Two things ensure a family business is successful and endures:
- Its ability to perform and be profitable; and
- Its ability to keep the family devoted to the business
I’ve been fortunate to work with some of the most prominent family offices in the world in recent years. And one thing that has always amazed me is the way some of them have managed to endure over many years and keep individual family members engaged.
Not so long ago I had breakfast on Hampstead High Street (London) with a family that has over 100 family members working within their business empire, which spans the globe. “It’s gotten to the point,” said one of the family elders, “That we are advising young family members to go work elsewhere and first gain some experience in industry before joining the family business.”
It’s quite something when a family business has lived past three generations. That’s because only a minority of family businesses even transition to second generation family owners. They say that by the time a founder’s grandchildren take the helm, the business is not far from its final days.
As a family business expands and new generations of family members become involved, the task of preserving and expanding the business becomes increasingly challenging. It necessitates the development of a unique set of skills, including tactical governance and strategic thinking. The family must be flexible and continuously evolve to meet the changing demands of the business.
Having worked closely with large family offices and family businesses – I’ve helped them make investments, raise capital, acquire companies and more – and spent time with them in more informal settings, I’ve come to identify some important factors that have helped them along the way.
I’ll write about each of them over the course of several posts.
#1: Working in the family business is NOT a given
You don’t give away a senior post to Peter just because he’s your son. But that’s something which often happens with family businesses. You’ve got a boy or a girl who has never had any interest in the family business and has spent a decade or two unsuccessfully and half-heartedly pursuing various projects, suddenly join the company because he or she has always known they could do so if they wanted to. That is, they’ve always had a nice fallback plan.
So one very fine day, Peter assumes a very senior position despite a) not having gained the requisite skills or expertise and b) not having genuine interest in the business.
It's possible that Peter will perform well in his role, but it's more likely that he won't meet the performance level required to drive the business's growth to its full potential. As a result, the family business may struggle in the long run.
Some of the larger families I’ve known encourage younger generation individuals to complete their university studies and gain several years of experience working with another company before applying for a role within the family business. Some of the very established ones even have set pre-requisites and expect graduate degrees and experience working for specific organisations such investment banks or management consultancies for several years, where, importantly, they must also show job progression and not simply coasting along.
What’s more, if a family member proves they are a fit for the family business / office then they’re not given special treatment. They’re paid market rate and the same as non-family members. So no special status, and they’re also subject to firing if they behave inappropriately or prove they’re unable to carry out their duties.
So to recap, family members are not given special status when it comes to joining the family business. They must earn the right to work there, like anyone else. Of course, there's always some level of favouritism - it's unavoidable - but limiting it is key here.
Family before individual.
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For a comprehensive list of major family offices based around the world, click here.