This is part of a series with Dennis T. Jaffe, Ph.D., in partnership with First Republic’s Family Engagement and Governance team.
Dr. Jaffe is a leader and an author in the field of family enterprise consulting. An organizational consultant and a clinical psychologist, he helps multigenerational families develop governance practices that build the capability of next-generation leadership and advises financial organizations and family offices on serving family clients.
First Republic is honored to collaborate with Dr. Jaffe and share a special series highlighting his findings from successful family enterprises: 8 Insights From Long-Lasting Global Business Families
Family enterprise leaders and trustees are often reluctant to share information about the business with family beneficiaries. They have learned to keep their own counsel and depend on themselves and are often not used to having partners. They exercise responsibility by “taking care” of the rising generation but do not feel the need to inform them. This paternalistic style is common, but the family members we interviewed found this tradition did not allow for the development and engagement of the next generation. Without being informed, how can they learn about the legacy and prepare themselves for possible employment in the business?Family business founders all over the world, no matter what business they’re in, are larger than life. The personality profile of a business founder and wealth creator is a person in control: a person who lives the business, makes all decisions, micromanages and often finds it hard to trust others. This person is a great businessperson, but family members in the second and later generations report that this person often finds it hard to let go of control; mentor new leaders; or envision a family culture premised on transparency, trust and collaboration. Generative families shift the nature of leadership roles and family culture as they pass into new generations.
Each member of the rising generation faces a different world: Their affluence and success in business is a given; wealth has always been present in their lives. They wonder what they can do that is important and significant and how they can make a positive contribution to the family. They want to be responsible contributors. To do this, they need to be informed, have a clear path and role, and be invited to participate.
Business founders want to see the business continue and seek a successor, but they do not fully understand the need to inform, listen to or work with others in order for the next leader to be successful. Founders assume the next leader will be like them. But that cannot be. No successor can have the authority and role of the founder. If a single person is named business successor, this person does not have the same relationship with his or her siblings as their parent had with the family. Successors cannot just do as they wish; they must answer and be accountable to each other.
Families report that the second or third generation has to redefine their culture to be more transparent, involved and collaborative. In many families, this shift leads them to initiate new activities. Thus, the second generation must be family innovators and therefore design a new family culture.
Another challenge facing the next generation is understanding that the family is more than the business, but the business is the family’s fuel and foundation. In succeeding generations, members often change from hands-on owners/operators to stewards, hiring nonfamily leaders for the business and taking on oversight and transmission of their values to the business.
Creating this new family culture is the primary achievement of the second or third generation of generative families. Despite all of the diversity in our interview group of generative families, the dimensions of this collaborative culture were similar. Each family faced the challenge of making the shift from patriarchal behavior — where the bulk of the family is passive and not very informed or active — to one where they are integral participants as stewards.
Learnings from long-lasting global business families
Several common activities take place as the family creates a collaborative family culture while they shift from a single founder/leader to a shared group of family stewards.
Put business first, with the expectation of competence and education in every family member.
Family members do not only benefit from the family; they expect professional standards of conduct in all members of rising generations. Rising generations are expected to become knowledgeable not as executives or business operators, but as stewards who oversee the business. Take, for example, an observation from a business leader:
I joined the Young Presidents Organization. In my first meeting, I described how we held stock in trust and that I’m the managing trustee. So, I control the company. But one of my friends said, “You’re in big trouble. You don’t have shareholders. You have coupon clippers, and they’re not paying any attention to what you’re doing.” That woke me up. We decided that the best shareholders are educated shareholders, so we launched a yearly family reunion and whole-day business meeting to engage everybody, rekindle enthusiasm and generate a sense of ownership. It’s been extremely positive for the entire family to have this glue. We get great questions and reengagement, and we return the next year and start all over. As a result, we’re starting to get more continuity.
Generative families all hold some variant of an annual business meeting where family members are invited to attend and learn from the business and financial leaders. These events can be traditional one- or two-hour presentations of numbers and charts, but many families find ways to make them more interactive. One family with a large business “produced a very detailed annual report, not unlike that of a public company.”
Family meetings are increasingly interactive, sharing information not only on the family but also on what’s happening in their various enterprises. Activities can include visits to the family business or foundation, conversations with key employees and tours of company plants, so “there’s a good bit of hands-on activity with what’s going on in the company.”
Uphold collaboration with appropriate roles, boundaries and accountability.
Stewardship is a focused and accountable role. Family members are informed, and some roles are open for their participation. But each role has its limits: A board member makes major strategic business decisions, a member of a family committee or task force makes recommendations, and a family member is not entitled to employment (rather, employment in the family business is earned). Every family member must understand their role and be accountable for generational standards of behavior. Stewardship is a responsibility, not a license.
Listen to the voice of the rising generation.
Young family members of a family enterprise have a role not found in other types of businesses. They’re not often owners, or own only a few shares, so there isn’t the expectation that the business will or should listen to them. But they are members of the family, and they expect to inherit leadership and ownership. They are the future of the family and the business. Their new ideas and energy will guide the future. Generative families realize that the knowledge and energy of young members is an important resource, and from early on, they not only include and inform them of what the family does, but they also invite and listen to their ideas. As members of the families we interviewed grew older and took on more active roles, their new ideas contained the seeds of innovation and reinvention that are critical to future success. This encourages the family to have meetings and discussions that listen to their new generation. In this way, the family sets up a structure for innovation and family entrepreneurship that includes the rising generation as well as the other stakeholder groups. Governance activities like family investment groups and “family banks” allow the family to actively seek and invest in innovation.
Insight 4: Initiate Interdependent Pillars Separating Family And Business Governance
Introduction: 8 Insights From Long-Lasting Global Business Families
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