Only 30% of family businesses survive into the second generation. This means that in 70% of family businesses, the family loses control of the assets, and relationships are potentially destroyed.Â Family businesses can go under forÂ many reasons, including conflicts over money, poor management, and fighting about the succession of power from one generation to the next. But there are typically some common fault lines that lead to family business breakdowns. A lack of trust and communication are responsible for 60%Â of family business failures. Many family businesses lack a sense of shared purpose. Family members too oftenÂ avoid tough issues by avoiding meaningful conversations. Left unaddressed, these tensions increase distrust in families and obstruct performance in their organizations. But with the right skills, high-trust relationships and structures in place, such breakdowns can be overcome. This article discusses some practical suggestions for aligning a family businessâ€™s shared purpose, mutual trust, and collective decision making.
Power and control impact family businesses, just like any other enterprise. What makes the inevitable power and control struggles even more complex in a family business are the family dynamics that play a significant role in decision-making and succession planning. If family dynamics are not centered on a shared purpose, the result is often organizational friction and low performance. A common mission, high-trust relationships, and effective decision-making can help to bolster family-business performance, especially in todayâ€™s uncertain business climate.
We see these tensions play out both in the marketplace and in popular culture. In the award-winning TV series Succession, a patriarch wields power and control from the top of an international media conglomerate. As he contemplates his succession plan, he suffers a heart attack. His three children see an opportunity to seize power and run the company on their terms. SuccessionÂ demonstrates that, even when expert succession plans are in place, they are insufficient to protect a family from imploding. A shared purpose among all family members is crucial.
Large family companies wield significant influence in their industries and on the global economy. These companies have combined annual revenues of more than $9 trillion, and directly employ around 30 million people. The growth and sustainability of a family business and its impact on the economy lies in the fine balance between the businessâ€™s needs and family membersâ€™ expectations.
We work with families to diagnose the â€œfault linesâ€ in their enterprises by assessing their current levels of trust, sense of a shared purpose, and clarity around decision-making. Here are four common fault lines that lead to family business breakdowns:
- Lack of trust:Â Only 30% of family businesses survive into the second generation. This means that in 70% of family businesses, the family loses control of the assets, and relationships are potentially destroyed. A lack of trust and communication are responsible for 60% of that failure rate.
- Lack of a shared purpose:Â Although family members in different generations may have different values, a shared purpose can help employees to align their values and interests in support of a common mission.
- Control vs. care:Â Family businesses can go under for many reasons, including conflicts over money, poor management, and fighting about the succession of power from one generation to the next.
- Cordial hypocrisy:Â Family members too often avoid tough issues by avoiding meaningful conversations. Left unaddressed, these tensions increase distrust in families and obstruct performance in their organizations.
With the right skills, high-trust relationships and structures in place, such breakdowns can be overcome.
So how can managers apply this information to their own family businesses? Here are some practical suggestions:
- Build trust in concrete ways. Family members must promise only what they can deliver, based on their level of competence. This makes it easier to execute plans and achieve goals.
- Inculcate the shared purpose of the family business. When Phillip Moffit was leading the process to turn around EsquireÂ magazine as CEO, he started every staff meeting by asking different members of his team to articulate their common mission and principles until he saw that his staff embodied these commitments. Family business leaders should proudly declare what the firm does, who it serves, and how employees can contribute their passion and skills to help the company win. Effective leaders exemplify their values by their actions and deliver what they promise to their clients, employees, and stakeholders.
- Establish effective communication protocols. Family employees can learn how to provide feedback, coordinate action, and engage in difficult conversations. With their shared purpose in mind, family members can view disagreements as opportunities to find the best way to achieve their goals.
- Develop decision-making processes that take power, family dynamics, and business priorities into consideration. Traditionally, key leaders have exercised their power to declare desired outcomes from the top down. We recommend a counterintuitive but highly effective approach: to embrace bottom-up ideas so employees can enjoy the autonomy to apply their skills and passion to the familyâ€™s mission.
We once worked with a family that was frustrated with intergenerational conflict and lacked the ability to make collective decisions in a healthy manner. During a series of facilitated dialogues, we led the family to design a shared purpose for their business wealth in support of positive social impact. Clarifying roles around their common mission enabled family members to express their individual talents in support of collective goals, and to use a common framework for coordinating action. The family now makes tremendous contributions to their communityâ€™s health and education through their philanthropic endeavors.
The payoff of aligning a family businessâ€™s shared purpose, mutual trust, and collective decision-making is compelling, whether in a popular TV show or in the marketplace. Family businesses play a significant role in society and in the economy. Effectively aligning power and family dynamics bolsters business performance, family relationships, and the means to be a more effective force for positive social impact â€” which is especially crucial during these turbulent times.