Family Businesses Are Built To Last

Family Businesses Are Built To Last

by Richard L. Narva, Esq.

Some family businesses are built to last.Many are not.In my view there are two clear indicators of whether a family business is built to last:its balance sheet and its vision statement.My experience tells me that when the balance sheet of a family business is relatively unleveraged because the owners reinvest the bulk of their profits consistently each year, they are voting with their dollars to build a family business that will endure.I do not question the choice of business owning families who choose to maximize withdrawals of cash for personal consumption.I simply argue that their companies are built to serve the current generation of owner/managers–a legitimate choice, but one which is inconsistent with an enduring family controlled business enterprise.

Myprimary purpose in this brief article, however, is to address the vision of family businesses that are managed to endure for generations.In their classic text, Built to Last:Successful Habits of Visionary Companies, two Stanford Business School professors, James Collins and Jerry Porras, compare and contrast 18 of America’s large corporations who dominate their industries with their largest (and less successful) competitors.

In the process of a six year long empirical study which compared truly great companies who became industry leaders and their less successful competitors, such as Marriott with Howard Johnson, Motorola with Zenith, Hewlett-Packard with Texas Instruments, the authors concluded that the primary distinguishing characteristic of the truly great companies (which their competitors lack) is that these truly successful firms “…(P)reserve a cherished core ideology.Put another way, they distinguish their timeless core values and enduring core purpose (which should never change) from their operating practices and business strategies (which should be changing constantly in response to a changing world).”

The book reaffirms the competitive validity of being a values driven enterprise and offers abundant research based, practical recommendations for owners who wish to create a business that is “built to last.”I recommend this book to all of the readers of our newsletter and we have copies available upon request for our clients.

Rather than give a more comprehensive review of the book, I want to point out something that intrigued me about the list of 18 companies selected by the authors as paradigms of visionary companies, a point not made explicitly by the authors in their text:that is the extent to which family control is a characteristic of these now huge and hugely successful visionary companies.

Of the 18 companies, four founding families (whose patriarchs were the architects of their vision) continue to control the companies through ownership: Ford, Marriott, Nordstrom and Wal-Mart.Of these, Nordstrom and Marriott retain family CEO’s and Ford appears to be grooming a fourth generation member for that position.Of the remaining 14 companies, four others enjoyed at least two generations (and many decades) of family leadership in the CEO position:IBM, Johnson & Johnson, Merck, Motorola (where a third generation Galvin is now CEO).

My purpose in highlighting this observation is that at Genus we find that most of our clients are trulyvalues driven organizations, although often the enterprise’s core values are assumed rather than articulated.Moreover, these core values are often rooted in the multigenerational history of the founding family.We believe that these family businesses have, therefore, a running head start on the journey of becoming visionary companies that are “built to last.”We encourage you all to consider the wisdom in this powerful book.We look forward to speaking with you further about this subject.