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Succeeding Against All Odds

Lessons learned from 100-year business families

By Dennis T. Jaffe

Very few family businesses survive across generations to become 100-year family enterprises. I’m involved in an ongoing research project that’s gathering the collective wisdom of inter-generational families who’ve sustained shared family values and identity, along with partnership over successful business and financial ventures over three or more generations. (We refer to them as “generative families.”)1 We asked family leaders to look back at their evolution and tell us what they’d done to succeed across generations. We’ve interviewed family leaders from 70 families2 who created strong, coherent, united and vital families over several generations, despite facing complex internal and external challenges. What enabled them to succeed against such odds? Their wisdom can guide the creators of new wealth to build their own families for the future. Seventy percent of our respondents come from the United States; the others span four continents. Almost all have family net worth in excess of $200 million, with a median of $700 million. More than two-thirds traced their family enterprise history over 100 years. About half of them still own their legacy family business, many of which have grown to be public companies. Most have diversified into a family office with various shared assets. All of them have sustained a sense of family identity and vital business and financial success over at least three generations.

Generative Families

What differentiates these families? The 100-year family isn’t a bystander to its wealth. After the first generation success, our 100-year families decided to use their material success to create a second successful entity: a connected family with shared values that’s dedicated to making the highest and best use of the special resources and opportunities that they’ve been given. They invest in a conscious family, a group of individuals who are personally tied to each other through a legacy and a commitment to becoming stewards for their own and future generations.

Evolving Across Generations

Viewing the cross-generational development of a family enterprise, the family increasingly differentiates itself from its family enterprise, while maintaining deep linkages and interconnection. They achieve this using several cultural practices and qualities they develop over time. Over generations, we noticed an increasing focus on professionalism, transparency, collaboration and a family united by shared values and purpose. As the family increases in numbers and complexity of assets, each generation recommits to the united family, and elaborates on the practices that develop these practices. Each of the first three generations face common challenges set by biology and business evolution. The resolution of each generation’s challenges sets the family up to face new challenges in the future. The first generation (G1) usually features an entrepreneur whose vision succeeds beyond his wildest imagination. His children grow up viewing his achievement with huge expectations that they continue. They must learn to manage their fruits of their good fortune, work as a team and develop values of stewardship and responsibility. While there may not be a single moment in which the family decides, “We are going to create a great family,” at some point in the second or third generation members see the need to develop policies and structures and engage each other in the work of developing a family organization. They invest in the development of family connection, unity and capability. Doing so involves several tasks. They must set the family business, or businesses, on a professional footing, sometimes by limiting the opportunities for family members to be involved. At the same time, they unify and develop the family, with regular family activities, philanthropy commitments and next generation education. If they’re to enter a fourth generation (G4), the family must actively renew its vision and commitment with each new generation of family members, while still developing a highly professional and sometimes public company. Many families sell their legacy business and create a family office and investment group, which demands a substantial shift of focus, skills and activity. These post-G4 families also initiate shared educational and philanthropic activities often including 100 or more family members.

Family Councils and Constitutions

A generative family isn’t just a bunch of cousins who like each other; they’re the stewards of an extensive portfolio of assets. Each generation includes more people with diverging interests who must decide not just who’ll be the leader, but also what sort of engagement they want with each other. A tight partnership or a loose coalition? Cousins have to get to know each other, and they all have to decide what they want from their assets and how to manage them. In the second generation (G2) or third generation (G3), the family builds an organization, representing all family members who choose to work together. They develop a representative group—a family council—and maybe other task forces or work groups, to organize their activities. They also define shared values and policies that govern the council, family get-togethers, employment, compensation, distribution and sale and exit. All of these must be agreed on and administered; they just can’t be imposed by the prior generation. These policies are often codified into a document called a “family constitution,” which brings together and expands on the legal, trust and shareholders’ agreements for all of the family ventures. Our interviews illuminate how these developing practices lead to an increasingly well-defined, explicit and complex family and business organization over generations. A family begins to build these in the second generation. As the family grows in numbers and the enterprise grows in complexity, each generation creates more highly developed organizations. We found that successful families discovered a way to have each new generation renew the family commitment to shared ventures. Each succeeding generation—having more people and greater complexity—develops higher levels of organization and focus to survive. “Governance Policies and Practices,” p. x, shows the progressive development of family and enterprise governance activities as a family reaches each generational milestone. The number of families that use each of these practices evenly increases over generations, until, by G4, nearly every family uses every practice.

Board Development

From its origins as a single family business, the family business may grow or diversify to include many assets. While in G1, the boundary between family and business was loosely defined, with more family members and growing businesses, the family decides that if the business is to support the family, it must be run professionally and be accountable to the family owners. Each family enterprise reaches a point—often by G3—at which they have to take steps to protect and insulate the business from the family. This often takes the form of development of a board of directors with independent non-family directors, appointed by the family shareholders. The family develops agreements about the board, family employment, diversifying and sale of assets, leadership succession and other business activities that have to be somewhat independent of the family, even if the family has a role in them. Family members who work in the business or serve on the board must be accountable to the family by developing skills as professionals who are capable of their business roles. The business is the engine that supplied the family with energy for other ventures.

Human Capital Development

Each new generation of family members grows up with expectations of what the family enterprise will offer them. This is entitlement. The generative family understands that accompanying the benefits they receive, they also must develop an ethic that next generation family members must be responsible, earn a living and develop their own capabilities. The generative family allocates resources for next generation education and development. They’re encouraged to find ways to support themselves in their lives, even as they have trust funds and income from the family. Each generative family has developed an education, support and personal development program for their next generation, and these programs are one very special feature of these families. The family becomes an educational community, where each year, new generation family members get to know each other by participating together in seminars, workshops and fun learning activities. They also learn about the family and the service opportunities that will be available to them. One of the more important features of generative families is the learning activities that bring the dispersed members of new generations into contact with their shared heritage and teaches them about the opportunities that they can take advantage of.

Family Philanthropy

Generative families have more than they need to thrive. Some next generation family members grow up feeling a bit uncomfortable with how much they’ll inherit and have as a family. They learn about the inequality of wealth in the world and the great needs that exist, and want to use some of the family’s wealth to make a difference. Each generative family has begun to look at shared philanthropy as another means to sustain family connection and as a proper activity for the next generations. Opportunities to participate in service activities, such as global missions and service projects as they’re growing up and learning about projects the family has supported, lead some family members to become involved in family philanthropy and foundations. It seems impossible for a generative family to look at what they have and not decide that they can and want to make a difference in the world. Each family has a special path for their family values and legacy as they serve a broader community. Often, this commitment begins in their family business, where they feel a special bond to their long-time employees and the community in which they work and live.

Qualities of the Generative Family

In hearing the stories of each generative family, we saw that each generation offers a new scenario in the family and business environment. Some challenges can be anticipated, and the family and the business can prepare by creating structures and policies designed to fit the emerging realities. Either in response to a financial and family succession crisis, or (less frequently) by the foresight of the leaders of the previous generation, our generative families embody the following qualities in the way that they engage the family together:

Values core: A family business begins with a strong sense of mission and values, at least as a business. To continue into the next generation, the heirs need to affirm, and even develop, their values and commitment to them. To attract succeeding generations to remain part of the enterprise, each generation must renew their values and mission to make being part of the effort meaningful to the emerging generation.

Resiliency: The generative family and family enterprise are characterized by being adaptable and resilient. No family can avoid tragedy, and no business can avoid crisis. The successful 100-year family is able to respond constructively to each of the several crises that come their way. Resiliency is a quality that’s been much explored in relation to individuals, families and businesses. The resiliency and adaptability of the families we met seemed to connect to three qualities that were almost universal. While we don’t know for sure, we believe that while these qualities were common in our group, they’re much rarer and less common in the family enterprises that are less successful and long-lived.

Transparency: G1 has one founder who’s not accustomed to sharing information, ideas or control. When a family reaches G2 or G3, however, the siblings or cousins who consider the future need to get up to speed on the key information about the business and the financial agreements. This means that trust documents, business plans and financials must be shared, understood and discussed by more family members. Some family members need education about what they mean and what their role is in relation to them. But, information about family enterprise becomes freely available inside the community of the family.

Cross generational engagement and collaboration: Siblings learn to fight and argue before they learn to cooperate. Some siblings never learn this lesson. As a family enterprise enters G3, cousins and married-in family members make differences more likely than common ground among family relationships. With scores of relatives, family bonds may not be intimate, but in the families that were adaptable, a shared sense of purpose and commitment to work together in a cooperative and respectful manner had to emerge. Sometimes conflict led branches or individual family members to leave the family enterprise, but each family had to develop an ethic of basic trust, respect and cooperation to enable them to make difficult decisions.

Opportunity: The family innovates in ways that offer new opportunities for family members to contribute to the family, not only as business and financial leaders, but also as entrepreneurs supported by the family, as social innovators or philanthropists and in serving the family as a community.

A Positive Narrative

It’s hard to listen to the stories of these 70 families and not feel admiration and respect for what they’ve done. In a time when there’s much concern about the concentration of wealth in the hands of “the 1 percent,” a study such as this that looks at how these families are making use of their wealth is an important addition to the dialogue. While this study shouldn’t be taken as an apologia for wealth concentration, it does offer a positive narrative. The successful 100-year family isn’t necessarily a selfish group of consumers of excessive luxury goods, but can also be a socially responsible entity, using its vast resources in a responsible way to make a difference in the world. When we compare the activities of a family enterprise with the activities of a public corporation, we see that the special nature of a family that shares not just resources but also a values-based connection with each other, can be of great benefit as we face a harrowing set of global challenges in the next generation.

Endnotes

1. This research was developed by Wise Counsel Research and is published as a series of working papers, all of which are available from Amazon in print and electronic versions. The working papers published so far include “Releasing the Potential of the Rising Generation” and “Good Fortune: Building a Hundred Year Family Enterprise.”

2. The interviews were conducted by a dedicated team consisting of Joshua Nacht, Peter Begalla, Jane Flanagan, Keith Whitaker, Susan Massenzio, Michael O’Neil, Charlotte Lamp, Emily Bouchard, Jamie Trager-Muney and Isabelle Lescent-Giles