In turbulent times, family enterprises must reinvent and renew to survive

The five stones of family business 

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.