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Turning your family’s evolution from a threat to a resource

By Dennis T. Jaffe

Change is never easy for a family business, but it can be healthy.

A family business faces relentless change from two directions. The outside business environment exerts continual pressure for innovation. But the business must also contend with how the family itself is changing — births, deaths and marriages, increasing members of each new generation with diverging values and desires. Family businesses too often turn their attention inward, to internal family issues that demand their attention, taking them away from the needed focus on their business’s future. But to succeed, the business family must attend to both internal changes and external business development. This is a tall order as many families are not able to be multi-directional.

But rather than viewing the business family’s evolution as an obstacle, these changes can become a resource. Yes, the emerging family owners can stymie a family and make it difficult to agree on a path forward; but they can also be a source of new energy, capabilities and ideas that can add to and strengthen the family’s shared business ventures. Working together, the family enterprise can be more than just the sum of its parts.

Several major internal changes effect almost every business family today. If they do not respond directly, the family will be hampered by conflict and unable to turn its attention outward to face the deep changes necessary to sustain their business. Each family shift offers a new opportunity. If the family unlocks that hidden capability, they can build upon the strengths of their shared family resources, trust and commitment to build effective and resilient businesses.

Let’s look at some common challenges and explore how they can be transformed into opportunities.

Example Challenge 1: Evolution from a single family to a “tribe” of related families overseeing multiple, diversified family enterprises.

Opportunity: To sustain a shared sense of purpose as a family rather than fragment into smaller parts and going different ways.

The meaning of being a family changes across generations, as does the nature of its “business.” The business family is no longer a single unified family; the second generation evolves into a set of family branches with an increasing number of households. Despite those different households, family members are tied together by business ownership, trusts and shared assets where they must cooperate. The extended family can now more properly be called a “tribe” of related families.

After creating a successful legacy business, the family either harvests some of its wealth or sells the legacy business, as it begins to evolve into a portfolio of enterprises and investments. If they are successful, they organize around a family office and other entities like a family foundation. The family cannot continue their business as usual, but must set up a governance process to face change, continually evolve, move into different businesses and redefine itself. They now have not just one business, but several, and each faces different challenges to thrive and grow. Similarly, the family must manage its portfolio not with one leader, but with several leaders, all of whom have different perspectives and skills. A structure is needed to define ownership, roles, working groups, responsibilities and accountability for multiple family members.

The shift from a single family to becoming a “tribe” of related families means they must change their entire culture, not just transition leadership. To make decisions, they must develop governance by multiple leaders. Family enterprises respond to these new realities by organizing themselves in new ways, with more working groups and more meetings. Successful families tend toward transparency and collaboration, with a great deal of involvement across generations, and increasing focus on finding meaningful roles for multiple family members.

Example Challenge 2: The combination of longer lifespans and the addition of new family members.

Opportunity: To continue to innovate by offering new roles for young leaders that allow the family to pursue new ideas and opportunities rather than resist change and stagnate.

Since the older generation usually has control and ownership of resources, the fact that we have an active lifespan today that is a full generation longer than in the past means family enterprises tend to have more members who want to remain engaged and essential into their 80s and even 90s. A focus on wellness also means that elders are more active and energetic, so the whole concept of “retirement” has lost its original meaning. There is not one, but two or three adult generations waiting their turn. In order to preserve engagement, families must find meaningful roles for members of multiple generations.

Members of the elder generation must also change their roles to make room for younger generations. Elders should consider moving from being operational leaders to mentors and resources. As the world changes, and they invest in the education and development of new generations, they now must welcome and even recruit the best and brightest to take on roles serving the family enterprise.

In addition to increased longevity, many families are no longer made up simply of two parents and children. Divorce means that older parents and new spouses each feel a connection to the family and have a role. Blended families and new family forms create challenges in defining rules for ownership, participation and engagement. There are different ways of being in the family, and the old “in or out” definitions no longer fit; the family has to be more nuanced and define different types of connection and membership. It also needs to define policies and rules for managing conflicts and differences within the family, or risk internal family issues playing out in business decisions.

Example Challenge 3: Educated and inclusive rising generations that are increasingly seeking roles in the family enterprise.

Opportunity: To utilize the energy of a new generation of leadership, rather than allow talented family members to drift away.

The older generation has been successful in a different era, and the resource that allows the family enterprise to adapt and change is the capability and commitment of the rising generation. Successful families with great wealth therefore invest in the professional development and learning of their children; they get the best education, travel, meet each other regularly and have a front-row seat to the world. (Though clearly some of them choose to live in a self-created bubble and not extend themselves.) Their life experience leads the rising generation to want to have a louder, more active and impactful role in the family enterprise.

This takes several forms. First, rather than focusing on a single successor, young family members see themselves are part of a cohort of leaders, each having a role in the enterprise, though often not as employees, but as part of governance. Men and women see themselves as having equal roles, and all of this makes the younger cohort larger and more inclusive. As they look ahead to their lives, careers and families, they want to know what the family enterprise offers and how they can play a role.

With all these demands and open pathways, family members cannot allow themselves to remain passive or uninformed, and delegate responsibility to advisors. There are not only opportunities, but responsibilities for acting in uncertain times. Each new generation must take a more active, informed and professional approach toward engaging with the family enterprise. The new role of a “professional” family member is that of a steward — not necessarily an employee or operator of the business — but one who is prepared to make informed decisions at key points. The family members must organize, meet regularly, deal with differences and make timely decisions about who they are and what they want to become.

Example Challenge 4: The desire among rising gens to have a positive, non-financially-motivated social impact.

Opportunity: To invest in a meaningful future, not just for the family, but for the entire planet.

Families that share financial resources have increasingly begun to focus on an important question: What is their wealth for? They make a choice to invest in their family and to build many forms of non-business, non-financial wealth. To pursue this agenda the family must meet, organize itself, allocate resources and make a commitment to each other beyond being business partners. New activities, roles and opportunities emerge that engage the family and give a reason for being connected.

The rising generations of the family look ahead at social and environmental challenges, and they feel a personal connection to help move in a positive direction. Their family is privileged, and they want to productively use family resources to make a difference. They have a social agenda they want the family to enact. This often leads the family to have a values and social impact discussion, not just about philanthropy, but about their investment and business roles. To remain together, the family must engage not only family members, but community members, employees and other resources to make a better world for everyone. When successful in this effort, the family invests in a positive shared future that attracts young family members and links their work to a wider community.

Each of these natural changes in the extended family can add value to the business family and inspire rising generations to remain together and invest in a shared future.