Build a Family Business That Lasts

Summary: Judging from how they’re portrayed in the media, it would be easy to dismiss family businesses as hotbeds of power-playing, backstabbing, and favor-currying, ultimately destined to fail; think of the Murdochs and News Corp, or the Redstones and National Amusements, to name just two. But many family businesses have enjoyed success for decades, even centuries. The authors explore five aspects of ownership that are crucial to whether a family business thrives or perishes: the type of ownership (whether a sole owner, a partnership, or another arrangement); the governance structure; how “success” is defined; what information the owners will (and won’t) communicate to other family members and stakeholders; and how to handle the transition to the next generation.

Note from the Author:

In our work with hundreds of family businesses around the world over the past decade, we’ve seen some clear patterns in what makes the difference between family businesses that continue to thrive generation after generation and those that go off course. In this article, originally published in Harvard Business Review magazine, we captured some of our most important insights about what makes a family business endure across generations. The key, as we discuss, is understanding and exercising the 5 rights of owners.

– Josh Baron & Rob Lachenauer

Given their portrayals in the media, it might be easy to dismiss family businesses as hotbeds of power playing, favor currying, and back-stabbing—preoccupations that can hurt the company, the family, or both. Think of the Murdochs and NewsCorp, or the Redstones and National Amusements, to name just two. But despite the headline-grabbing tales, many family businesses have enjoyed success for decades, even centuries. For instance, the Italian winemaker Marchesi Antinori, established in 1385, has thrived as a family business for more than 600 years. Similar examples can be found across the globe just within the alcohol business; they include Gekkeikan in Japan (founded in 1637), Berry Bros & Rudd in the United Kingdom (1698), and Jose Cuervo in Mexico (1795).

So which is it? Are family businesses prone to dramatic implosions, or are they some of the most enduring companies in existence? The answer is both. They can be much more fragile or much more resilient than their peers. Given that family businesses—companies in which two or more family members exercise control, concurrently or sequentially—represent an estimated 85% of the world’s companies, ensuring their longevity is essential. The United States alone has 5.5 million of these businesses, which employ 62% of the workforce, according to the research and advocacy group Family Enterprise USA.

To explain the difference between those two fates, we’ll delve into an area rarely explored in business schools or the media: the impact of ownership on a company’s long-term success. Ownership of any asset confers the power to fundamentally shape it. Think of a professional sports team. Within the rules of the league, the owner has the right to make essentially every important decision, including whether to fire the coach, which players are on the roster, where the team plays, whether the franchise seeks to maximize wins or profits, and whether and when to sell it. The teams with the best track records have great owners at the helm. If your favorite team has an ineffective owner, you are probably doomed to disappointment.

To read the full article, click here.

Originally published in Harvard Business Review Magazine, January-February 2021.