The HBR Family Business Handbook Launch Event

On February 5, we had a “virtual book launch,” hosted by Harvard Business Review editor Susan Francis, with BanyanGlobal’s Josh Baron and Rob Lachenauer to celebrate the publication of their book, the Harvard Business Review Family Business Handbook.

The following is a lightly edited transcript of our event.

Susan Francis: Welcome everyone. Thank you all for joining us today to celebrate the publication of the Harvard Business Review Family Business Handbook. I’m Susan Francis, an editor at Harvard Business Review press. We are thrilled to have the HBR Family Business Handbook added to our list. We’ve recognized the lack of resources for this large market for years. Our customers have been asking us relentlessly for guidance on family business. Every year we survey our customers on topics they’d like us to pursue and every year our customers write in “family business,” “family business succession,” or “family business transition.” The one year that we officially put family business on our topic survey, 35% of participants ranked it among their top two choices. This was to our entire list of customers, not necessarily folks that had designated their industry as family business. And so that really caught our attention because it rated so well with our customers. So, we made plans with Banyan to move forward on the HBR Family Business Handbook. As you may know from working with them and as you’ll witness today, it’s not just the topic. It’s the team.

I’m here today with the authors of our Family Business Handbook, Rob Lachenauer and Josh Baron. Rob is co-founder and CEO of BanyanGlobal Family Business Advisors and Josh is co-founder and partner of BanyanGlobal Family Business Advisors. Rob and Josh are exactly the guides you want alongside you on this journey to normalize things that feel like they’re only happening to your family and to offer you perspective, with experience and strategies to help you get through whatever you’re facing. I feel really lucky to have worked with this team on this project and I’m so glad for it to be out in the world helping family businesses through their most common challenges. So good morning, Rob and Josh.

Susan: Our behind-the-scenes team is going to be setting up a poll for the audience about how optimistic are you about the future of your family business or the family businesses that you work with?

So Rob, let’s start with you this morning. Why this book and why now?

Rob: Hey Susan, good morning. Thanks for joining and hosting our event. It’s been a pleasure to work with you as we put this book together. Let me actually start by thanking the people in the webinar because it’s strange when you write a book, you get to put a couple names on it, but Josh and I both believe that the ideas that are in the book are the ideas of this network. I remember when the first time in a client meeting when it was just confusing, everyone was doing everything and overnight we came up with this idea of the Four Rooms and we shared it with a client and they’re like, “oh that’s really helpful.” So we understood the idea better. We took it back into Banyan and they said, “wow, this is interesting, let’s try this with our clients.” And they went out to the clients and it came back better. So I really believe deeply that this is the book of this whole group that’s on this webinar, including clients, former clients, prospective clients, professional service firm members on the call. We just want to say thank you because I think the credit of the book is really the credit to this whole group.

So, why did we write it?

You started saying there’s demand out there and we believe the demand out there is because family businesses are the primary form of ownership in the world. If you look at the data, it ranges by how you measure it and the country, but 25% to, in some countries, 85% of the companies, are owned by families. So it’s big and important and we think it’s so profoundly misunderstood. You see these things like the TV show Succession, which I can’t watch. I watched the first episode and I turned it off. I told my wife Catherine I can’t watch it because our clients aren’t like those people. Our clients care deeply about what’s going on. Let me name three or four misconceptions about family businesses. 1. They don’t last. Not true. They’re probably the most long-lasting form of ownership. 2. There is out there a sense that family businesses are a hotbed of conflict. We find that most of the time the problem is not that, it’s that our families avoid conflict. 3. That profit is everything, which is taught in business school. That’s not the way our clients behave.  We’ve learned different ways of approaching business about leadership, about portfolio distribution, about governance, about debt and the use of debt.

So all of this we don’t think is well understood by the market, and we think it was incumbent upon us to give some of this back, because we learn so much from our clients. That’s the primary reason. The second reason we wrote the book: you asked. My advice to anybody out there is: if Susan Francis asks you to write a book with HBR, say yes.

Susan: I love that it sounds like such an iterative process. It was evolving from real-time feedback from your clients. And I think one of the things that makes this book different from some other things on the market is that it is full of frameworks, but also practical. Just really practical advice of not just what a problem is, but it really kind of walks you through ways to think about it.

Rob: Every idea is tested with some of the best and most challenging family businesses that we know.

Susan:  It looks like everyone has had a chance to take the poll. So, I think our folks behind the scenes will share our results about how optimistic we are about the future of your family business or the family businesses you work with and yes, look at that [majority votes show people are optimistic]. Are those results surprising to you at all?

Josh: No, I don’t think so at all. You know, this pandemic has been disruptive for all of us in a lot of negative ways and some positive ways. My kids are actually watching this webinar from home because they are home doing virtual school today and that clearly couldn’t happen if we were in normal times. We actually surveyed family businesses back in the springtime and then towards the end of last year and we asked them, how are you doing? You know, how is this affecting your business? How is this affecting your family and overall? Most people, most businesses were having a negative impact from the pandemic, but for most it wasn’t existential. When we ask them, less than 5% said that they were worried about their business failing. And then what was really interesting from the first survey to the second survey is that I think the negative response went way down from 90% negative to about two-thirds. A lot more seeing a positive impact, and we certainly saw that in the families that we work with that. You know there is that initial panic. “Are we going to are we going to make it? Are we going to be able to pay our bills, to keep our employees? How is this going to affect us?” I think over time, we all adjusted. Certainly, some businesses — if you were in the travel business, or hotels, or movie theaters, as my dad knows personally — this has been a terrible time. But for for a lot of businesses, they had record years last year and in some surprising ways. I was talking to one last week. When I spoke to them in March, they were panicked. They sold through retail stores that were all of a sudden closed. They had supply chains that extended to China that were completely shut down. I talked to them last week and it was a record year. So, a lot of family businesses have been able to find ways to be resilient. That’s one of the great things about family businesses is that they’re more resilient because they tend to borrow less money. They’re able to make it through these tough times. They’re very people-oriented – they try to keep people as much as possible. I think all of those things really prepare family businesses to do well in all times, but especially in tough times. We were really delighted in this last survey that we did. I think we found 80-plus percent were optimistic. They actually think they’re going to come out of this better than their peers. So, I think there is a lot of difficult times that we’ve experienced over the last year, but I think we’re seeing a lot of optimism among family businesses and it’s great to see that reflected in those that are joining us today.

Susan: That is that’s great news and just a reminder for those of you that might have joined us late. You’re all participating anonymously, and you may use the Q&A chat function at any time to ask a question and it will just be seen by our behind-the-scenes team.

Let’s go inside to family businesses and what’s often misunderstood.

Rob: When you ask the question, I thought of a great client we work with. A very large family business, 4th to 5th generation, they have in the fourth generation 15 owners. They’ve always prided themselves on using best practices. They have a very well-functioning board of directors. They worked in their family room working with their family assembly, really trying to build their family unity. However, as family owners, they really had no sense of what decisions they could make, what rights they have, how to how to express themselves as owners, and it kind of ignited when the board of directors, a sophisticated bunch of insiders and outsiders, were saying, “well, what do you want, owners?” And they didn’t have a way to have a common voice. Within a family business, how do you get organized and express what it means to be a family owner?  It’s confusing because it’s thought of as like the purview of lawyers. It’s also super complex because it could be that you have three brothers as owners. We have many clients this way. It could be you have 200 family members as owner. So, there’s no cookie cutter “here’s how you do it” because as if you’re running three brothers as owners or 200 cousins as owners, it’s a very, very different thing. So, I urge all of our clients to think carefully about family ownership. You can make your own rules, there’s no boss out there.

Susan: In the book we talk a lot about this concept of the power of ownership. So, what does that mean exactly?

Josh: It’s a really important one. I think it’s arguably, as Rob said, the big idea that we hope people take away. Ownership is a topic that just doesn’t get a lot of attention in the business world. I teach at a business school and we teach a lot about management. We teach some corporate governance, but outside of a few classes on family businesses. We don’t really talk a lot about Ownership. And that’s really the way that most academics, consultants, other business experts look at business — through the lens of a public company whose shares are owned by investors, whether that’s big institutions like Vanguard or individual investors who are trading shares on apps like GameStop or AMC. And if you own one of those businesses, you’re really thinking about it from a purely financial point of view. You try to buy low and sell high or you diversify across hundreds or thousands.

And if you’re an owner of one of those businesses, you really don’t get to do very much. You can sign the proxy statement. I usually don’t. You can vote at the annual meeting. I never do. Maybe occasionally there’s some shareholder activism, but the power of ownership in that model is very limited because it’s already been delegated all the way to the board and mostly to management. Anyone who comes from a family business knows that could not be more different. The ownership of the business instead of being held by investors who never meet each other is held by a relatively small number of people you can actually fit in a room. Sometimes it’s a large room, as Rob said. Sometimes it’s a virtual room like this one, but they are people who care deeply about the company.

When a company is owned this way, that’s when you start to really see the power of ownership and I want you just to stop and think about how powerful ownership is in your life. Think about your home. For example, if you think about how much ability you have to influence it that no one else does: you can decide who can visit and who can’t visit, how do you design and decorate it? You know what you want to do, you want to keep it or sell it, or who do you want to give it to. You can shape almost everything of importance about your home and that’s what we’re referring to when we talk about the power of family ownership. The owners have the exclusive right to make almost every important choice about what happens in the family business. And with this power comes the ability to influence the entire course of a family business the owners make choices that can destroy a business. Those are the stories we read about in the newspaper or they make great TV shows, as Rob said, or you can make choices that set the family business up for long-term success. So, one of the one of the stories we cite in the in the book is about the Antinoris whose business has been around for twenty-six generations. And of course, there’s a lot of luck involved in lasting for that many centuries, but it’s also about decisions and choices. That’s really what we want people to take away from this book: there’s no one right answer and there are very few best practices. There’s no Silver Bullet. Here’s how you make it last: it’s about doing work. It’s about making choices. It’s about exercising that power that comes through ownership.

Susan: I know in the book you all identify that there are Five Rights of owners. Do you want to quickly review those for folks?

Josh: Sure. That’s really the core of a lot of the book is this idea that with ownership comes these Five Rights. You have the right to Design— basically to say what kind of a family business do we want and who can be an owner of it?

You have the right to Decide, which means that you can literally make every decision from the strategy to the color scheme on the walls. But of course, as the business grows, you need to figure out how to delegate. So how do you find the balance between delegating and abdicating?

You have the right to Value, which means you get to just determine what success means. Is it all about maximizing financial returns, as it is in a public company or are there other things that you care about maybe even more than just financial performance?

You have the right to Inform. You have the right to know what’s going on and because of that you can decide who do we want to share with and if you want to keep that more private. How do you use communication?

And then lastly, you have the right to Transfer. You get to decide. Do you want to make it continue to be a family business? Do you want to pass it down the next generation? If so, how and when? If not, do you want to sell?

So, if add those five things together, you are basically talking about influencing almost everything of importance about what happens in the family business.

Susan: That’s great. I see we have a question that’s coming in from one of our attendees today. And this person is asking could you share if culture may have an impact on how you deploy the five rights?

Rob: Yes, it does. We believe that culture is incredibly important. The clients we work with that are really successful across many generations, they’re very active learners. They’re just always trying to learn something new and I think Banyan shares that deeply. They are very curious about others. One of the most rewarding times is when we get clients talking to other clients, they’ll go deep. So, they’re out there in the universe learning. They’re also clients that team well together. We say that family business is a team sport. It’s not about one person saying, “This is the way,” it’s about a group coming together, so they know how to work together exceptionally well. And they also are super adaptive. They know that what happens in a generation, say generation three, may not work for every generation. So, they have to adapt their relationship, maybe their ownership, and everything else. If you have these three attributes and you’re moving forward with them, that’s the right kind of culture for success. If you’re not learning, if you’re not teaming, if you’re not trying to adapt, it’s really hard to make this set of decisions that Josh just laid out again in a new way, for a new generation.

Josh:  I totally agree with what Rob said. Another lens on culture is people coming from different parts of the world. And how does that influence how these rights are exercised? And again, I think the answer is yes. We work with family businesses all over the world and there are real differences between what happens in the US or Latin America or South East Asia or the Middle East. One of the things that we find, though, is that the difference is not so easily pinpointed to say “well, it’s about the culture of the country.” A lot of it actually is about the legal system and we talked a lot about the importance of ownership and ownership rules vary depending on where you are. If you’re in the Middle East in your practicing Sharia law or if you’re in a country, which has forced heirship where everyone has to inherit the family business. Whereas somewhere in the US those rules don’t have a lot of impact on where things go. But I think that we found that we can sometimes overstate the importance of culture. There’s a lot of commonalities. If you’re a group of siblings working in Chile or in the Philippines or in the U.S., you’re going to find a lot of similar issues that you’re going to have to wrestle with; much more similar than different. I really like what Rob was pointing out because sometimes we overstate the importance of the country culture. Right? So much of it is about the culture of the family. Every family has its own culture that’s influenced not just by the country and the place that you’re in, but by the things that have happened to you, and the people that are coming in — and so many families these days are becoming multicultural. I think a lot of the work to be done is actually to identify and create the kind of culture that you want in your family business.

Why do we own these assets together? What is our purpose for owning these assets together? We have a very useful and simple framework: we call it the Owner Strategy triangle and it helps you understand what your owner strategy is. What do you most value?

Susan:  Okay, we have another one in from the audience on the 5 Rights. Do you think any are more important to ensuring generational success than others and do different generations place different importance on the rights and how they are exercised?

Rob: I think what is unique and different in the book is the Value chapter. This helps answer your question. For many years folks in family businesses talked a lot about governance and how you need a board room and governance is about how you make decisions together. And a family business would set up their governance. But it was the how and it lacked is the why. Why do we own these assets together? What is our purpose for owning these assets together? We have a very useful and simple framework: we call it the Owner Strategy triangle and it helps you understand what your owner strategy is. What do you most value? Are you trying to grow? Do you value liquidity?  Or do you value control, meaning how much equity and debt are you willing to have — and then what do you want to do with that control? And if you start talking about owner strategy through this triangle, it can change everything because it gets into the fundamental discussions that you need to have. So, I think that is essential and often missing. And it’s a discussion that each generation needs to have. They have to honor the values of previous generations, but also decide for themselves what they most value.

Josh: I guess I feel like choosing a right is kind of like choosing your favorite child. Since my kids are on this call, I’m not going to do that! I do think that one of the things about family businesses is that everything is interconnected to each other. They’re a system. So, if you ignore or change one thing it will pop out somewhere else. I think is really important to take that holistic view. I do think that when we’re working with family businesses, some are much more wrestling with one of the rights than another. We know many families that have great governance in place, we see really fantastic boards of directors who basically are turning to the owners and saying, “We can maximize anything you want, but you got to tell us what you want?” Or some are wrestling with the transfer dimension of succession planning and the baton-passing to the next generation. Some are wrestling with design. We’ve had these certain rules for who can or can’t be an owner in the family business, but now that’s actually causing us a lot of challenges and problems. So, I don’t that there’s an answer as to which is more important, but I do think that there are issues that are more important to a particular family, at a particular time, and one of the things we hope that people can do with using the book is to diagnose what they need to work on. You can’t work on everything. So pick a spot — pick something that you think will really make a big difference and put your energy into that.

Susan: Rob, what are some of the thorniest challenges that are unique to family business that you help folks through?

Rob: Well, the toughest challenges aren’t the color scheme on the walls the Josh referred to earlier. I think they’re also not setting business strategy. There’s a lot of help you can get with that. I don’t think it is finding the perfect CEO; there are teams of people that can help you with that. We argue very strongly in the book, it’s not the harmful conflict. That’s usually manageable if you get it get ahead of it.

So, what is it? What’s the hardest and biggest challenge?

Maybe it’s my age. I think the hardest issue is when the current generation can’t let go of the reins of power. We know one is a media company a 79-year-old CEO who’s just a powerhouse and he’s run his company for 30 years. He’s incredibly successful and still is involved with much of the creative content of the media company. And they have a next-gen CEO candidate. But what happens in this company is that 79-year-old current generation CEO holds his content and creative sessions at midnight–literally at midnight–and the next gen is a father. He’s got three kids. He’s like “I can’t do it. I can’t do it.” So that’s a hard one. They’re having a lot of troubles with their transition because the CEO can’t let go. You don’t have to be a CEO to have “let go” issues. We also have a great client who has a 94-year-old matriarch who still controls the purse strings of the system. She has daughters and sons in their 70s, and the idea that you need to go when you’re in your 70s to your 94-year-old mom to ask for an allowance from the trusts, it’s really tough. It’s beyond money. It is infantilizing. It’s demeaning and just think about the implications across generations if that behavior is known and accepted. So, when the current generation can’t let go, they unfortunately can destroy what they most love which is their business and their family also. I’ve learned that the next generation is often super capable – there are all these great development programs for building the next generation’s capabilities. Stepping back from something you’ve been very involved with is much tougher than that. It’s about your own mortality. It’s actually about dying, and people know that and they many want to delay it for as long as they possibly can. So, it takes a decade to realize this is happening. You have to go through a process. We call it a “glide path” — actively work on outside interests from what you’ve done actively, get away from the things you don’t like and only work on the things that you do like. It’s possible but it’s really tough for many people. I think the power of letting go is probably the single greatest sign of a healthy relationship that your identity isn’t trapped in what you’ve done before. Just think about George Washington, right? Maybe our greatest President. Well, one of the best things he did was to let go. He could have been a dictator and he said after a couple terms, “I’m leaving now.” So that’s my take of the hardest issue.

I think the hardest issue is when the current generation can’t let go of the reins of power.

Susan: So, what have you learned from working with family business for so many years? I’m sure everyone would love to hear from each of you.

Josh: So many things. I think it’s such a pleasure to be able to do this work in part because it’s really hard. I think it’s hard for the families that are going through some challenging circumstances. I mean think about how hard it is to make any decision as a family. We argue about what movie were watching on Saturday nights in our house quite a lot, but imagine trying to have to make all these decisions that have packed on financial and legacy consequences. I’ve learned respect for the challenge of taking on this task of trying to keep a business going for generations. I think the other thing I’ve learned is just a lot of admiration and respect for family businesses. You know, we think of family companies as kind of like the corner store, the dry cleaners, or the local restaurant and of course they are, but they’re also some of these companies that you would never know were such important pillars of the community until you met them. And I’ve had the fortune to work with so many incredible entrepreneurs, business builders, business leaders, people on boards of directors, owners who are not involved in the business but really are committed to it and the companies that they’re able to build are just incredible. I’m thinking of last year and going through the pandemic and I think that one of the first things most of them did was cut back on their dividends. They said how can we keep as many people as possible? How do we take care of our people? It’s just a very different way of running a business and I think in most, not all, but most cases it’s actually a better way. I’ve just learned about the power that can come not just for the family, but for the communities when you have businesses that are run this way.

Susan: I feel like that’s the second time you’ve mentioned that people focus. It feels like that’s really something that has struck you about your work with these family businesses.

Josh: Absolutely. It’s all about the people. I think that’s such a difference between a family business and another kind is that there’s this personal connection. I mean, it’s your name is on the door, literally or figuratively, and you really you care about it. You develop these long-term relationships with people.  Family businesses tend to be incredibly loyal to people. And like most things in life, there can be too much of a good thing. You can have people that are no longer serving in the right roles there are some tough choices that they have to make. I was just talking the other day to a family business that has wrestled for years, maybe even 10 or 15 years, understanding that there are some people that are on the payroll that happen to be related that are not really serving the family well. And finally, after lots of time and conversation and discussion, said well we need to figure out a way to exit those people in a thoughtful, careful way to help the business succeed. Those are tough conversations, but honestly, even though sometimes there’s too much loyalty, I’d much rather have that problem. I was talking with a family business leader who said they compete against a lot of public companies and they said, “You know our public company peers were bragging about how many people they fired during the pandemic and we agonized over the people we had to fire,” and I just think: what a different way to approach business.

Susan: How about you Rob?

Rob: I’m really close to where Josh is about the decision-making, but let me take a little different angle. This may sound weird, but I hope I have learned to be a better family member in my own family. For most of our clients, there’s a moment in the relationship where they kind of take us to the side of the room after maybe a tough, tough meeting and they say, “Aren’t we the worst family you’ve ever worked with?” And I swear 90% of my clients have said this to us. So factually it can’t be true. But more importantly, I think they’re actually some of the most admirable business families in the world. Just the fact that they are able to make not the what to watch on Netflix decision that Josh referred to, but these big decisions together and stay together as a family. The pressure cooker that their relationships are under and still to have the family relationships that they have is amazing. So, just watching across the years how some of these families and also individuals in these families stay together despite the almost built-in difficulties of the decision-making processes that they have. So, you learn things like how they listen to each other. Some of our clients have someone whose job is to reach out to people who are kind of leaving the family fold to reach out and bring them back in very actively. I’m thinking about the head of a great family council in Brazil and told us that part of the role is you reach out and bring people back in when there seems to be division.  Because if you just let it happen, it’s going to happen and that’s not good. You learn about inclusion; how great family businesses are including people. You’ll learn how not to judge each other, which is I don’t know about you, but one of the hardest things for me. They teach us about how to be able to see, especially the next generation as they are today. And in the future. Rather than the easy thing to do, which is to think about them ten years ago when maybe now they’re actually 26 and you’re still talking and thinking of them as a sixteen-year-old. They see the full person. And finally, they know how to appreciate each other. The best go through and articulate what they love about each other and its really remarkable. You can learn from working with these great families.

For most of our clients, there’s a moment in the relationship where they kind of take us to the side of the room after maybe a tough, tough meeting and they say, “Aren’t we the worst family you’ve ever worked with?” And I swear 90% of my clients have said this to us. So factually it can’t be true. But more importantly, I think they’re actually some of the most admirable business families in the world.

Susan: I also think that you’re giving folks the sense of greater context, that they’re not alone. Even if you feel like “we’re the worst family ever.” In the book you all do such a great job of identifying some of the most common challenges, but also the proactive steps that you can take. So that before it’s about Uncle Ned, you have something in place so that it’s not personal, there’s a process you can take.

But, I’m curious, have you ever walked into a situation where you thought? Okay. This is too far gone. I can’t help these people.

Rob: There are situations we won’t get involved with, if they’re like a lot of lawsuits or the family really needs therapy, and we’ll tell the family those two things. But of those that we do work with there is one that comes to mind. There are several to come to mind. There’s one I’ll talk about it, with a quote for the English majors listening. William Faulkner has this great quotation “The Past is never dead. It’s not even the past.” When you read Faulkner, you don’t know what the hell he’s talking about. But it makes you think. Every family has a past, things that have happened. That past is still alive in meetings or discussions or their personal relationship. They’re still holding that in the meeting. So that’s everywhere. But that truth is even more true in some families. They’ve gone through terrible personal loss. There’s one family we worked with it was a G2, G3 client and they had chosen heirs in the next generation, the third generation. And they’re really capable men, best friends from childhood. And then one died. He died in a car accident and the story was that his uncle and he had had a fight right before he went out in his car and got killed and that that contributed to the death. Whoa. So, we meet this family many years after but that incident, the guilt, the shame, the sorrow is still in the room. So, a lot of the work you do in those areas is you work on their higher angels to help them isolate the decisions that they can make as owners and take the decisions that could be in the family room and try to put them put them aside for most of those situations. It’s only time that will heal those wounds and maybe they had a little bit of therapy too. But we slowly, carefully worked on a small set of decisions that they could work together on as owners and then that could percolate down to the board. But you got to work in those situations very carefully and very slowly.

Susan: We have a question from the audience here. How do you encourage owners to be more open about deep feelings toward the other owners in a non-threatening way in order to avoid a negative escalation when there are things we don’t like?

Josh: I think one thing is that you have to think of this as a process of building trust and trust is one of the most powerful words in the family business. Even though it has five letters, it actually feels like a four-letter word. If you say you don’t trust someone, that’s about the worst thing you can say to someone in a family. One of the things that we find really helpful is to think of trust not as either you are someone that is or isn’t trusted, but to realize that trust is actually the result of behavior. If I trust someone it’s because they’ve earned that over time. I like to think of it as a bank account. So, with every relationship that I have, every action that I’m taking is either increasing the account by behaving in ways where I’m being open and transparent about what’s going on. I’m demonstrating that I can do what I say. Every time that I’m not doing those things, I’m reducing my account with that person. And so, part of this process is realizing that you don’t walk into a room or even into a family expecting that you’re going to have this level of trust or you can just say whatever you want. You have to build it up over time. And so, a lot of the work of getting to a place of doing exactly that — of being able to share what’s going on — is making some concrete efforts to build trust together, right? And so, you can create some ground rules and say, “here’s how we’re going to work together. “That can include things like finding out what bothers each of us about each other — and there always are things that bother us about each other — and trying to really address them and deal with them more systematically. So, you know, if it really bothers me when people are late, let’s set that as a ground rule. Or if it bothers me when people interrupt, let’s really set that as a ground rule that we’re going to use together to help make the conversation better. And so, a lot of this is trying to put some level of structure around a conversation to make it a space that feels safer and over time you’re able to build up that trust. So, don’t expect that you’re going to walk into a room and just unload on someone else about your deepest feelings that often times makes things worse rather than better. You have to start smaller, start to take actions that up your trust account. And once that’s in place, I think you’re much more able to have those kinds of conversations.

Susan: Anything to add to that, Rob?

Rob: I agree with what Josh said and I think one of the starter moves is around appreciations. It’s easy to criticize and, in many cultures, it’s hard to appreciate. In strong business families, they make a point of appreciating each other and appreciation is something that you have a control button on where you can say “Susan, it’s been great to work with you. I know that the book is better because of your intelligence and your thoughtfulness and I deeply appreciate that.” That can open up the beginnings of what Josh is talking about. If you’re able to do that, that’s great.

Susan: Okay, so the questions have been rolling in from the audience here. So, we want to take one of these. Throughout my 25 years working with family-owned businesses, I have frequently run into the tension between loyalty to a family versus loyalty to the business enterprise. We see that DNA does not always produce the next generation of leaders, but they are allowed to take control and that is often where family-owned business fails. Do you have some findings on being loyal to the business versus loyal to heirs?

Josh: I’ll start with that. Yeah, it’s a great question. I do think sometimes we tend to think of family businesses through the three-generation kind of lens that it’s the founders that build these businesses and your third generation comes and destroys them. Actually, I think much more often, at least in our experience, the way a great business is built is the first generation often start something relatively small, and then it’s a second, third, fourth, on down the line that takes that seed and actually builds it into something amazing. So, I do think this can happen. Certainly, you do have the situation where you have this incredible founder and then the next generation isn’t able to kind of carry on the same way. I guess part of the response is that we have to be thoughtful about what it means to continue on as a family business. It doesn’t necessarily mean that the family should run it. There’s actually some good data that suggests that when family businesses are run by the eldest, just purely because “I was the firstborn, therefore I should run the business” doesn’t work out so well. But one of the things we sometimes hear is, “well, it’s either got to be run by a family member or we have to sell it.” But one thing that we find is there’s lots of ways to be great owners of a family business. Sometimes that means, hiring someone else to run it, sitting on the board and bringing in outside board directors. But the critical thing is actually to become good owners. I think this is something that as a society we’ve underdeveloped, which is how do you be a good owner? There are very few places to learn how to be a good owner and our experience has taught us that almost anyone with the right desire and attitude can learn to be a great owner. You don’t need to be the visionary business leader; you do need to learn some basic things about finance and trust structures and all that kind of stuff. But a lot of it comes down to having the connection to the business, the sense of values, a sense of importance, and a willingness to put in the time and energy. And I really believe that most people can learn to become good owners together. Part of it is in reconceptualizing what we mean for this family to continue on the business and not just saying it’s either you run it, or you sell it. There’s a whole variety of options that allow for non-family leadership, but also get the benefits the long-term benefits of family control.

Susan: Another question from the audience how important is financial transparency to the success of a family business? This is one of the five rights: the right to inform, right?

Josh: Rob should take this one because I think not only in our practice but in our company, I think you know, we get credit for being among the most financially transparent leaders around, so this is yours, Rob.

Rob: We argue in the informed chapter, and I deeply believe, that being transparent with your owner group is, in the long-term, essential to trust building. We’ve seen too many family businesses, I was just talking to one two days ago where the owner operator keeps all the data to himself and people just don’t know where the money goes. The stories that are created by a lack of knowledge are very destructive to that family in general over time. Within a careful way, opening up so that the family owners understand the financials is a good thing. You don’t start there though. What you don’t want to do is like, “Oh we should be transparent. Here’s the balance sheet. Here’s the income statement.” What we’ve seen is that great family businesses start early, say the teenage years, exposing teenagers to what I term “the beauty of the business.” If you’re in manufacturing or even services, helping them to understand the employees, the service that you do, walk the factory floor, walk the fields, be in the office, generate an appreciation for what it is and what it gives back. That’s where it should start. The financial stuff should then come after a deep appreciation for what the business really does, which is help people.

Josh:  I would just add we understand there’s a need to be private about information, especially financial information, especially with employees. Like there are there lots of families that are very careful for security reasons or very valid reasons. But first of all, think through the consequences of not sharing information Rob was talking about. On the flip side, think about what you can share because oftentimes what employees and others want to know is not the depths of the financials, but they want to know “Are we okay?” during the pandemic, for example. You don’t need to tell us whether profit went from 22% to -8% or whatever. What we want to know is are we going to be around in a month or a quarter or a year? Or when it comes to succession planning, you don’t need to tell us the ins and outs of this, but tell us that you’re working on it. Because when you don’t share information, the natural inclination of all of us is to fill in the gaps and often times the way we fill in gaps is actually much more dramatic or much worse than the reality of what’s going on. So just to know that if you’re not sharing something, be careful or be thoughtful about why. Really try to think about what you can share, whether it’s with the next generation, with your employees, with whoever. Don’t let them develop their own views without you having at least the ability to shape them through your perspective.

Susan:  We have sort of a related question from the audience. Can you discuss attention to stakeholders, employees, the community where the company is, the customers, the brand, the legacy, not just the financial concerns of a public company.

Rob: I’ll start Josh and then you build on it. This is one of the reasons I really like the owner goals because you’ll talk about growing value, liquidity, and then control.  I worked for many family businesses that have total shareholder return to the owners as the single and primary goal of their business. But when we walk around that triangle, the interesting conversations about control, what it means. We were talking about this triangle with a great family business and we got to one of the next generation members and we talked about liquidity and growth and she just stopped the conversation and she said “For me, it’s all about how we treat our employees. I know we do something great in that area. People when I go through the halls, they tell me that we’re really good. We all value that. Let’s see if we can understand that articulate it and measure it.”  We urge you to have the conversation as family business owners and think deeply about it.

My family wants to improve how it works together as owners, but we don’t know where to start. What do we do?

Josh: Yeah, I would just add I think there’s a lot of talk in the business world today about stakeholder capitalism or whatever the new name for it is — about looking beyond the pure profit shareholder return. I think the reality is those companies are going to be focusing on increasing their share price because that’s what keeps them in their jobs.  Family businesses really are different. This is these are not new conversations, the conversations evolve the things you care about, they change. A lot of the families that we work with focused with renewed energy on diversity equity and inclusion last year really need to see that but that’s just a continuation. They’ve always been based on values. They’ve always been focused on doing what they think is the right thing and are willing to pay a financial price to do that because they think that that over the long term will pay off.  And I think more often than not it does. And I think that’s one of the really amazing things about family businesses is that they are values-based. They act this way. They’ve always acted this way. So, it’s really that one thing that makes it such a pleasure to work with them.

Susan: I think there’s great stories in the book about kind of these decisions. We are trying to wrap up here. We have been getting more questions, and we’re not going to have time much more.  If you’re not already following Banyan on LinkedIn or Instagram, you can sign up.

So, our last question that we have time for today: My family wants to improve how it works together as owners, but we don’t know where to start. What do we do?

Rob: Turn to page 271 in our book. We anticipated that question. We want you to read the book together. We want not just you who ever has a question but try to get the owners to read the book together and then literally on page 271 we ask you to do a self-assessment of the things that are working well and the things that aren’t working well. Do it individually, then collectively have a conversation and you’ll see where you’re aligned and where you’re not aligned. And then get a sense of where you think you can start from that conversation. Don’t take the hardest thing. Don’t take the easiest thing. Take something that’s going to stretch your rubber band, but not break your rubber band and get to work on that thing. And once you find that one or two things — and it should be only one or two things — go back to the section or talk to other family businesses about how they’ve dealt with getting better at that thing that you’re talking about.

Josh: I just had one quick thing to add is the word “together” in a family business. How you do things is at least as important as what you do. And so think about that process how you’re going to do that exercise collectively so that you can actually get the benefit of that collaboration.

Susan: That’s great. So sadly, that’s all the time we have together today, but thank you all for coming and for submitting such great questions. As I mentioned if you’re not already receiving our newsletter, please sign up. So thank you everyone. Thanks Rob. Thanks Josh.