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BW Businessworld

Let History Be The Guide

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Family companies can be some of the most powerful and successful organizations in the world. Research suggests that they outperform their non-family counterparts financially, and they do an excellent job of fostering social progress and environmental preservation.

On the other hand, they can also be complicated and difficult to manage. Some of the factors that contribute to their success, such as the family ties that shape and strengthen the firm's culture, pose potential problems, as can the need to balance family against those of the business. This becomes even more challenging as the business develops and control moves from the original founder to his or her children and then a larger and less closely-related group of family members.

But family firms have an advantage that others do not: they can draw on their history to guide their future. If each generation learns from the one that went before, adds their own insights, and teaches the one that comes after, they should be able to create a company that has the right blend of adaptability and tradition for a sustainable long-term future.

Prepare for the future
Family members have a responsibility to ensure that the business they lead has the financial strength, strategic and cultural readiness, and governance infrastructure needed for it to continue to thrive for generations to come. How they do this is likely to change as each new generation takes the reins; each generation must find its own authentic path. Treading water or mimicking previous generations will only put the family and the company at risk.

Each generation must therefore be adept at managing a complex system and find its own singular voice. Fortunately, most family members learn much about managing complexity from the time they can sit at the dinner table. Parents' stories about the business, philanthropy and family relationships are more potent than many realize. Next-generation family members will draw on all of these lessons as they collectively lead the firm.

Their success in this undertaking will depend on how well they tackle four key issues:
Harnessing individual strength to boost the team. Family business leaders must consider both individual competencies and the group dynamics of the people in their management team.

Promoting incremental change. Charismatic CEOs and high-profile mergers gain attention but rarely contribute to longevity. Real, sustainable growth and profitability derive from small adjustments to the environment, as well as from innovation and other market variables, and from committed employees with skin in the game – something that family businesses should have in abundance.

Balancing competing aims. Managing a business and managing a family require completely opposite ways of thinking and acting, but both must be balanced for a family business to thrive.

Continuing the vision and values. It is the heirs' responsibility to prune, adapt and nourish the vision and values of the founder – often more powerful than may be immediately obvious – for the modern era.

Learn from history: Zegna Group and Corporacion Puig
The Zegna Group traces its roots back to the turn of the 19th century, when Angelo Zegna opened a textile manufacturing plant in the Piedmont region of Italy. All ten of his children joined him at the factory, but it was his youngest son, Ermenegildo, who had the interest and talent to take over the business. He built on his father's commitment to quality by introducing the latest technology and labor-relations concepts, as well as a significant amount of charitable giving.

His two sons, Angelo and Aldo, were involved in the business from a young age and eventually each took a 50 per cent stake in the company, which expanded into suit manufacture under their leadership.

All members of the fourth generation were groomed for involvement; Paolo and Gildo emerged as natural leaders and have built on the company's reputation for high-quality fabric and clothing by launching a retail outlet. Other members of that generation have also found roles within the business that suit their particular talents: one is president of the family's philanthropic foundation, another continues environmental activities begun by Ermenegildo, and a third is the business's talent manager.

Corporacion Puig took a different path. It was founded in Barcelona as a perfumery early last century and quickly developed a tradition of acquisition and diversification for growth. The founder's four children all worked in the business, but decided that the family should step back from the front line to work in a more strategic capacity, while a long-term employee was promoted to CEO.

Things got more complicated with arrival of the third generation, and it became clear that the business required a new approach to governance. Family members initially remained hands-off but set up four new bodies to govern both the family and the business, including a family council, which creates and maintains a code of conduct for all employees; and an advisory board that includes a representative from each branch of the family. In 1998, the family added an executive committee to the other four initiatives; ten years later, there was once again a family member as CEO, another as vice-chairman, and a third leading Puig France.

These two businesses are very different and yet their stories share one common feature: in both cases each generation has found its own way to contribute to the family and business using its unique skills, education, and experience. They show that not everyone has to aspire to occupy the CEO's seat to play a meaningful role: a well-rounded family business can offer a variety of positions for family members in succeeding generations.

And, should the perfect role not be available, each founder must surely prove an inspiring role model for any of his descendants who want to start their own business.

(Joachim Schwass is Professor of Family Business and Entrepreneurship at IMD, where he is the director of the IMD Global Family Business Center and Leading the Family Business program. He also teaches on Orchestrating Winning Performance and Program for Executive Development).