Perpetuating the Family Business 50 Lessons Learned from Long-Lasting, Successful Families in Business John L. Ward Perpetuating the Family Business This page intentionally left blank Perpetuating the Family Business 50 Lessons Learned from Long-Lasting, Successful Families in Business John L. Ward © John L. Ward 2004 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2004 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 1–4039–3397–9 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10987654321 13 12 11 10 09 08 07 06 05 04 Printed and bound in Great Britain by Creative Print & Design (Wales), Ebbw Vale To the many, many families who have so generously shared their experiences with me and inspired me to find the field of family business fascinating, fulfilling, and important. Thank you for what you have given me and offered to others. This page intentionally left blank Contents List of Figures viii List of Tables ix Acknowledgments x Author’s Note xi PART I Frameworks for Family Businesses that Last 1 1 The Ultimate Management Challenge 3 2 The Five Insights and The Four P’s 10 3 A Vision for the Future 31 PART II The Lessons 41 4 Stage I: The Owner-Managed Business 43 5 Stage II: The Sibling Partnership 66 6 Stage III: The Cousin Collaboration 102 7 Taking the Longest View 144 Appendix A: The Lessons at a Glance 156 Appendix B: Integrating the Lessons 161 Appendix C: A Family Business Checklist 165 Notes 168 Bibliography 173 Index 175 vii List of Figures 1.1 There’ nobbut three generations atween clog and clog 4 2.1 The three-circle model of family business 14 2.2 Continuity Planning Triangle 18 2.3 Advantages and disadvantages of owning a family business 22 3.1 Three-stage model of family business 31 6.1 The Suarez family mission statement 134 6.2 Johansson family mission 134 6.3 Reinforcing values between family and business 137 viii List of Tables 3.1 How family assumptions shape ownership plans and business strategy 36 5.1 The 6C’s: a family code 86 5.2 Family values statement 94 A.B1 The Five Insights 161 A.B2 The Four P’s 163 ix Acknowledgments This book is a reflection on more than 25 years as a student of family business. There are so many people to acknowledge and thank for what has been a most joyous career. In the book’s dedication, I thank the business families I’ve come to know well over many years, families who have taught me most of what I think I know. To learn while advising others is a special treat. Just as each family business is different, each has taught me something distinct. In addition, I want to express appreciation to the students and partici- pants in my classes and programs at IMD and Kellogg. The MBA family business students at Kellogg are the most universally uplifting, competent, and considerate group of people I have ever known. The more than 500 families that have attended the IMD “Leading the Family Business” program over the past 15 years have been pioneers in their eagerness to learn and they have served as my laboratory for nearly all of my most embryonic insights. I also wish to thank special colleagues in the field of family business. My friends at The Family Business Consulting Group International inspire me by their genuine care for business families. Their professionalism and curiosity have taught me more than I can express. Professors Craig Aronoff, Randel Carlock, Miguel Gallo, and Ivan Lansberg are the teachers of the teachers. I am also indebted to my academic partners, Professor Lloyd Shefsky at Kellogg and Professor Joachim Schwass at IMD, for their unselfish friendship and support. Sharon Nelton has made this book not only possible, but lots of fun. It must be rare that one finds an editor and writing partner who is not only gifted with language, but also so very versed in the subject and so very devoted to it. Pleasant and generous to work with, she has written, with heart and positiveness and insight, on the topic of family business for 20 years. Thank you, Sharon. And loving thanks to my own family. I hope deeply that some of the lessons I have learned from other families have enhanced our lives together. x Author’s Note This is the most personal book I have ever dared to write. It grows out of years of observing long-lasting, successful, business-owning families the world over, families that have let me into their lives and thoughts and hearts. It gathers together the major lessons they have taught me about that most symbiotic of all business relationships, the family firm, in which family and business depend upon each other and work together for life, health, meaning, and, yes, even happiness. I do not name the families that have taught me these lessons firsthand. They are or have been my consulting clients and it is my obligation to main- tain their confidentiality. Where I have used them as examples to illustrate a point, I have disguised them so as to preserve their privacy. Where I have named real families and businesses, I have drawn on the public record – articles, books, newspapers, other publications, and company websites. This is not a “how-to” book. It is not my intention to be prescriptive. These lessons are not rules that every business family must follow in order to be successful generation after generation. They are what I consider “best practices” of the most successful, long-lasting families in business. Not all of the lessons are appropriate for all families, and not all of the successful family businesses I have observed manifest all of the lessons. I hope you will pick and choose what is most right for your family and for your business. It is my wish that the lessons on these pages will encourage you to antic- ipate not only the next stage of your family business but the stage after that. One of my intentions is to enable you to do for your successors what is counter-intuitive to the reality that you have faced in your own tenure as a leader and to help you feel comfortable with making decisions and taking actions that may seem to go against the grain. The lessons should also give you some tools with which to think through the “second stage effects” of the steps you are considering today – that is, the consequences that will reverberate throughout the generations that follow you. JOHN L. WARD Evanston, IL, USA Lausanne, Switzerland 2004 xi This page intentionally left blank Part I Frameworks for Family Businesses that Last The 50 Lessons that you will encounter in the second part of this book do not stand alone. They are part of a set of broader frameworks that you will be introduced to in this section. Chapter 1, “The Ultimate Management Challenge,” describes the need for this book and sets forth the two major premises on which the book is based. The chapter that follows, “The Five Insights and the Four P’s,” serves as the heart of the book, pumping blood into each of the 50 Lessons. Here is where the frameworks for the lessons can be found. Appendix B, “Integrating the Lessons,” illustrates how the 50 Lessons relate to and are supported by these frameworks and should support your understanding of what goes into making a family business a long-lasting and successful one. The idea of “stages” – or the evolution – of a family company is intro- duced in the first chapter and described in detail in Chapter 3, “A Vision for the Future.” As you will discover, the stage of ownership a business is in shapes and defines the tasks its leaders must accomplish at a given time in order to preserve the family and the firm for future generations. 1 This page intentionally left blank 1 The Ultimate Management Challenge Family businesses stand at a critical threshold. If you are a member of a business-owning family, you and your family’s company may be very directly involved in some of the extraordinary changes that are going on in the economy and within the family business community itself. For exam- ple, look at all businesses in North America and Western Europe – large or small, public or private – and you will find that two out of five have two generations of family members working in them.