As the President Elect calls on his family members to assist in forming a new U.S. administration we are reminded of the potential pitfalls of family involvement in any enterprise and the challenges faced by leaders of family businesses.
Family-controlled firms make up 19% of the companies in the Fortune Global 500, from Walmart to Mars, Samsung to BMW and Tata; a percentage that is growing as emerging economy companies join the top strata. Around 85% of $1 billion-plus businesses in South-East Asia are family owned and amongst smaller firms the percentage will be higher. In fact, even in the U.S. about 90% of businesses are family-owned according to the Census Bureau.
This makes the effective leadership of family firms critical to global GDP, job creation, and social welfare. However, leading family enterprises presents unique challenges. They are less well understood than public corporations due to the complexity of their ownership, management, family composition and long-term purpose.
The life cycle of a family business, typically started by an individual entrepreneur, invariably involves increasing complexity and a need for ‘professionalism’ as the business expands and perhaps becomes global. To grow and prosper family firms need to develop a professional approach both to the executive leadership of the firm, and to the management and leadership of the board of directors.
Kellogg Executive Education offers three important programs that help firms find this professionalism and build a sustainable future:
The first of these programs – Governing Family Enterprises – provides governance insights for all involved in the family business. It explores the specialized knowledge and skills unique to managing and governing a complex family enterprise effectively. Focused on issues of continuity and governance, the program looks at the governance challenges, defines the roles and responsibilities of owners, family members (whether involved in management or not), independent directors and executives, and considers the need for board development and evaluation.
The second program – Leading Family Enterprises – supports executives in better managing the paradoxes characteristic of the family business. It is both for aspiring leaders who are seeking to establish credibility and authority in the business community, among family shareholders, with the board and management team, and for established leaders who need to mentor the next generation, manage succession and let-go. This program, which includes a coaching element, focuses on leadership in family enterprises, leading shareholders and the board of directors, personal leadership style, and balancing work and family. It also translates the ideas from the program to the unique circumstances of each individual participant’s family firm.
The third of these programs – Family Enterprise Boards – for current and prospective directors serving on family business boards, explores issues such as managing the board’s strategic, fiduciary and communication functions. It looks at the role of the board in understanding strategy, the governance role, what differentiates a family enterprise board, selecting family for board roles, linking the board with the family, boardroom effectiveness and etiquette, and best practices in family enterprises.
“Family business leaders are stewards…responsible for stewarding not only the business but also their family’s reputation and legacy. These programs, designed and delivered by Kellogg faculty who have pioneered family business research and practice, are focused on better understanding the idiosyncrasies involved in concurrently leading the family and the business,” says Justin Craig, Co-Director of the Center for Family Enterprises at the Kellogg School of Management of Northwestern University.
Decades ago it was assumed that with time the family business, at least the big ones, would fade out with the march of the public company. This has not happened due to their resilience and their ability to weather economic storms by adhering to core values and taking a long-term approach. However, their strength, the thing that holds them together, family shareholders, can be an obstacle to value creation unless managed with care and professionalism.
How a Family Business Can Capitalize on its Unique Culture – Insights from Professor John L. Ward, Co-Director of the Center for Family Enterprises, Kellogg School of Management