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The “Why?” Exercise

Dana Telford
Dana Telford

I refer to a favorite consulting tool as the “Why?” Exercise – a process that utilizes repetition of the question “why?” to discover the guiding principles behind decisions. I’ve found that when working through the question, some clients realize they may be abandoning long-held values for other perceived short-term gains in status, power, wealth or comfort.

Some years ago a client (Jeff) and his wife (Rhonda) were given the opportunity to go on a service mission to a developing country in Latin America – something they had both hoped for and worked toward for many years.  When faced with the question “what to do with the family business?” they felt it was time to completely dedicate their lives to charitable service, to include gifting their assets to their church rather than passing them to their 8 children.

As I talked them through the Why? Exercise regarding this decision, a fascinating complication came up.  I learned that early in his career Jeff had been employed by his church to manage charitable gifts.  When pressed, he confessed that he did not believe that the well-intentioned folks in the charitable gifts department could fully appreciate the blood, sweat and tears he had invested into amassing the wealth.  He knew that their job was to graciously accept the gifts, assess value, provide tax documentation, meticulously dismantle the empire, sell the pieces to the highest bidders, and collect the funds for the benefit of the church.  With careful thought he realized that the thought of his businesses and assets going through this process left him feeling empty.

The alternative – to give and sell assets to their children – also caused them concern due to long-standing sibling rivalries and an overall quest for peace in the family as they prepared to leave the USA for two years.  Based on my time spent with their children and in-laws, I felt that they were talented and diligent and capable of working together, and I told them as much.  I also voiced my opinion that they would have a much higher chance of appreciating the Legacy and protecting it for another generation.

After further Why? questioning and discussion, Jeff and Rhonda realized that keeping the assets in their family was a more authentic reflection of the guiding principles they had followed as they raised their family and built their businesses – faith, family, hard work, education and service.

Jeff and Rhonda’s dilemma over the future of their business is only one example of the myriad emotional decisions that you face as a business owner. No matter what your own motivation is for building, nurturing and growing your business, keeping your “why” centered in your view through the decision making process will help you ensure that the business continues to grow in keeping with your  values and in a way you can be proud of.


How Parents Influence Wealth of Their Children

by John Ward

That wealthy parents beget wealthy heirs is well researched and proven.  In fact, parents in the top quintile of wealth and the bottom quintile are very likely to have children of the same wealth category through their adult years. The top fifth has one year’s earnings of net worth; the bottom fifth has but six weeks of net worth. Curiously, the gap is the same in Sweden – the land of perceived equality – and the USA – the land of perceived inequality.

But, until now, there hasn’t been a study explaining exactly why that’s true[i].  There are theories that the next generation inherits a leg up and those that believe the next generation learns certain approaches to money.

What do you think?

  1. Kids of parents of wealth earn more in their lifetime.
  2. The next generation creates wealth by investing in homes – as their parents did.
  3. Kids from wealth learn to do riskier and higher return investing – just like their parents do.
  4. The next generation benefits from inheritance bequests.
  5. The next generation benefits from lifetime financial gifts from their parents.
  6. The next generation follows the lead of their parents with better education.
  7. The heirs learn to save more money from their parents.

The answer:

1, 2, 3, and 4 are true in that order of influence. 5, 6, and 7 have no influence on children’s wealth accumulation. Purchasing homes sooner and investing in high return ways are the two most discriminating factors of heirs of wealth. In conclusion, what’s learned at home about how to manage money is more important than the passing of wealth from one generation to the next. (Unfortunately the same holds true for the poorest of the next generation.) Parental example is what really matters.

[i] Now there is, by researchers Peter Lundgren of Stockholm School, Thomas Jansson of Sveriges Riksbank, and Todd Sani of the Wharton School.




Craig Aronoff
Craig Aronoff

A friend asked about the impact of wealth on the children of families owning significant assets.  What’s the secret, he asked, to helping such children achieve reasonably well-adjusted adulthood?  Indeed, I was reminded of one client who shared his fear that making his kids rich would make them “poor” human beings.

Here’s the answer I offered — recognizing the complexity of the challenge:  Parent’s must help their children understand that wealth — while it may provide ease — does not provide easy answers.  Only through work — meaning only through the investment of one’s self — does life gain substance and meaning.  Work does not necessarily mean “working for pay.”  It means working for achievement and it means working at relationships.  If one doesn’t work at fulfillment through achievement and relationships, then things don’t work — and life doesn’t work very well either.


Family Business Innovation: Doing Less; Doing it Better

by John Ward

A recent academic article[1] explored what’s known about innovation in family firms. My conclusion is: Family firms do it less and do it better.  (The article focused on technological innovation – not ownership or leadership or management innovation where one might find the more special family business particularities.)

Family firms innovate for diversification and long-term security.  They do less R&D and less globalization.  They do less because of an aversion to risk, because there may be family-owner conflicts of investments in innovation, and because they see fewer outside opportunities due to their more internal perspective.

On the other hand, family firms do what they do better and more successfully.  Family ownership provides stronger and more long-term oriented project leadership and more solid commitment of resources. There is also a more long-term patience for the benefits of innovation. And, because of inherent frugality, there is more productivity from innovation initiatives. Further, family firms assess innovation opportunities faster and with the perspective of the greater good — altruism – rather than local selfishness.

One particular capability of family firms is their managerial “ambidexterity.” All these advantages are stronger if ownership is more concentrated.

Much more research is called for in other forms of innovation – such as administrative and ownership innovation.

[1] “Research on Technological Innovation in Family Firms: Present Debates and Future Directions”, Alfredo De Massis, Federico Frattini and Ulrich Lichtenthaler, Family Business Reivew, March 2013


Family Business in the Age of Uncertainty

Bernie Kliska
Bernie Kliska

In today’s business environment, there appears to be many issues for family businesses to be concerned about.  The demands and tensions during these uncertain times highlight even more clearly the need for trust and open communication between family members.  It also emphasizes the need for economic discipline, clear policies, and well-established systems of family and business governance.

A major concern today is the uncertainty of what Congress will or will not do in the future.  Acknowledging the current bewildering political environment is important.  It helps people understand that it is natural to feel uncertain and anxious during these times.

Family businesses seem to be more resilient during uncertain times because they tend to focus on long-term goals.  They work not only for the current generation of the family, but also for future generations as well.  They naturally tend to be more entrepreneurial and adaptable.  They also usually have a deeper reservoir of loyalty to draw upon, not just from each other, but also from their employees.  They are less prone to lay people off and more willing to hold onto employees longer.  For that reason, they often have a more dedicated and motivated work force.

What differentiates lasting family businesses from non-family businesses is an acknowledgment that they have challenges and they embrace those challenges.  There is a willingness to work towards resolving them.

We may not be able to destroy the beast of uncertainty, but we can definitely put it in its cage, where all it can do is occasionally rattle the bars and put on a distracting show.


Spring Cleaning- Parting with Treasures

Jennifer Pendergast
Jennifer Pendergast

Spring cleaning is a time to go through everything that has accumulated during the year (or years, depending upon how often you go through the ritual!) and determine what is still relevant to your life.  This ritual can serve as an analogy for the important process of evaluating people that support your family business –  board members, advisors, service providers – to ensure they are still the people you need to achieve your goals.  Family business owners are often challenged by the prospect of replacing someone who has been invaluable to the business over the years but who may be ready personally to move on or who is no longer a good fit.  Often these individuals stay on longer than the family or they would like because no one is willing to broach the subject.  Recently I watched a client deal with the retirement of a long-time board member in a courageous and honorable way.  The family members on the board informed this gentleman, a board member with well over a decade of service, that they felt it was time to refresh the board.  They asked him how he would like to handle the announcement to the board – Would he like to retire or resign? Would he like to tell the board or would he like them to tell the board?  Then they planned a dinner honoring his service. They worked with his wife to identify a gift that would be special – in this case tickets to a sporting event and an opportunity to meet the owner of the team.  All of these steps showed respect for the director’s contribution and allowed the process to unfold in a way that made him comfortable.  The result – the board members and family involved felt good about the decision.


Spring Cleaning – Organizing

Jennifer Pendergast
Jennifer Pendergast

Due to our long winter this year, my mind has just turned to spring cleaning.  The concept of spring cleaning – organizing, starting with a clean slate, focusing on priorities and getting rid of what’s not so important –  has a number of applications for family business.  So, let’s dedicate the week to Spring cleaning!

I spent a lot of my time with family business clients developing policies and processes to create order and accountability, increase family harmony and ensure the family and business operate effectively.  Often, hours of work goes into creating these rules, sometimes involving difficult family conversations and multiple revisions until the family is comfortable with the result.  Once all that work is done – what happens?  The policy is saved on someone’s computer under some name, and then…..  I often get calls from clients two or three years later asking me if I have the final version of a policy.  They can’t locate the document they spent so much time and care creating.

So, my first spring cleaning suggestion – create a protocol for how you name, store and revise your important family documents.  Each document should have a header or footer with an embedded date so that you can track versions.  A common naming protocol should be used – for instance, if a document is final, you might use final in the name.  If it is a draft, you might include the word draft and the date in the name.  And, you should use the same name for the same type of document. So, if you keep minutes of family council meetings, they should have the same file name each time with the appropriate date included, for example, FBCG board minutes 41013.

The naming protocol should be agreed upon by everyone involved in creating or revising family documents so that the standard form is followed.  Then, a central repository for documents should be created.  And, that repository shouldn’t be your family business consultant! Or the head of the family council, for that matter.  Ideally, a location that is protected and will last over time should be selected.  The company intranet or a family website is ideal.  The goal is to have a place where an archive can live for a long period of time.

For those readers who already have policies and other important family documents developed, take advantage of that spring cleaning spirit and review your current files.  Purge old versions or drafts that aren’t needed.  Consider renaming the ones you have in a standard format.  And, agree to a home for them.  When next spring rolls around, you will be glad you did!


Results from On-boarding Survey

Last month’s Family Business Advisor (FBA) article touched on the process of ‘on-boarding’ new employees in the company.  We asked readers and our advisors to comment on a few questions based on their experience, and we are summarizing what we heard.  Please note, we cannot draw any scientific conclusions from this exercise – rather, it is food for thought & perhaps further discussion…

1) When asked if family businesses were better, worse or no different than other companies when it comes to ‘on-boarding’ employees, more of our respondents suggested family businesses are likely ‘worse’ or no different.  A couple of interesting caveats: first, the vast majority of our colleagues (all professional advisors to many family businesses) responded ‘no difference’ to this question.  Second, if we look at some of the comments from readers, we get a sense that some family members may have struggled with their own on-boarding because of the high degree of scrutiny that can come from being ‘the boss’ kid…’ – which also aligns with the answers we got to question 2 below

“Worse when onboarding a new employee who is a family member, not necessarily worse when onboarding non-family employees”

2) When asked who had a better ‘on-boarding’ experience, family or non-family employees, both readers and FBCG advisors tended to weigh in on the side that non-family employees had an easier time of this.  One reader’s quote adds some depth to the opinion:

“We have hired many more non-family family employees so the process is more standardized and doesn’t involve the extra complexities that can exist when bringing in a family member.”

However, an interesting ‘counter-view’ (that it may be easier for a family member to onboard) is captured in this quote, which speaks to the family benefit of familiarity:

“When I joined the business I already knew many co-workers and senior management, from working there over summers and company functions/picnics where the family has been involved.”

3) Finally, when asked to rank the importance of certain ‘best practices’ around on-boarding next generation family employees to the business, both the readers and the FBCG consultants came up with the same relative hierarchy.  A few comments underscored that all of these are important or valuable, but when forced to rank, the following order emerged, starting with the most valuable:

1) The new family employee works outside the family business first
2)The new family employee starts working at the right job
3) The family employee reports to a non-family member
4) The family employee participates in the same performance feedback process as other comparable employees
5) The company board is actively involved in the onboarding of the new family employee

We deeply appreciate everyone’s participation in these ‘mini-surveys’ and hope readers gain some additional insights alongside us as we seek to hear from readers about their lived experienced with these complex topics.  We hope to continue to send out questions to our readers and are always looking for innovative ways to engage folks in the dialog.  As always, if you are interested in learning more about how the Family Business Consulting Group, Inc. may be a resource to you and your family, please do not hesitate to reach out.

Gratefully, the Family Business Advisor


Family Business: A Valuable Marketing Tool

Bernie Kliska
Bernie Kliska

Businesses that are family owned are increasingly marketing themselves as a “Family Business.”

Surveys indicate that people generally have a positive view of family businesses because of the principles associated with it. They tend to focus on resilience and legacy. The owners of a family business usually have a long-term incentive to protect the reputation of both the business and the family, particularly, though not exclusively, if the family name is “on the door.” This can translate into better service and integrity, which in due course could lead to higher trust and loyalty among customers.

Some of the businesses that identify themselves as a family business are: Walmart, Mars, Becktel, Cargill and Koch Industries. Koch Industries is named for its founder Fred C. Koch who formed the foundation of what eventually became the largest privately held company in the United States. Perdue Chicken always uses a family member for their television commercials. S.C. Johnson ends all of their marketing materials by stating “We are a Family Business.”

If you have a family owned business, it is something you should be proud of. This is who we are. Keep getting the word out and take advantage of your unique situation.


Using History as a Leadership Tool

By John L. Ward

Business historians John Seaman and George David Smith wrote a superb article for Harvard Business Review (December 2012) that has particularly great value for family business leaders. Wise leaders can use their company’s history for many benefits:

  • Create a stronger sense of identity for employees ‐ ‐ they are affected with something larger than themselves
  • Show the need and capacity to adapt illustrating such from the past
  • Argue that successful change is possible and that adversity can be overcome with examples from before
  • Promote the enduring values that shape the culture ‐ ‐ especially drawing on stories from before
  • Learn the obstacles to change from understanding the history and culture
  • Broaden perspective when making significant decisions by exploring analogies from before and now

We find family businesses have an especially acute appreciation for history from which they can particularly benefit as outlined above.

The article reinforces some axioms we find well practiced by successful family business leaders:

  • Embrace tradition as a way to prove that, indeed, the company has a long history of change ‐ ‐ a tradition of innovation
  • When leadership changes, emphasize the platform of values that don’t change before promoting a new vision
  • Find those authentic values of the past that will enable the new behaviors for success ‐ ‐ reinterpreting their meaning in the contemporary context

Interestingly, the primary example used to argue these principles was the 3 generations of leadership history at IBM. The values regenerated to support a new future were:

  • Focus on customer needs and
  • customer service and
  • long term relationships and pursue
  • break through innovation

The authors conclude that IBM’s leadership, “found in IBM’s history a usable past ‐ ‐ one that helped them…persuade people to embrace necessary solutions to deep–seated problems, but also grasp the nature of these problems in the first place.”

As Seaman and Smith well show, history is a leadership tool more than an anniversary with “balloons and fireworks”.