
Managing multiple role identities in the family enterprise
The survival of family businesses is at stake due to inadequate board management and the difficulties faced by leaders of family businesses in juggling various roles....
by Peter Vogel Published 13 January 2023 in Magazine • 15 min read
In the late sixth century, carpenter Shigemitsu Kongo moved to Japan from Korea to help construct a Buddhist temple in Osaka. Kongo Gumi, the family firm that ensued, continued to operate independently until 2006, when it became a subsidiary of the Takamatsu Construction Group. Across 1,400 years and 40 generations, and believed to be one of the oldest companies in the world, Kongo Gumi illustrates the incredible resilience of the family enterprise model, surviving centuries of good and bad times.
However, there are unprecedented threats to this model of longevity. In a post-COVID-19 world riven with geopolitical, economic uncertainty and market disruption, family businesses are faced with complex problems, made more challenging by the unique dynamics of family relationships and governance.
In a global marketplace, where companies can rise and fall suddenly and new competitors can transform industries in the space of a few years, families can no longer rely on the traditional approaches that have proven so successful for some across previous generations and centuries.
The most prosperous family enterprises have shown that striking the right balance between resilience and adaptability could provide a meaningful answer to today’s challenges. This means maintaining and evolving the core business with a long-term view, financial prudence, and strong governance while relentlessly fostering the capabilities necessary to innovate and expand into new markets.
One of the greatest challenges facing family businesses is the question of succession. They must become better at engaging, onboarding, developing, and empowering next generation talent to avoid an over-reliance on patriarch or matriarch founders and to pave the way for smooth successions that can inspire reinvention and renewal. Too many family businesses fail because they struggle with “dinner table” politics or a stubborn founder who cannot see past his or her own successful model.
Finally, there is a need for a change in mindset. Families need to see their business within the context of an enterprise ecosystem, not just as a standalone vehicle — part of a living, breathing community of stakeholders and assets that must be managed and nurtured as a whole to withstand the pressures of the modern global economy.
We believe this four-pronged approach is now a vital prerequisite for the intergenerational prosperity and well–being of the family enterprise ecosystem, so that families can achieve their long-term aims as a collective and individuals.
The case of Kongo Gumi underlines this need to tick all these boxes. Despite pioneering the use of computer-aided design and the combination of concrete and wood to construct temples, as well as adopting a flexible, business-oriented approach to succession and a responsible, caring way of doing business through the centuries, the firm was ultimately unable to adapt to declining revenues in its temple business, the expectations of the modern construction industry, and the impact of the Japanese real estate bubble in the 1990s.
An excellent example of the willingness and ability to pivot, by contrast, is the Carvajal family in Colombia (and winner of the 2022 IMD Global Family Business Award). Originally a printing firm and producer of the Yellow Pages in Colombia, Carvajal is now onboarding its sixth generation of family members as a holding company with a broad Latin American footprint in sustainable paper and packaging solutions, technology, and real estate.
Before we explore how family businesses can evolve for the future, it is worth outlining some of the valuable, transferable insights that non-family enterprises can take from the experiences of prosperous and lasting family enterprises. For example, a focus on navigating a long and patient journey across the ocean, as opposed to adjusting course every time a big wave appears, can lay the foundations for sustainable growth and a greater sense of organizational purpose. Managing a business as a shared, long-term cooperative between diverse stakeholders, rather than a solely profit-driven venture for investors and executives, resonates in the post-pandemic era, in which society expects companies to be responsible stewards of capital rather than chasing the often-doomed dream of constant, short-term profit gains.
As an extension of this, family-run companies can act as role models for the idea of shared value and in reinventing the role of businesses in society. We have seen remarkable examples of family businesses based in Ukraine this year, paying salaries despite having to close their doors, or keeping vital operations going at a loss in the toughest of circumstances. Similar examples exist from the early phase of the pandemic, where family businesses not only rapidly adjusted their production, supported their suppliers and customers to ensure long-term success of their supply chain, or engaged in philanthropic efforts to help their communities.
While family businesses can act as role models for others, in an era of unprecedented and rapid change, an evolution in the management of family enterprise ecosystems is vital for intergenerational success and family well–being.
Why does this matter? Family businesses are the backbone of the global economy, estimated to contribute more than two thirds of the world’s businesses, making them essential sources of employment and prosperity across the world. Affluent families are also becoming increasingly influential as investors across a broadening range of asset classes.
A focus on navigating a long and patient journey across the ocean, as opposed to adjusting course every time a big wave appears, can lay the foundations for sustainable growth and a greater sense of organizational purpose
In turbulent times, we need family businesses and the families that own them to continue to do well. The question is how they can continue to do well into the future, and how they can serve the needs of society at the same time.
We believe more family businesses could survive and grow through that difficult transition of power by adopting a more holistic and cohesive approach. This starts with better succession planning.
All family businesses begin with the drive and ambition of a founder – an entrepreneur who has sweated blood and tears to build a thriving enterprise from the ground up, and to give their family a brighter future. This is the foundation of future family wealth and, inevitably, the family’s identity and values. Family businesses cannot prosper forever on the dream and achievements of one patriarch or matriarch.
The big challenge is to evolve the business over time, so that future generations can take up the reins and develop their own vision, while preserving the elements of success and fundamental values carved out by the founder.
This presents a two-way dilemma. On the one hand, founders must understand that the future will be different and that steps must be taken to adapt, primarily by paving the way to hand over power in a structured manner. On the other hand, next generation family members need to find their own way in the business while also being mindful of and sensitive to the emotions and sense of ownership of the older generation.
Onboarding could be as simple as understanding the interests of younger family members, ensuring their education meets those needs, and then integrating them into the business at a junior level to allow them to learn the business as they mature. Another path to ensure long-term engagement of the next generation is to support their entrepreneurial endeavors, which gives a greater sense of purpose and empowerment while also creating a platform for innovation that could secure the future of the company.
We refer to the family enterprise ecosystem as all of the stakeholders, relationships, and assets within the sphere of influence of the family and its various activities. This includes, but is not restricted to, family members, from core to distant relatives, employees, the board, investors, suppliers, customers, policymakers, NGOs, and local communities.
It also refers to the family’s tangible business activities and assets, investments, real estate, philanthropic interests, and family governance structures. In short, the ecosystem represents “total family wealth” – every aspect of a family’s financial, human, and social capital.
Many families do not fully understand the breadth and depth of this ecosystem and, therefore, can tend to make sub-optimal decisions. Decision making through the ecosystem lens, on the other hand, can harmonize the family and its stakeholders, spark collaboration, engagement and innovation, and lead to better outcomes for the family and its wider network. An appreciation of the ecosystem also inspires a greater sense of responsibility and stewardship, both internally and externally, which in turn better equips family enterprises for tomorrow’s world.
We believe this perspective is a useful one for other organizations to adopt, especially those seeking to build more sustainable and purposeful businesses. Without envisioning and understanding the reach, nuances, and needs of their whole ecosystem, companies cannot develop future-minded strategies that will deliver the desired impact for all stakeholders and create the shared value that the world economy requires for future prosperity and survival. In fact, we see this “ecosystem” mentality as the bedrock of success for the businesses of the future, family-owned or otherwise.
Beyond effective succession planning, there is a need for families to rethink how they do business and how they function within their ecosystem. We see five areas of health and well–being that must be nurtured with equal importance to compete in today’s environment.
1 Personal health and well–being. Individual family members must look after their physical and mental health to contribute to the ecosystem in a meaningful way, but also ensure good levels of education among their family members. Many families hire health and well–being advisors. Health is all the more important in family businesses, which can often rely on a hands-on family CEO who may have led the business to success and continues to control many of the big decisions. The business could be at risk if that individual falls ill. Indeed, “If you aren’t well on the inside then you can’t be a good leader,” John Elkann, Chief Executive of Exor, the holding company for Ferrari, CNH Industrial and other companies, once said.
2 A healthy family unit. Depicted in the TV series Succession, family empires can be spectacularly vulnerable to the quality and health of the relationships between relatives. There have been famous examples of feuds taking their toll on not just families, but their businesses too. Frank Stronach, the billionaire founder of Magna, sued his daughter Belinda, his handpicked successor, as well as her children and others, for $520 million for alleged misappropriation of company funds and locking him out of the family’s horse racing and betting empire. The Koch brothers, owners of Koch Industries, were some years ago locked in a long-running feud in the US.
How can families avoid these catastrophic schisms? We advise families to implement clear governance, decision-making and succession processes, as well as an agreed family vision, to protect the business from the ups and downs of family life. Without these structures in place, longevity and the preservation of intergenerational wealth can become impossible.
3 Healthy family enterprise ownership. One of the key transferable insights for non-family organizations is the way in which families perceive their role as “owners”, often considering themselves rather as long-term stewards of their enterprises, employees, customers, communities, and other stakeholders – their ecosystems. This requires a unified, connected, and well-informed ownership group that is capable of open exchange and collaboration. Healthy ownership is based on a strong family vision, values, and business strategy. It means onboarding the next generation to find their place in the legacy business and feeling empowered to innovate as responsible future owners with a sense of duty, privilege, and pride. A long-term, patient, and big picture approach is also pivotal, rather than focusing on short-term achievements. Kongo Gumi developed a “creed” that resonated through the centuries with tenets such as “listen to what the customer says”, “never fight with others”, and “communicate with respect”.
4 Organizational performance. Family businesses must have world –class leadership and governance structures in place. Where there is too much dependence on a founder or the founding businesses, family businesses have to must manage competing in an increasingly demanding marketplace, while also striking the right balance between family and business needs, and also and evolving their offering and planning to keep the next generation engaged. Alongside clear roles and responsibilities between the ownership, board, and top management, family businesses have to must find the right mix of family and non-family talent to ensure they embrace the correct professional competencies and appropriate level of family engagement.
5 Societal and environmental impact. In a world in which organizations are seeking to become better stewards of capital and the planet while embedding sustainability and purpose at the heart of strategy, family businesses offer valuable lessons. Their long-term view and deep ties to employees, suppliers, and communities can create a sense of stewardship and responsibility, bolstered by diverse philanthropic activities that many affluent families engage in. Next generation family members also tend to act as a force for change within family enterprise ecosystems, nudging older generations and the family business towards more purpose-driven models. This can lead to tension between older and younger family members, but ultimately the future health of any family business rests in on the vision and passion of its future owners.
The most successful family businesses have shown tremendous resilience and adaptability through the ages, but against a backdrop of heightened uncertainty and rapid disruption and changing social expectations we believe families must adopt an “ecosystem” mindset that embraces a holistic, cohesive approach based on the “five stones” of well–being, supported by innovative succession planning. This approach could also reap rewards for non-family enterprises as companies move away from purely profit-driven models and seek out effective strategies built upon purpose, shared value, and sustainability.
Many family businesses were proactive during the pandemic. Ford and Dyson, for example, adjusted production to produce ventilators, while LVMH and Ralph Lauren, among others, manufactured masks and gowns.
Patagonia, the outdoor clothing company, paid salaries even when stores were forced to close, and Walmart increased employees’ wages to help them through the crisis. Around 80% of the largest family enterprises are philanthropic, LVMH and Agnelli among them, and their generosity continued despite the economic downturn.
Professor of Family Business and Entrepreneurship at IMD
Peter Vogel is a Professor of Family Business and Entrepreneurship, Director of the Global Family Business Center (GFBC), and Debiopharm Chair for Family Philanthropy at IMD. He is Program Director of Leading the Family Business, Leading the Family Office, and the Lean Intrapreneurship program. He is globally recognized as one of the leading family business educators, advisors and academics, has received numerous awards and recognitions and is the author of the award-winning books “Family Philanthropy Navigator” and “Family Office Navigator”.
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