04/18/2017

Roadmap for Family Businesses

Owning and running a business as a family can be both uniquely rewarding and challenging, says Smith Family Business Initiative speaker Joseph Astrachan.

by Giorgi Tsintsadze '17


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Almost universally, family businesses are associated with trust, continuity, and reliability. Weaving a family narrative into brand development has been shown to bring many long-lasting benefits. However, managing a family business can be complicated — both emotionally and organizationally — and for every success story of a family business that prospered, there is another that tells a cautionary tale.

Joseph Astrachan, Wells Fargo Eminent Scholar Chair of Family Business at the Coles College of Business at Kennesaw State University, met and spoke with students April 12 as a guest speaker for Leaders in Family Enterprise, a weekly seminar organized by the Smith Family Business Initiative. Astrachan, a Cornell Family Business Scholar, has served on multiple boards of family-owned businesses and has published ten books as well as numerous academic articles.

Reflecting on the study of family business as an academic field, Astrachan said that business schools long ignored this area of research, considering family business to be “a thing of the past.” This disregard was further exacerbated by the tendency of business schools to focus on training managers, rather than owners, of business.

Things began to change in the early 1980s, when scholars started paying more attention to family-owned and family-run enterprises. Since then, scholarly interest in family business has alternately surged and dwindled. While scholars have produced a substantial body of knowledge, it is unclear whether family businesses have successfully utilized it. As Astrachan noted: “There are more resources available, but not a whole lot has changed in how family businesses operate yet.”

All businesses are susceptible to internal friction, but certain sources are unique to family businesses. If family members are seen as undeservingly privileged within the company, for example, the perceived lack of a merit-based rewards system can affect employee motivation.

If family members are concentrated in the c-suite, a company can become overly centralized and owners are isolated and unable to oversee operations across multiple levels. Some family business owners rely on company infrastructure to conduct internal family affairs, charging employees with organizing family reunions or asking them to file family members’ tax returns.

Luckily, Astrachan said, family businesses can deploy several strategies to avoid these problems:

  • Establish an explicit set of values and clear standards of acceptable and unacceptable behavior to promote healthy professional relationships.
  • Train family members so they are qualified to fill leadership positions and act as responsible business owners.
  • Spread family members throughout the company, instead of concentrating them in the c-suite.
  • Decouple family affairs from company affairs.
  • Treat employees as extended family.

Messy transitions constitute perhaps the most common problem family businesses face, said Astrachan. Usually very centralized and often built around a single person, family businesses often find it hard to cope with generational succession. Astrachan’s own family suffered from this problem: When the founder and head of the family-owned shipping company (Astrachan’s great uncle) passed away without any plans for succession, the company was left in disarray and the price of its shares plummeted from $35 to 19 cents. The company never recovered from the shock.

Astrachan stressed that families should proactively prepare for succession — something that surprisingly few of them do — so they don’t repeat his family’s experience. Exposing younger members of the family to the business world and providing them with the necessary training, he emphasized, is crucial to successfully pass the leadership torch from one generation to the next. Astrachan recommends establishing straightforward transition rules as well as rules for removing underperforming leaders. Finally, charge a specific group to be explicitly responsible for a smooth transition — preferably, the board of directors.

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