company first: "Work
at a company from your teenage years, or before, and you're bound
to gain a sense of it that outsiders simply can't match. Combine
those years of experience with oft-repeated advice from an elder,
throw in the responsibility for one's family fortune and a drive
to surpass an elder's accomplishments and you get a potent resume
for a CEO."
2. Quick decisions -
Family businesses, when "run by a few tight-knit family members,
can almost always move far faster than corporate bureaucracies."
Mark Mays and his father, L.Lowry Mays, of Clear Channel Communications,
were able to put together a $23.5 billion deal in little more than
five days. "Once we had the ability to move, we moved like
lightening." (The criticism of Clear Channel for homogenizing
the airwaves, not withstanding, they are the third-fastest profit
growth company of all the family companies in the study.)
3. Breeding loyalty -
Family companies often demand a lot of their employees but often
give a lot back. At several of the larger family companies that
I work with, I often hear from the employees, "This is like
a big family." J.Willard Marriott who founded the international
hotel chain urged his managers to "find, hire, and train good
employees and treat them like your family." This attitude exists
4. Investing in growth -
Family businesses tend to reinvest more heavily in their companies,
to build and preserve the wealth, whether it's "geographic
expansion, R&D or conquering new markets, founder or family
companies such as Gap, Microsoft, and DuPont are not shy about stoking
the growth furnace with cash." The Waltons of Wal-Mart take
the role of 'patient capital', for as board member John Walton says,
"We view it really more as a trust, or as a legacy we're responsible
for, rather than something we own."
5. No absentee landlords -
"By current governance standards, which emphasize independent
directors and watchdog boards, there is no shortage of 'bad boards'
among family companies." However, as the article points out,
the very characteristics that give family boards low marks may give
them their competitive edge. "Large personal stakes and financial
stakes in the company's future give family directors something many
independent directors lack: a powerful incentive to hold management
accountable-and the clout with which to do so
see family boards as incestuous, other see owners deeply committed
by blood and money to the company's welfare." By maintaining
a huge personal and financial stake in the company, the controlling
families have every incentive to the long-term health of the company
and, the authors conclude, "that extra sense of commitment
is something that stock options and eight figure salaries just can't
full Report at Business Week Online >
Ethics Courses at Business Schools!
"Art, like morality, consists of drawing the line somewhere".
- G.K Chesterton
Harvard Raises its Hand on Ethics
1st year MBA students must take a new course at the Harvard Business
School which is now offering an interdisciplinary course called
"Leadership and Corporate Accountability" taught by 10
faculty members and will include case studies of Enron Corp and
WorldCom Inc. Other business schools such as MIT Sloan School of
Management and the Tuck School of Business at Dartmouth are similarly
rethinking how they teach ethics in the post-Enron era and the 'ethically
challenged' business school graduates such as Andrew Fastow (MBA
Northwestern University) of Enron and Marin Grass (MBA Cornell)
of Rite Aid. Within the context of teaching ethics, the schools
must address CEO pay, business school culture and overall reform.
To read more about this, see Boston Globe, 12/30/03.
That's all for this edition of Key Ideas. As always, feel free
us with feedback, questions or comments.
Until next time,
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