Wisdom, Wit, & Kindred Spirits

Finding Peers and Reassurance Provides Value

By Diane Stirling

Family businesses are the mechanisms by which much of the world’s societies are organized.

They’re how people around the globe have created the means to financially support the family unit for more than a millennium. Families have operated all types of businesses, including shipbuilding, innkeeping and wine-, paper- and glass-making—and some family businesses go back more than 40 generations.

For the welding and gases distribution industry, family businesses are common. The abundance of two, three, four and even more generations operating a business continually is a pattern well beyond the norm, since the average lifespan of
a family-owned business is 24 years, according to the Conway Center for Family Business, a non-profit organization based in Columbus, Ohio.

Economic Forces, Everywhere

The impact of family businesses is far and wide and their reach ubiquitous, says Ann Kinkade, founder of Family Enterprise USA, a public policy advocacy group, and now head of Lucid Legacy Consulting. “They’re absolutely everywhere and in every industry sector,” she says.

“The family thing” serves as an underpinning for the American economy, just as it does for the economies of countries around the globe. Cornell University’s Wesley Sine, faculty director of the Entrepreneurship and Innovation Institute there, calls family businesses key drivers of economic growth worldwide and “the most common type of business on the earth, particularly in developing countries.”

The Conway Center references their dynamic force, characterizing family-owned businesses as “economic powerhouses” and the backbone of the American economy. Statistics about multigenerational, family-owned enterprises reported by that organization attest to that statement:

  • Family firms constitute 80 to 90 percent of all business enterprises in North America.
  • In the United States, 5.5 million family-owned businesses are in operation. (That compares to about 4,000 actively traded public companies on the New York Stock Exchange and NASDAQ.)
  • Roughly 35 percent of all Fortune 500 companies are family-controlled (Business Week.com)
  • Family-owned businesses create more than half of America’s Gross Domestic Product.
  • They generate 62 percent of America’s employment.
  • The small-sized variety of family-owned businesses employ just over half of U.S. workers. (Large public companies, such as Wal-Mart, Anheuser-Busch and Starbucks make up the balance of jobs.)
  • Family-owned businesses account for 78 percent of all new job creation.

Resilient, Innovative, and Entrepreneurial

Craig E. Aronoff, co-founder and primary consultant with the Family Business Consulting Group, concurs with those traits. The author of more than 30 books on family business points out that family businesses are creative, innovative
and resilient.

In fact, family-owned businesses are more innovative (and perhaps more able to be so) than nonfamily firms, says the Family Enterprise Institute (FFI). They achieve higher numbers of patents, new products and more new-product revenue for every dollar invested in research and development than nonfamily firms, the Institute reports. FFI also contends that most startup entrepreneurs (85 percent) begin their ventures with financial help from their families. In addition, the entrepreneurial spirit seems to run in the blood; several years ago, OnStartups reported that just over 48 percent of entrepreneurs said they grew up in a family business.

Sources of Help and to Shore Up Success

For a long time, family businesses remained out of the public eye. That was in part because the media was unable to access the data of private companies so focused instead on the workings and ways of public firms, says Aronoff.
That lack of attention and scrutiny was probably a good thing, most might say. It left families unfettered to focus on sustainment and success, relying on the talents of their members, employees and sometimes nonfamily executives.
Occasionally, family firms sought help from wizened associates and familiar consultants.

New Sources of Expertise

For the past three decades or so, however, external sources of help and expertise have become available to families finding their way through business challenges as well as the unique and sometimes sticky issues that can result when business is all in the family. The fi eld of family business studies and family-business consulting has emerged as an academic specialty and means of professional, specialized assistance.

Many top national universities and local colleges across the U.S. host family business centers and family-business educational and training programs. They usually are housed in business schools. Some colleges offer specific majors in
the field, a curriculum aimed to help students who grew up in multigenerational firms decide if they want a career in the family company. Other schools offer specially scheduled, short-term retreats and classes that provide family members opportunities to tap consulting expertise and sort through common issues. A number of private institutions and consulting groups exist for the same purposes, providing an array of topics. However such learning opportunities are structured, information today is based on research that began only 30 years ago, according to Anne Smart, director of the Family Business Center at Loyola University Chicago. The fi eld also is complex because it is interdisciplinary, touching on topics in law, business, social sciences, social work and psychology, she adds.

Three Circles of Management

Researchers and experts in the fi eld of family enterprise have popularized the concept of the “three circles” of management. They say all three, which overlap and are interdependent, produce seven different interest groups, “each with its own legitimate perspectives, goals and dynamics,” according to researchers Renato Tagiui and John Davis, who developed the original model at Harvard Business School in the 1970s.

The model is considered a central organizing framework for understanding family business systems. In practical terms, the concept is meant to advise family businesses to align the components in order to have success and harmony in the firm. Or as Tagiui and Davis wrote, family business is defined by “the interaction of all three of these subsystems” and they believed that “the long-term success of family business systems depends on the functioning and mutual support of each of these groups.”

Finding Ways to Regenerate

Pramodita Sharma, professor and Daniel Clark Sanders chair at the Grossman School of Business, University of Vermont Family Institute, is a well-known scholar and author on the subject of family-owned and operated enterprises. She believes that the dynamics of families within the business environment make for unusual situations in both realms, but are ones that can be overcome. She says family members can synthesize the “kinship ties and cutthroat business”
situations that exist side by side in family-business environments by understanding that running a family business is a paradox that can and must be managed. “They don’t see it as ‘a problem that must be solved,’” she notes. “That mindset allows them freedom to focus on one and the other, paying more attention to the one where the need is more, but making sure the other issue gets attended to. The peaks and valleys of work tend to balance themselves with mindfulness,” says Sharma.

In her book, “Entrepreneurs in Every Generation”, Sharma advises how family firms can regenerate the business for a new era. There is a long menu of possibilities for how families can do that, and “since each family and their context is unique, they will choose what works best for them.”

To prompt families — and their individual members — to assess their roles and determine the company’s way ahead, the Vermont institute focuses on the concept of “the hunger of working hard and smart” and developing “a hunger for excellence and innovation,” Sharma says. They work to develop each member of the family by, “understanding their inherent strengths and interests and their needs and aspirations, and building career plans to ensure that each member of the family can live up to his or her full potential.” Both the longevity of the business and the growth of the enterprise receive equal consideration in this process as, “key to such transgenerational success.”

Dynamics, Communication, Governance

How do families balance the misalignments that family life and unique family dynamics inject into the work environment?

Dana Telford, principal consultant of the Family Business Consulting Group, advises of the need for formalized communication and governance processes to provide guidelines for conducting business and for settling the inevitable minor—or
major—disagreements.

“Good governance begins and ends with effective communication,” he says. Telford suggests that having rules about how the family communicates, “can save a family meeting from falling apart and becoming a wasted, frustrating use of time and energy.” Such guidelines create an expectation of professionalism that helps avoid family-meeting situations that end up as “either an explosion of emotion and frustration or not enough energy to accomplish goals and make progress,” he writes.

Providing Information, Learning and Reassurance

The head of Cornell University’s family business center believes enthusiastically that this is a very interesting time for family businesses, and for the study of them, too. “There is a lot more attention being directed their way. We’re starting to learn a little bit more, yet there is still a lot of mystery around them,” says Daniel Garrett Van Der Vliet, the John and Dyan Smith executive director of Family Business, at the Smith Family Business Initiative at Cornell’s S.C. Johnson School of Business.

The center serves families who want help with the myriad questions family businesses face, plus it provides a place where families can connect with others like them, says Van Der Vliet. A network that provides a source of business information is important, and so is having a source of support and understanding, he believes. “Every family is so uniquely different, and really what they look for when they come to us is reassurance that they’re not so incredibly different, that there are other families that struggle with many of the same issues, and many others who excel with the same opportunities.”

Figuring Out That Big Question

What families ultimately are trying to fi gure out, he says, is the “big question” of whether it is worth keeping the business in the family. “It’s a question that has to be asked and asked and asked — and answered — over and over and over again. He says family companies often wonder, “if the business is doing well, should we sell it now, or does it make more sense to keep it in the family? If the business is not doing so well, should we get out, or is it time for the next generation to take over and maybe do something else with it?”

In addition to business expertise and programs of study for students deciding if they want to enter the family business, Cornell’s program provides another valuable resource, “confidential forums where you can share concerns, discuss challenges and share experiences with folks who have navigated similar waters,” Van Der Vliet says. The forums reveal a common theme, he says. “All families think their family is kind of crazy. It’s one thing to have a family like that. Applied to the business setting, to go to work with a brother or sister or not be able to get away from mom or dad, that just amplifies the craziness at times. There’s a lot of identity woven into the business and that’s why these decisions tend to be very, very challenging.”

Raising Up the Next Generation of Owners

For those who intend to transition the family firm to future generations, planning and preparation of the next group of owner-operators should start early, with age-appropriate introductions to the business, according to Deb Houden, a senior consultant with the Family Business Consulting Group and a faculty associate at the Wisconsin School of Business, University of Wisconsin-Madison.

That process first starts at home, with attitudes and household conversations about leadership, ownership, independence and stewardship. It also includes whether the business is referenced as positive or negative and as a benefit or a burden. Children pick up on the regard shown for employees, sibling relationships within the business, and how the challenges of the day are characterized, too, Houden says. How that all is said and done, “sets up an underlying attitude that can be sustainable during the child’s lifetime,” she adds. (Her guest column on page 58 offers practical ways to introduce children at every age into the family business environment.)

Succession Planning Questions

Questions about succession plans are another key reason why families look for information and guidance from family-business centers and specialized consultants.

It’s widely reported that 30 percent to 40 percent of family-owned businesses make it to the second generation, 13 percent reach the third generation and just 3 percent survive to the fourth generation (Business Week.com, 2010).

Planning for transition and accomplishing it are two different things, however. The Smith Family Business Initiative website cites University of Connecticut studies showing that almost a third of family business owners have no plans to retire at all. Nearly another third said retirement was more than 11 years away. With a median age of current leaders at 51, it seems many will finish their working years at the company helm, the study shows.

There are risks when the fi rm doesn’t have a formalized succession plan. The Smith Initiative reports that nearly a third (31.4 percent) of family-owned businesses have no estate plan beyond a will. The Connecticut Center reports that in nearly half (47.7 percent) of the collapses of family-owned businesses it studied, the failure of the business was precipitated by the founder’s death—and nearly a third by the owner’s unexpected death. In only 16.4 percent of situations studied did the business failure follow an orderly transition. (For tips on succession planning, see GAWDA Member Jessica Borowy’s guest column on page 62.)

Bringing in Nonfamily Executives

In some cases, the family business may need or choose to bring in a nonfamily executive as a strategic bridge to the next generation, or to run the company entirely on the family’s behalf. Firms that choose this path must vet candidates very
well, finding ones who sync with the family’s style, beliefs and values, says Gaia Marchisio, associate professor and executive director of the Cox Family Enterprise Center at Kennesaw State University in Georgia. Once a good choice is found, it’s essential that the family delegates authority and decision-making, so the person can do his or her best work, Marchisio adds. In addition, it is still up to the family to monitor the work and decisions of the executive as a governing board.

Marchisio notes that some companies have the luxury of looking at this step proactively, while others may take it out of necessity at a time of crisis. Any company facing such a decision certainly has qualms, she says, as the idea of losing power is a big concern and it’s not an easy thing to do. “If this is a first for the owning family, its members, “absolutely need to check whether they are open and ready.”

The Center recommends that such families spend a good amount of time thinking about the consequences of taking the step. “They need to process the decision and take the time to talk about what will be different, what will be difficult, what are we scared about.” Often, it’s a step that can refresh a company with a lot of new ideas, she adds. Since change is involved, everyone needs to be prepared for that, both owners and new nonfamily executives.

In selecting a candidate, the Center advises families to “make sure you fi nd someone who has high emotional intelligence. The executive must understand the different context they are in, be successful navigating the family business, and be able to adapt. In addition to being technically competent, the person has to be able to understand both the family’s culture and dynamic, and respect that in the company’s decision-making, while performing their fiduciary role, never underestimating the people-to-people relationships within the company and among the owners,” Marchisio adds.

An analogy a CEO once provided her explains both the complexity and profoundness of such a situation, Marchisio says. The nonfamily CEO told her, ‘In a way it is like they give me their baby and want me to take care of it, grow it, and they trust me with the most precious thing they have. I’m responsible for this thing, but at the end of the day, I always need to remember that I am not the parent,’” she relates.

A GAWDA Member’s Experience

GAWDA Member Indiana Oxygen, of Indianapolis, brought Gary Halter into the company to bridge a period of family succession, and it’s been a highly positive experience, Walter “Wally” Brant, the third generation owner, says.

Halter came from BOC in 2008 and was named president more than two years ago. Brant had been president since 1982, he relates, and the decision was made because he felt the company “needed someone with fresh ideas and a lot of enthusiasm. I was starting to get thin in both of those.” The company also brought in a nonfamily executive vice president, Mike Gunnels, at the same time.

Currently, Brant’s daughter Anne is corporate counsel and CFO, and his son Jay is in charge of ecommerce and IT. Brant does plan to pass the company to the next generation eventually, and the company has taken steps to formalize how that will happen. In the interim, Halter was given purse-strings control and full-rein authority, Brant says.

The decision was welcomed by members of the family, who were relieved about not having one child picked over the other at that point, Brant adds. Eventually, “one of them will take over, and we’ll work that out. In the meantime, since that point is another dozen or so years away, “we’re just letting it play out. Gary’s doing a great job and I really owe him the chance to set his legacy and to run the full course,” the owner, a former GAWDA president, says.

Family Company Equals Family Culture

Family-owned businesses reflect the owner’s particular values and beliefs, as well as exhibiting qualities inherent to all families: a bonded culture, greater trust, concern for community well-being and a “we’ve got-your-back” attitude. Best-selling author and entrepreneur Allen E. Fishman, founder and head of consulting company The Alternative Board, has written about the connection family members feel toward the family business. What drives those businesses, he writes in “9 Elements of Family Business Success,” is a “sense of connection and identity the owners and their family members feel with the business.” Family business founders and employees have, “an incredible passion for the business, and a focus and energy that you’ll never find in a nonfamily employee,” he says.

Echoing that is third-generation car-dealership owner Paul Gentilini, who spoke to Business Daily News in 2014 about the keystone dynamic of family-owned companies. While businesses know that taking good care of employees helps ensure that employees take good care of customers, family-owned businesses take that concept further, he adds. “If you take care of your employees and treat them like family, they will take careof your customers and treat them like family. The business will thrive with loyal patrons and employees, and continue to grow and be profitable even during tough times.”

All In – And In This Thing Together

The family business is “literally a part of your life,” says third-generation family business member Evan Bennear, who worked at his family’s Dale Oxygen Co. as a youth and teen, then spent a few years at another business before going back to work for the family.

The family dynamic is ever-present, he reports. “It’s your livelihood, it’s a job and you want job security to make money for yourself and your family. But when it’s a family dynamic you really are in this thing together. You’re still going to see [family] at Christmas and Thanksgiving no matter how it goes. It takes a lot of patience. There’s good times and there’s bad, but you’re literally in this together — more so than any other business dynamic I can think of. When you’re family, that doesn’t end.”

Bennear says he wouldn’t have it any other way. His grandfather founded the Johnstown, Pa., company in 1929 and his father Harry, the second generation, is president. Evan and his brother, Christopher, who is IT/operations manager, are the third generation. Evan, who is the sales manager/CWSR, says what he enjoys most now is “the fact that I get to work with my family, to own and operate a business that’s been around for so many decades and is so successful and that it continues to grow.”

Evan Bennear projects how the family sense extends throughout the company toward its employees, too. “There’s a true passion with my family in how we work with our employees. By far our number-one priority is our employees, to make sure they have a secure job, that the company is growing, that wages continue to rise and that they can take care of their families. Fortunately, our company allows us to do that. Our employees are like our family. We treat them like they’re our own.”

That Passion Personified

Brant also describes that same family identity-driven passion. As a young man, he contemplated becoming a lawyer and taking a different career path, but decided to enter the family business after all. “Without a doubt, it’s a passion for the business. Not necessarily the welding industry. You don’t have to love gas or cylinders, it’s the passion to carry a degree of excellence,” he says. “It took us a long time to get to be the largest and the best company in our market, and I never want to go back to second or third or fourth place again,” he notes. “I think others in our family also appreciate that.”

Brant looks to the generations ahead as he concludes, “I did not keep this business so my kids could come into it. I kept it alive not just for the kids, but the fact they’re involved and they take it as seriously as I do is one of the most gratifying experiences I’ve ever had. To hear them say, ‘I want to do this and let’s make this better,’ that’s wonderful.”

Family Business Centers You Can Contact

There are family business information and academic program centers all around the country, and many business schools at universities and local colleges host programs to help advise family-owned businesses and business members. The organizations and individuals who provided informationand comment for this story are listed with their contact information below The Family Firm Institute also provides an overarching list available of those within the United States (listed
by state) and also for Canada; Europe and the United Kingdom; Latin America and the Pacifi c Rim at: www.ffi .org/?page=edcenterunitedstates.