Tag Archives: legacy

Legacy and Evolution

Jennifer Pendergast
Jennifer Pendergast

One of the key differentiators of family businesses is a committed ownership group who are proud of the legacy their family business represent.  Research shows that family businesses outperform non-family businesses, and this focus on the importance of legacy is one of the contributors to superior performance.   However, an overemphasis on the past can also have a negative impact on family business performance. 

Ability to change is also important.  Every generation is different, and requires different structures and rules to succeed.  Take just one element – ownership structure.  In earlier generations, many family business owners created a structure where stock was consolidated in the hands of those who involved in the business.  Many felt the alternative of entrusting ownership to family members who may not be as interested in the business could lead to non-employed owners getting in the way of family management’s ability to make decisions.  Further, some thought it unfair that those not involved benefit from the hard work of those involved in the business by participating in the financial gain created by employed owners. 

While this model of ownership may have served a family and company well in the past – as the business evolves and typically gets larger, there can be many benefits to cultivating a group of informed and committed owners who are not employed in the business.  In the interest of brevity, lets just focus on the financial benefits. 

By limiting the ownership group, family businesses may limit the pool of capital available for investment in the business.  For instance, if a business founder has 3 children, only one of whom goes into the business, and he decides to give the business to that child, he will often make a financial gift to other children to treat them equitably.  That money could have been used to fund business growth.  Or, if he gifts shares to all three children at a young age but requires them to sell back their shares to the company if they decide not to pursue a career with the business, again the business capital is limited.

A great strength of family businesses is the patient capital they have by virtue of an ownership group that is interested in managing the business for the long term.  This mindset leads family ownership groups to support management decisions that contribute to long-term business success even if they may not show immediate results.  In fact, research shows that family businesses invest more in R&D and employee training than non-family businesses.  The benefit of a larger ownership group is that they provide capital at a lower cost with a longer time horizon than other investors (including banks) – providing their businesses with a significant competitive advantage.   

So, let’s circle back to legacy.  A commitment to the principles that served the business well in the past is important.  Equally important is a thoughtful analysis of what changes need to be made as the business evolves.  Just as it would be impractical to use a typewriter to generate business correspondence today, it may be impractical to maintain the same ownership requirements from generation to generation (or the same employment requirements or other elements of the family legacy). 

Honoring legacy is important, but if part of that legacy is a desire to maintain the business for generations to come, perhaps a new addition to the legacy needs to be an ability to change.

Spring Cleaning – A Fresh Start

Jennifer Pendergast
Jennifer Pendergast

We’ve devoted the week to spring cleaning. For many people, the process of spring cleaning is not much fun, but they do enjoy the outcome – a more organized, clean and clutter free environment. Family businesses aren’t the best at fresh starts, and indeed getting rid of history, legacy and culture can take away what can be one of a family business’ greatest strengths.  However, we all know of elements in our family businesses that we would be better off leaving behind, inter-personal animosity from prior generations, outmoded business practices, or unhealthy family dynamics.  Families have a difficult time letting these things go, because they represent an important part of the family history or perhaps the family  isn’t even aware of the pattern they are perpetuating.  Whether these unproductive elements of the family are acknowledged or not, they would benefit from spring cleaning.  Consider one of two exercises for your next family gathering –

  1. Ask each family member to write down one thing about the way the family works that they would like to keep and one thing they would like to let go.  (Note that saying “let go” rather than “get rid of” takes the sting out of the process).
  2. Ask the family to think about starting with a clean slate.  If you didn’t have your traditions, history, legacy, what is one thing each person would do differently than what you do today?

Either of these exercises will lead you to a productive discussion of what things your family might want to leave behind so that it can operate in a more organized, clean and clutter free environment.

Two Interesting Family Business Lessons from the Holy Land…

Stephanie Brun de Pontet

 

Did you know that it is a Muslim family that holds the key to one of the most sacred churches in Christianity?  Further, did you know that they have been fulfilling the obligation of opening and closing this church every day for centuries:

The Nuseibeh family was first made custodians of the key when Caliph Umar Ibn Khattab first conquered Jerusalem in 638AD. The only gap in the family tradition was during the 88 years of Crusader rule in the 12th century, which ended in 1187 when Saladin recaptured Jerusalem and promised Richard the Lionheart that he would restore the Nuseibehs as the custodians of the key.

As the current generation prepares to pass this important responsibility on to his son, they represent two important lessons for all families in business.  First, sometimes the ‘best choice’ to take over an important responsibility is an individual or group that is deeply trusted and seen as free of any ‘agenda.’

His ancestors were chosen for their long service and ability to navigate the sometimes violent rivalries between the various Christian sects represented in the church. “I am the custodian of the key of the Holy Sepulchre,” said Mr Nuseibeh, 62, as worshippers made their way up the Via Dolorosa through Jerusalem’s Old City to mark Good Friday. “I see these people and I feel how important the task is, how good it is that my family has held the tradition all these years. I am proud that my family will continue to hold this honour.”

Second, teaching the value of the legacy of stewardship is incredibly powerful.  While pride is important, communicating some reverence for the responsibility and the benefits one is hopefully able to confer to others (for business owners through creating good jobs, delivering an excellent product, etc.).  As the son gets ready to assume his father’s role, he states:

This year, Mr Nuseibeh will pass the responsibility as key holder over to his son, 30-year-old Obedya Nuseibeh who works by day as a hairdresser in Jerusalem.After the Easter festival he will begin to take over responsibility for his father’s gate-keeping, arriving at the Church at 4am to open the doors, and at 8pm to lock them shut. “I’m nervous I won’t do it correctly at first, there is a lot of ritual to remember. But I’ve been watching my father do this for years, and I think I know it very well,” said Obedya. “My father advised me to stay neutral, to remember this is an important, historic role.”

Food for thought for all of us.

Full article can be read at: http://www.thetimes.co.uk/tto/news/world/middleeast/article3726764.ece

 

Can I leave it to the children?

Albert Jan Thomassen

I often get asked this question by business owners who wonder if they should put the burden of owning and running a family business on the shoulders of their children.

They remember the sleepless nights, tough times and challenges they had to face in their own business life. In my opinion, a better way of phrasing the question might be: “Why do I want to pass on the business to my children?”

In a recent seminar this question was asked to the participants all facing succession in the near future.  Inner motives characterized most answers from the senior generation: ‘It brings pleasure and is motivating’, ‘It makes us proud if they want to continue the business’, ‘Just ego-driven: the legacy will be continued’ and ‘We want to give them the opportunities we have had’. Some gave an answer by giving advice to their children: ‘If you want to be a business owner then being an owner of your own family business is the best alternative you can imagine’ and ‘You have to work to make a living, so may as well work for yourself’.

An inner motive to pass on the business does raise the question of if you can bother your children with the business – as the desire to transition is coming from you – rather than from them.  While having this motivation is fine, it is also important that you encourage and allow your children to discover for themselves their own inner motivations and talents.  You will not be ‘bothering them with the journey’ if it is a journey of their own free choosing.  If they are eager for the challenge and equally motivated to take over the legacy, then you can really be proud that this brings pleasure to you both that the business will make a successful generational transfer.

Loose and tight controls

Jennifer Pendergast
Jennifer Pendergast

Family businesses often pride themselves on maintaining a strong and consistent culture built on the family legacy and values.  While this adherence to a strong culture can be one of the greatest strengths of a family business, it can be particularly challenging when entering foreign markets. 

Family businesses that successfully expand beyond their country borders manage the balance of loose and tight controls.  They identify the key elements of their culture – the ones they can’t operate successfully without – and develop ways to transmit them across borders.  Transmission mechanisms may be formal – such as training programs or  job evaluations that measure adherence to culture.  Or, they may be informal, such as visits from headquarters personnel to remote locations or opportunities for managers in remote locations to visit headquarters. 

At the same time, successful international family businesses understand when they need to relax their culture to accommodate differences in international markets.  Successful international family businesses in a recent study unanimously supported the empowerment of local management to run their international operations.  Clearly defining priorities for those managers at the outset, gathering data that allowed home country management to track performance and hiring strong in-country talent were all identified as keys to success.

A Legacy of Christmas Past

Norb Schwarz

Family business legacies frequently offer life long benefits beyond the business.

At Christmas time each year I am reminded of the many learning experiences my brother and I had working in our small family business. My father had a fruit and vegetable stand in Milwaukee, and during the Christmas season he sold Christmas trees and wreaths to support his seasonal business. My brother and I worked the Christmas tree lot with him every year. Doing this we learned some valuable negotiation and sales skills. We had all sizes and shapes of Christmas trees, and none of them were marked with prices.  Our father gave us general pricing guidelines depending on the size and fullness of each tree. The objective was never to have a prospect leave the lot without a tree. However, when a customer came on the lot, it was up to us to get the best price for each tree sold. The sale process included getting a general idea of what size tree the customer was looking for and above all how motivated he or she was to purchase. Once we got the preliminary information on tree size, we would walk the prospect around the lot and occasionally pick up a possible sale tree, shake the snow off the branches, and make our best case for a sale. Larger trees were a problem because the snow removal process usually meant snow falling down on our heads and down our backs. After our first year on the lot we lost very few customers, and we seldom sold a tree below price target guidelines.

Our greatest opportunity for both learning and profit came on Christmas Eve however. Our pay for working the Christmas tree lot each year was for my brother and me to take title to all the trees left unsold on Christmas Eve. On Christmas day the trees would be worthless, and our customers knew it. So the bargaining was difficult and became more intense as we approached 6 PM when we closed the lot. On occasion we would have to let a reluctant prospect know that we preferred to use the branches as ground cover than sell the tree for an unfair price. We seldom had more than a few trees left, and we always had enough income to more than compensate us for our work those few weeks prior to Christmas. We didn’t know it at the time, but we were learning entrepreneurship in an OJT (on the job training) environment.

Looking back on our work at my father’s Christmas tree lot, I am reminded of how our father used the experience to teach my brother and I some valuable life lessons. In addition to establishing a strong work ethic by working long hours in the cold and snow with an unknown future payoff, we learned negotiation and financial skills that helped us in our future professions in the legal and financial communities. While our family business may not have made it to the second generation, the values and experiences learned during those years are a legacy my brother and I have treasured throughout our lives.