This is indeed a useful book, both conceptually strong as well as full of practical insights and actions for leaders of family business firms. My sense is that the book lives up to its promise to highlight how to build and sustain a successful, enduring enterprise.
The handbook’s authors, Baron and Lachenauer, are highly qualified and respected individuals within the field of family business. Hence the book’s high quality should come as no surprise. Both authors are co-founders and partners at Banyan Global, a management consulting firm specializing in serving family businesses. Dr. Baron is active in teaching family business courses at Colombia Business School in the MBA, EMBA and Executive Education programs. Mr. Lachenauer, the CEO of Banyan Global, has worked closely with scores of family businesses throughout the world, helping them to sort out dilemmas they face as owners, while strengthening family relationships. For a brief description of Banyan Global see the appendix at the end of this review.
When putting together my recent book on family business portfolio firms (Reinventing the Family Firm, 2021, IMD), I was significantly inspired by Baron and Lachenauer. For instance, their so-called “four-room model” where various types of governance-related issues are handled in each “room” (owner; board; management; family) was extensively discussed in my book (pp.43 – 45), originally developed by them (p. 58). Or their seven stages of conflicts in family firms, introduced on p. 225 in their book, was also the basis of extensive discussion in my book, pp 105 – 106.
Now to a brief summary of the handbook. The book falls into three parts (“Cracking the Code of Your Family Business”; “The Five Rights of Family Business Owners”; “Challenges You will Face”), more or less corresponding with three traits that most successful family businesses seem to have:
Curiosity: Living with the challenge of lifelong learning.
Teamwork: Keeping the family business requires constant teamwork efforts.
Adaptability: Embracing challenges and being open to meet these challenges.
Part one of the book, in two relatively short but critically important chapters, identifies such issues as understanding key individuals in a family firm, the interconnectedness among such key individuals as well as the systems that may shape critical behaviors in family firms. It should be noted here that in family firms the leaders will have a broad influence on not only the business itself but on the family as well, in contrast to publicly traded companies, where market focus tends to dictate nearly all decisions. This may not only be a positive power but can also be destructive. The power to sustain a family business seems intertwined with a willingness to explicitly invest in developing the next generation – making them better prepared! To understand what this form of ownership implies seems critical for the continuation of the family business.
The second part of the book deals with what might be seen as five fundamental rights of family business owners. A starting point here is perhaps to delineate explicitly the type of family business ownership type that has been decided on (sole owner; partnership; all decedents take over; a subset of decedents shall have control). Decision-making then may take place within the “four-room model” already discussed. Significantly, processes shall then have to be put in place to ensure integration across the “rooms” (decision processes with formal connections between “rooms”; conflict resolution procedures; shareholder agreements, etc.).
To create a strategy which is both good for the family firm, as well as in line with the interests of the family owners is key. This has to do with how interrelated factors such as growth, liquidity, dividends, debt and control are to be coped with. An owner strategy might be based on finding a realistic tradeoff between liquidity, growth and control.
To strive for realistic ways to inform is importanat, above all since this has to do with building trust. There are several groups in such a network for information-dissemination: owners, next gen, spouses, employers, community, etc. Information might be shared when it comes to design issues (ownership of a family firm), decision-making issues (roles, representatives), values (financial performance, …), transfer (how the family firm changes hands), and so on. The communication may be characterized as “open”, “metered” or “not at all”!
The fifth and final of family owner’s factors addresses the transfer of family firm values. Explicit considerations of what might be the best for the firm, combined with a focus on what might be seen as fair, seems critical here. If a broadly accepted way to deal with both of these two factors together is not found, then conflicts, even court-cases might emerge. The authors discuss how such a transition plan misfired at the Chicago-based Pritzker family, when two senior owners had over-structured a transition, eventually leading to a court case, and in turn to a break-up of the family portfolio firm into ten separate parts.
The final part of the handbook deals with typical challenges managers of family firms might face. Partly this may have to do with how to cope with “disruptions”, such as death in the business family, new people entering the business family, growing senses of inequality, as well as coping with behavioral health issues among some family members.
To be able to work effectively in a family business is perhaps a first issue. To be prepared for a life under the microscope is something that should be of central concern here. This might perhaps be particularly difficult for in-laws joining the business.
All of this leads to developing more explicit employment policies in the family firm, particularly when it comes to embracing career plans for key individuals, as well as to allow for their compensation. A realistic family employment policy might also contain rules for entry, feedback to enhance further development of weaknesses, as well as exits.
How to protect family business wealth is typically another central topic. The authors provide several recommendations when it comes to this, all well known, pointed out by many other experts. Paramount here is “to survive”, to ensure profitability in the firm, and to grow, while keeping debt low. Above all, to develop a portfolio must of course fit the owner’s interests. What is important is to exit from one particular business, so as to diversify into such a portfolio instead. To articulate a realistic dividend policy, to prepare for responsibility and to avoid favoritism seems key.
There may regrettably be conflicts within an owning family. I have already referred to the seven-point “conflict spiral” when it comes to coping with this. To escape such typically devastating family feuds, it seems important to put all options on the table. A possible buy-out of some family members should be based on full transparency and trust.
For some families, a way forward might be to create a so-called Family Office, to manage the investments for that family. In addition, family offices could provide various forms of support for family members (“make life easier for them”), as well as enhance effective governance within the various parts of a family’s holdings. The two most common types of family offices are the single family office (SFO) and the multi-family office (MFO). A typical source of resistance to the creation of a family office might have to do with the realization that this shall typically lead to additional expenses for the owners. Also, what should owners spend their time and energy on when professionals in the family office take over?
The book’s final chapter returns to the theme of protecting the family wealth, as discussed in chapter 11, but now focuses more on recognizing signs that the family might be losing control. The authors have come up with five such “warning signs”:
Dividends never change.
Board meetings have become a formality.
Information – either too much or too little!
The CEO is irreplaceable.
Family members are shut out of the business.
To cope with “red light” factors such as these, it seems fundamental to bring the family back in control – re-approach the design of the family firm, revisit the governance structure, reaffirm one’s owner strategy for the company, and readdress the implications of ownership transfer to the next generation.
As already noted, I find this book to be valuable both in terms of coming up with new insightful conceptual schemes for how to manage family firms, as well as providing specific advice for how to cope with common practical challenges. There are perhaps a few exhibits and tables too many, quite typical for consultants, but this should not be seen as diminishing the book’s value. Those of us who might have less affinity to such exhibits and tables may simply skip over these! All in all, I am wholeheatedly recommending this book.
APPENDIX
BanyanGlobal Family Business Advisors (taken from www.Banyan.global on 24/02/2022)
BanyanGlobal Family Business Advisors brings together deeply-integrated, multi-disciplinary expertise in family, business, finance, ownership, and philanthropy. That expertise gives us the ability to challenge our clients while respecting what they have accomplished. Our people have true compassion for family values, traditions, and aspirations, and we’re fiercely committed to achieving lasting results. By building an environment of trust, we encourage business families to be the best they can be—for each other, for their businesses, and for their communities.
We work in multidisciplinary teams of full-time, senior family business advisors who have complementary skills in business strategy, law, organizational development, psychology, communications, tax, philanthropy, and finance. Our partners, principals, and advisors are full-time and dedicated solely to the firm and our client families.
More importantly, we care deeply about our clients. Each of our family business advisors has a family business experience in our personal background. We have lived through the highs and lows, which enable us to empathize deeply with our clients.
Our team is cross-generation and cross-gender, just like our client families. We believe diverse teaming is valuable to really appreciate the nuances of each family ecosystem. Together, we partner to strengthen those ecosystems.
Kommentarer