Why continue your family's business?

Nation's Business, March, 1998 by Craig E. Aronoff, John L. Ward

The family business means so much more to me than the money. In fact, I'm told by lots of people that I'd be better off if we sold the business and I got the independence and pleasure from my share of the proceeds. Obviously, they just don't understand family business.

That statement from a second-generation family member who isn't even employed in her family's business describes best the motivation of those who successfully and deliberately pass their businesses to the next generation. The sense of purpose they feel for the business exceeds personal economic returns.

The families that are most committed to the continuity of their family businesses share three characteristics:

* They believe that owning the business helps serve their families' missions.

* They are proud of the values exemplified by the business.

* They believe that the business is contributing intrinsic value to society.

Families that are unable to achieve multigenerational continuity often have what we call "negative emotions." Some fear that selling the business would spoil family members who received the financial proceeds. They try to keep family members' wealth tied up in the business. Such fragile family trust certainly undermines responsible and conscientious ownership in the future.

Others, worried that family members can't or won't find productive work otherwise, keep the business to provide jobs for them. In such situations, leadership inevitably erodes.

Many family members can't face selling the business of their parents or grandparents, out of guilt for ending the dreams imposed by others. That duty can become crushing.

Families that hold on to their businesses for such reasons, we find, are rarely successful over the long haul, either as businesses or as families.

As we have noted in the past, the family's business can be a great financial investment. The owners are usually more knowledgeable about the business than about any alternative investments they might make. In addition, capital kept in the business is tax-deferred until death or beyond.

But, as we have learned from so many exceptional family businesses, excellent financial returns are insufficient reason over the long term for family-business cohesiveness and success. People are driven by more than money, and the efforts to assure family-business success require an abundance of heartfelt motivation.

Successful business-owning families share explicit understandings of important mutual goals. These goals often are put into writing as a family mission statement or creed that explains what the family believes in and seeks together. The business is usually viewed as a means to achieve the family's goals. Some family mission statements we have seen pledge that family members will:

* Support one another so that each may achieve his or her fullest potential.

* Perpetuate their love for the family.

* Find opportunities to work together, play together, and be together.

* Provide opportunities for creativity, leadership development, and personal fulfillment.

* Create a legacy of values.

We recommend that your family forge its own family mission statement and then examine whether continuing to own your business helps support the mission. If it does, your resolve will be strengthened by your family's commitment to shared goals.

A family-owned business can be an excellent vehicle for exemplifying values that you hold dear and proving their importance to others. Many values bring strengths to both your business and your family simultaneously. Examples include trust, honesty, tolerance, work ethic, loyalty, giving back, long-term orientation of the business, development of people, and creativity.

Ultimately, every business-owning family questions the legitimacy of its privilege. Passing property to heirs is both a reward for creating economic value and a special opportunity. For your inheritors to feel a sense of responsibility and stewardship for the long-term welfare of your business, they must appreciate that the business benefits society, not just the family.

Different families focus on different roles of the business in society:

* Private enterprises can take a longer view and invest more in people than can publicly held companies.

* Continuity of family ownership provides the community with stability and support for its needs.

* Independent businesses have stronger values and encourage creativity and innovation.

* Entrepreneurial successes provide examples for other entrepreneurs to follow.

In sum, we find that the family's motivation and capacity to continue its business through the next generation depend on the family's sense of purpose for the business and the strength of the values that are pursued by the business.

In the long run, our experience has taught us, the family cannot remain together and be harmonious if the motivation is only economic. In fact, increasing prosperity often weakens family bonds.

The families that enjoy success through the generations are often outstanding stewards as well as leaders. They realize outstanding long-term results on well-managed assets, but their primary motivation is to strengthen their families and give back to society. Owning a business together as a family can provide a great opportunity to achieve both purposes.