Sustaining Family Ownership Through Generations

The Essential Element Required

It can sometimes be difficult to explain the work I do to those who don’t happen to belong to a family that runs a business or owns assets together.

There are at least three interdependent sub-systems at work, between the family, the enterprise (businesses/wealth/assets), and the ownership group.

Just about every enterprise is in constant contact with outside experts for a variety of services from the outset.

But the family and the ownership typically take on more of a “behind-the-scenes” role and get much less attention.

The family circle happens to be where I do most of my work, and I’ve been developing a bigger appreciation for its overlap with the ownership group lately.

Focusing on “family ownership” and how important it is for the future of the enterprise is the focus of this week’s post.

For those in the know, you won’t be surprised that we’ll be talking about the essential role of a family champion.

Their Nebulous and Misunderstood Role

I first wrote about the concept of family champions back in 2019, in The Unsung Role of Family Champions.

Recently, I had the wonderful occasion of spending a day with a number of people who play such a role in their families, even if they weren’t all sure that they “qualified” for such status.

I led the opening discussion, where I shared the origin of the term and just how essential having at least one such family member has been for all of the families featured in Dennis Jaffe’s study of 100 family enterprises that had endured for at least 100 years. 

See Jaffe’s book Borrowed from Our Grandchildren

But just because Jaffe and Joshua Nacht, one of his researchers, came up with the term, that doesn’t mean it’s well understood, even by those who play this role in their enterprising family.

Will Every Family Eventually Reach Its Limit?

While certain family members often play a starring role as the CEO and perhaps others are some kind of rainmaker, the family champion is typically much more low-key, and out of the limelight.

Few families are able to maintain family ownership over generations, often because they lack someone motivated and interested in doing the work of keeping the family focused and organized ahead of important transitions.

Eventually the family often grows bigger than the enterprises that are meant to support the people, and choices need to be made.

While these choices occur infrequently, the idea of discussing whether or not continued ownership by the whole family still makes sense is usually a scary notion that is not easily put on the table.

But when it is raised, you can bet that the family champion played an important role in setting the stage for it.

Forever Asking the Key Question

A family that owns an enterprise together will likely assume that it can and will and should remain that way, and for a certain period of time, which may be measured in decades and even generations, it’s often true.

At some point, though, most families need to ask themselves if that is still going to be the case after the next generational transition.

Hopefully, once they get to the point where hard choices need to be made, they’ll be able to figure out how to make the necessary changes in a way that leaves the family intact.

The result could be to prune the family tree or maybe sell the enterprise and have a liquidity event. See Pruning the FamBiz Ownership Tree and Huge Liquidity Events – Great News, Right?

For someone like me, who considers himself a family specialist, my thoughts are always “family first”, and many families I know also adopt this attitude. 

There are exceptions, those who put the success of their business first, which sometimes has me shaking my head. I typically do not work with such families.

Who Is Looking Out for the Family?

So much focus is put on the business that the family owns, so it’s not that surprising that the family and the ownership areas sometimes get lost in the shuffle.

The business stuff happens at a much faster pace (see Varying Time Factors in Each of the Three Circles) and those who work in that area are put on the spot on a daily basis.

Meanwhile, though, there needs to be someone who is thinking about and talking about the family’s role in all of this, and who makes sure that the family and its ownership of the enterprise also get the attention they deserve.