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Is there a magic formula to sustainably grow your business over generations?

Lessons from leading, global award-winning family businesses

By IMD Professor Benoit Leleux, Professor Denise Kenyon-Rouvinez and Anne-Catrin Glemser

Research has shown that less than 30% of family businesses survive into the third generation. In North America studies have revealed that only “12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond.” Family businesses are all around us; they come in different sizes and shapes and often represent the invisible backbone for the economies of countries across the globe. The family business is actually the oldest and most widespread business model in the world. A major source of revenue, jobs and tax contributions, family businesses are key players in the economic system and often serve as models for long-term growth, profitability, stability and survival through periods of crisis.

Approximately 60% of the emerging economies’ private-sector companies with revenues of $1 billion or more were owned by founders or families in 2010. The Global Family Business Index estimates that the world’s 500 largest family businesses employ about 21 million people and generate a turnover of USD $6.523bn. About 30% of these have existed for over 100 years and half of them were founded before 1945. The good news is that those that last often also outperform their public competitors in the long run! So what is it that makes them succeed?

Best Practices 

20 years ago IMD started researching these award-winning family businesses. While all families in business are different, the winners of the IMD-Lombard Odier Global Family Business Award (GFBA) demonstrate, again and again, extraordinary resilience and the ability to find innovative solutions to adapt their business models to changing industry and market conditions. Visionary family leadership covers not only business dimensions but also embraces creative ways to solve family business dilemmas, exhibits flexibility in defining structures that strengthen the family business identity over time, and invests in preparing the next generations to make their own contributions.  

No single magic formula emerges, but all winners share a vision to grow their businesses over the long term in a sustainable manner and eventually pass them on to the next generations. Their shared commitment and solution orientation has helped define the following original solutions: 

  • Provide the organization and the business with a corporate purpose, a vision and a clear mission that is translated into values that shape the company and its leaders. 
  • Stay close to the business and reinforce the commitment when the business has to navigate structural changes and crises. 
  • Set up strong corporate and family governance structures that include professional boards with non-family expertise when needed. 
  • Be prepared for unforeseen crises, such as the sudden death of a Chairman or a CEO, and see crises as opportunities to strengthen the family unity. 
  • Be inclusive as a family and celebrate the many diverse talents and skills family members have to offer while respecting the freedom of those who do not want to be shareholders or employees. 
  • Apply meritocracy in developing next generation leadership roles in both the business and family organization. 
  • Pass on leadership and ownership responsibilities relatively early to the next generation leaders. 
  • Find ways to foster the founder’s innovative and entrepreneurial spirit and keep it alive over generations. 
  • Involve the next generation and invest in educating them on values and strengthening their bonds with the family and the business. 
  • Create opportunities to learn from and engage in discussions with other family businesses. 
  • Allow the next generation to develop its own footprint and shared vision while staying in an open dialog with the senior generations. 
  • Share the belief that developing sustainable solutions and integrating social responsibility at the core of the business ultimately is in the family’s long-term business interests and key to future success.  

Gearing up your organization does not happen overnight. Family matters are known to be always delicate, even more so when a family is in business. Emotional bonds tend to add a level of complexity to communications and decision-making. “One needs to be patient, ready to explain again and again until everybody is on the same page,” explained a 5th generation family leader. “One cannot be as direct and open as in a strict business context” and as the family governor of one of the GFBA-winning family businesses pointed out, it takes: …

tolerance, respect, patience to do one thing at a time and accepting the fact that at times we live in a non-ideal world. In a family business you have to be aware that change happens slowly and that you have to respect everybody’s opinion and be patient.

About the IMD-Lombard Odier Global Family Business Award (GFBA)

The Award was established in 1996 to recognize and promote remarkable family businesses from which all family businesses can learn. It is regarded by many as the most prestigious for successful family businesses and recognizes the way in which such firms unite family interests with those of the business and combine tradition and innovation while demonstrating a clear commitment to their local community. This year, the Award is celebrating its 20th anniversary and pays tribute to a long list of prestigious recipients from all over the world. It is committed to recognizing and documenting exceptional family business performance, and represents a platform for family businesses to exchange best practices and learn from each other.

The 2015 Award winner, Bavaria N.V. is unique in finding solutions as a mid-sized company that has been operating in the fiercely competitive beverages industry since 1680. A team of seventh generation cousins is leading the operating business and has developed original marketing strategies and successful niche market strategies to compete with global multibillion dollar competitors at national and international levels. Outstanding product and process innovation management capabilities have been combined to pursue ambitious growth activities in emerging and frontier markets. The truly entrepreneurial and visionary family leadership blends all this in the most personal way and with a strong commitment to sustainability and corporate social responsibility.

Benoît Leleux is the Stephan Schmidheiny Professor of Entrepreneurship and Finance at IMD. Since 2008 he is Director of the IMD-Lombard Odier Global Family Business Award.

Denise Kenyon-Rouvinez is the Wild Group Professor of Family Business and Director of the IMD Global Family Business Center at IMD.

Anne-Catrin Glemser is Family Business Research and Program Development Manager at IMD.

The next upcoming family business programs at IMD are: “Leading the Family Business” as part of IMD’s Orchestrating Winning Performance in Singapore, from November 16 to 20, 2015; “The Next Generation”, from March 7 to 17, 2016; and “Leading the Family Office” in Lausanne, from May 9 to 11, 2016.

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