...about family business

4 February 2016

I am a fan of family business, if only it could resolve its problems of succession. I have suspicions about sons who follow their fathers into the business and even greater suspicions about fathers who insist that a son take over the helm. (I am writing from my personal experiences about this, which go way back, when mothers and daughters were rarely in the picture. I’ll get back to this below.) Family businesses need to cast their succession nets widely, but not into the stock market.

Following the father  My father was an entrepreneur, not a major one but successful enough. He built a business in the garment industry that kept us comfortable. I came out of the womb claiming I would never work for my father. So when the time came, I became an academic and he eventually sold the business.

Many of the kids I grew up with were also raised in entrepreneurial families, but came out of their wombs differently. They went to work in their family businesses, almost automatically. A few did fine, and the occasional one grew the business substantially. But most either sustained the business for as long as they could or else dragged it down. And no few encountered rivalries with relatives and left the business, to settle into a life of investing whatever remained of their inheritances. All told, the record was not good: out of all the businesses I knew about when I grew up—some of them quite prominent—few remain.

The most prominent of all followed a well-known trajectory: the first generation makes it, the second generation sustains it, the third generation blows it. Sam Bronfman of Montreal built a fortune in whiskey (Distillers Seagrams); he was reputed to be the richest person in the world at one time. His son Edgar took the heart of the business to New York, where he sustained it until his son, the junior Sam, enamored of film-making, blew it in an ill-considered merger with a company called Vivendi.

Being born to a business genius, let alone inheriting the wealth of one, has never made anyone a business genius. Nor does it necessarily bestow the ingenuity and energy necessary to run a vibrant company. But being surrounded by sycophants well aware of the wealth has turned many an offspring into an arrogant failure. I do, however, have great respect for the real entrepreneurs, the ones who build and love their businesses.

Now here comes Fred. He contacted me out of the blue, to visit from Singapore and talk about management. When I discovered Fred to be the third generation head of the family’s big shipping company, I thought: Oh oh, not another one of those.

In good family fashion, Fred arrived with his daughter and brother as well as an assistant. As soon as I saw him, my impression changed: he didn’t look the third generation part. We hit it off immediately, dining, going off for cake, marching around to buy some of Montreal’s famous bagels. Fred’s a fun guy. We became friends. So what’s the story?

Fred too was determined not to work for his father. So as a young man he borrowed some money, went off to Malaysia, made his own money, and came back: to buy every one of the family businesses, one by one! That’s an entrepreneur!! Fred was not about to go through a whole process with his siblings, he told me, so in effect he bought them out—through his father.

Blame the father?  Now let’s consider succession from the other side. Why are so many clever entrepreneurs so dumb when it comes to succession? Why are they determined to pass the baton on to their own kids, usually a son? This is like playing Russian roulette with 5 bullets in the 6 cylinders.

A study some years ago suggested that entrepreneurs often develop in families with strong mothers and weak fathers—the latter ne’er-do-wells, or drunkards, or simply absent. This is certainly not always true, but it does seem to be rather common. Perhaps the son becomes the surrogate father at home, strong and responsible—not bad traits for an entrepreneur. So when I meet an entrepreneur intent on being succeeded by his son, I ask: “Was your father a great businessman?” Often not. “So what makes you think your son is?”

Casting the net widely  What I like about family business is the spirit that is often present, the soul of the place, and a certain respect for the customers and the employees. This is certainly not always true—some entrepreneurial firms are the worst in these regards—yet it is true often enough. But the question of succession has to be resolved, and these days the IPO (Initial Public Offering, on the stock market) is a lousy solution, at least if that spirit is to be carried forward. Surely we have enough mercenaries in stock markets running around killing decent company cultures. There can be something precious about a family legacy, for the family to be sure, but also for the economy.

Don’t get me wrong: there are sons who are natural successors—to sustain the legacy and grow the business—if only the fathers can distinguish the ones who truly are. Learning the business from a devoted parent can be a profound form of training. And increasingly these days, there are daughters who are natural and interested successors too, maybe more so because of a different relationship with their fathers. (For one thing, the fathers may be more inclined to listen to them! Does this suggest that sons may be the more natural successors to entrepreneurial mothers?!)

The net can also be cast wider. Cousins were significantly responsible for DuPont’s great success. They offer more choices for succession. And it was a son-in-law who made Marks and Spencer’s a great company. (Perhaps some daughters are inclined to marry a man in the fathers’ image.)

And how about family trusts for large firms, as have been created for Tata and Novo Nordisk? Both companies have shares listed on the stock market, yet keep voting control in the trusts. The family spirit might be retained while the choice of who runs the company next is widened. Indeed, the offspring may be better suited to overseeing the family trust (as other offspring often end up doing anyway).

A vibrant economy is developed by people who build, not hang on. A democratic society is reinforced by people who succeed by their own wits, not some birthright. We need people who chart their own course, even if that means coming back to buy their family’s own businesses.

© Henry Mintzberg 2016. Follow this TWOG on Twitter @mintzberg141, or receive the blogs directly in your inbox by subscribing at mintzberg.org/blog.