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Rethinking Family Businesses & Cultural Biases and Questionable Research

05Nov 2010

Last week I had the privilege in participating in a “think tank” about family businesses at Pepperdine University. Led and organized by Dr. Ken Canfield (formerly the director of the National Center for Fathering, now the director of the Boone Center for the Family at Pepperdine), a small group of professionals who serve family businesses met for two days discussing the current state of family businesses, identifying the primary threats to family owned companies, and outlining a new line of research that needs to be completed to more thoroughly understand and help closely held family entities.

A number of thought-provoking ideas came out of our time together. Let me share a few:

*There are a number of biases against and negative perceptions about family-owned businesses in our culture today. First, there is an overall bias in our culture and media against business, in general. “Business” is a bad word, seeming to connote greed, self-interest, and tax evasion. (Yet, now politicians and others are looking to the private business sector to create more jobs.) For those of us who have worked or do work in a family-owned business, we know of the benefits created by these companies – jobs for individuals and families, innovations in technology, paying substantial taxes to support the community, contributing to community organizations charitably, developing leaders – the list is quite extensive. Secondly, within the corporate and business world, family-owned businesses are often viewed as cute little brothers running a lemonade stand – they are nice but not really professional or substantial. The statistics argue differently – over 85% of all private companies in the U.S. are family-owned; they employ 60% of all employees in the private sector, and they often aren’t small, with over 35% of the Fortune 500 companies being owned or controlled by families. Being forthright, our group felt that family businesses get undeserved bad press in the media.

*Most family-business consultants emphasize and focus on the “business” side, and minimize the significant strengths the family brings to the system.
If you explore the background, experience and training of the vast majority of family business consultants, you will find they have extensive knowledge and experience in the business realm – and virtually no professional, substantive training in understanding families. (Caution: there are a lot of sham training programs that talk about the “soft issues” and spend a few hours giving business advisors a very surface overview about family issues.) We believe a more thorough understanding of family dynamics; how families work, relate and make decisions; and the life stages of families (and their individual family members) are critical to understand how family businesses function and make decisions. An example: have you ever interacted professionally with a family-owned business – as an advisor, a vendor, or customer – and wondered how the decision they came to was reached? You made a presentation, got feedback that they were impressed and thought they were moving forward in using you – only to experience the “black hole” of “we’ll get back to you” and a totally different decision (or no decision) was made? Welcome to the world of family business – where “family” and family history are hugely influential.

Secondly, most business-oriented consultants see the family as “getting in the way” of the family business. In fact, I had one consultant tell me – “I just wish the families weren’t there. It would be a lot easier.” (!) Well, maybe so, from his perspective, but our team came to the conclusion that the family system brings a lot of strength to the business – loyalty, trust, straightforward communication, self-sacrifice, dependability (for starters) – that corporate climates actually could learn from the family.

*Commonly cited research and statistics about the reported high failure rate of family business succession are probably misleading. While there is common agreement about the difficulties of passing businesses successfully across multiple generations (hence, the commonly cited saying, “Shirtsleeves to shirtsleeves in three generations”), our team questions some of the research which is cited as “fact” that 60-70% of family businesses do not successfully transfer the business to the second generation and 90% fail by the third generation. Why? First, the research is old. Second, it is based on one study by one firm and has never been replicated. Third, it appears to be a piece of data floating in the universe by itself. For example, an important question to ask is: what is the failure rate of private, non-family owned businesses? One leading family business researcher reported to us that he found statistics to suggest 85% of publicly held private non-family businesses fail to have the same owners over “generations” of leadership (NOTE: we have yet to confirm this finding.) It appears time to revisit this question and commonly held belief, which implies that family businesses have a significantly higher failure rate than non-family businesses. I think we don’t know.

Finally, without “letting the cat out of the bag”, we discussed together a number of key issues and questions about the relationship between families and their businesses that need to be explored. As a result, we have designed and started to implement a program of research that we believe will shed new light on the most important factors that contribute to healthy and successful family businesses. Ultimately, we believe that there are ways of helping family businesses be more successful by focusing more on the helping the family system become healthier.

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