Very few family businesses survive across generations to become 100-year family enterprises.
I’m involved in an ongoing research project that’s gathering the collective wisdom of inter-generational families who’ve sustained shared family values and identity, along with partnership over successful business and financial ventures over three or more generations. (We refer to them as “generative families.”)
We asked family leaders to look back at their evolution and tell us what they’d done to succeed across generations. We’ve interviewed family leaders from 70 families who created strong, coherent, united, and vital families over several generations, despite facing complex internal and external challenges.
What enabled them to succeed against such odds? Their wisdom can guide the creators of new wealth to build their own families for the future. Seventy percent of our respondents come from the United States; the others span four continents.
Almost all have a family net worth in excess of $200 million, with a median of $700 million. More than two-thirds traced their family enterprise history over 100 years. About half of them still own their legacy family business, many of which have grown to be public companies. Most have diversified into a family office with various shared assets.
All of them have sustained a sense of family identity and vital business and financial success over at least three generations.
Generative Families
What differentiates these families?
The 100-year family isn’t a bystander to its wealth. After the first generation success, our 100-year families decided to use their material success to create a second successful entity: a connected family with shared values that are dedicated to making the highest and best use of the special resources and opportunities that they’ve been given.
They invest in a conscious family, a group of individuals who are personally tied to each other through a legacy and a commitment to becoming stewards for their own and future generations.
Evolving Across Generations
Viewing the cross-generational development of a family enterprise, the family increasingly differentiates itself from its family enterprise, while maintaining deep linkages and interconnection. They achieve this using several cultural practices and qualities they develop over time.
Over generations, we noticed an increasing focus on professionalism, transparency, collaboration, and a family united by shared values and purpose. As the family increases in numbers and complexity of assets, each generation recommits to the united family and elaborates on the practices that develop these practices. Each of the first three generations faces common challenges set by biology and business evolution.
The resolution of each generation’s challenges sets the family up to face new challenges in the future. The first generation (G1) usually features an entrepreneur whose vision succeeds beyond his wildest imagination. His children grow up viewing his achievement with huge expectations that they continue. They must learn to manage the fruits of their good fortune, work as a team and develop values of stewardship and responsibility.
While there may not be a single moment in which the family decides, “We are going to create a great family,” at some point in the second or third generation members see the need to develop policies and structures and engage each other in the work of developing a family organization.
They invest in the development of family connection, unity, and capability. Doing so involves several tasks. They must set the family business, or businesses, on a professional footing, sometimes by limiting the opportunities for family members to be involved.
At the same time, they unify and develop the family, with regular family activities, philanthropy commitments, and next-generation education. If they’re to enter a fourth-generation (G4), the family must actively renew its vision and commitment with each new generation of family members, while still developing a highly professional and sometimes a public company. Many families sell their legacy business and create a family office and investment group, which demands a substantial shift of focus, skills, and activity. These post-G4 families also initiate shared educational and philanthropic activities often including 100 or more family members.
Family Councils and Constitutions
A generative family isn’t just a bunch of cousins who like each other; they’re the stewards of an extensive portfolio of assets.
Each generation includes more people with diverging interests who must decide not just who’ll be the leader, but also what sort of engagement they want with each other. A tight partnership or a loose coalition?
Cousins have to get to know each other, and they all have to decide what they want from their assets and how to manage them. In the second generation (G2) or third-generation (G3), the family builds an organization, representing all family members who choose to work together. They develop a representative group—a family council—and maybe other task forces or workgroups, to organize their activities.
They also define shared values and policies that govern the council, family get-togethers, employment, compensation, distribution, and sale and exit. All of these must be agreed on and administered; they just can’t be imposed by the prior generation.
These policies are often codified into a document called a “family constitution,” which brings together and expands on the legal, trust, and shareholders’ agreements. for all of the family ventures.
Our interviews illuminate how these developing practices lead to an increasingly well-defined, explicit, and complex family and business organization over generations. A family begins to build these in the second generation.
As the family grows in numbers and the enterprise grows in complexity, each generation creates more highly developed organizations. We found that successful families discovered a way to have each new generation renew the family commitment to shared ventures.
Each succeeding generation—having more people and greater complexity—develops higher levels of organization and focus to survive. “Governance Policies and Practices,” shows the progressive development of family and enterprise governance activities as a family reaches each generational milestone.
The number of families that use each of these practices evenly increases over generations, until, by G4, nearly every family uses every practice.
Tune in next week for more on lessons learned from 100-year-old family businesses.
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Reprinted with permission from “Borrowed from Your Grandchildren”