Every Family Business Has to Make Tough Choices to Survive

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Every family business owner dreams of handing over a thriving firm to the next generation—and leaving the business in even better shape than they found it. Fulfilling this goal is relatively easy for first and second-generation owners. But by the third generation, it becomes a lot trickier, as a series of familial challenges begin to threaten business survival.

It’s at this point that arguments around strategy, governance, or who is next in line to helm the business really begin to bite. Why? Because as the family tree proliferates, owners need to manage more voices and opinions on where the business should be headed. Left unchecked, these tensions can be disastrous, quickly eroding the value and relationships that previous generations have so painstakingly built.

Learning from the best

Overcoming family tensions is not for the faint of heart. It requires family business owners to make bold and often uncomfortable decisions—decisions that not everyone agrees with. This is never an easy situation to find yourself in. As one owner recently told us, “Making a choice is always painful.”

Yet we know that many family businesses across Europe have managed to navigate these choppy waters. Think of Porsche, Group SEB, or Puig, which have not just survived for four or more generations, but thrived.

How have these family businesses managed to sidestep issues? And what can we all learn from their success?

To find out, Russell Reynolds Associates partnered with Bocconi University to study 10 of Europe’s most enduring family businesses. While each family businesses has taken a different trajectory, there is one fundamental thing they all have in common.

Difficult decisions

Our research shows that, at some point, the most successful family businesses have all chosen to put the needs of the business ahead of the wants of the family. They see their primary goal and purpose as working together to run a solid, growing, and profitable operation. They set aside egos, family pride, and short-sighted self-interests, and united around the single goal of growing the business.  

That is not to say that they adopt a business-takes-all mentality. Other motivations, such as family harmony, conflict reduction, and the preservation of family values, are still important. But they are always secondary to the guiding mission of ensuring a viable and successful family business.

When family members adopt a business-centric purpose, it creates a unique combination of attitudes, structures, and behaviors that all work together to promote business longevity. In turn, this allows owners to make bold choices to ensure the long-term survival of the business. This includes decisions around:

The family—for example, deciding that family members can’t be in the top management team, or even firing an under-performing family manager. 

Ownership—for example, persuading different branches of the family to sell their shares to another branch to strengthen the leadership of the business. 

Governance—for example, creating a Family Council, to act as the voice of the family and coordinate members’ ideas and concerns.  

Management—for example, hiring top talent from mostly or exclusively outside the family. 

These are undoubtedly hard choices to make. But the family-owned businesses we spoke to understood clearly that by putting business interests first, they were, in turn, putting family interests first. After all, families will always thrive if the business thrives.

Lessons on longevity

As our research shows, ensuring family members understand the importance of business centrality is a critical ingredient to long-term success. Our advice is for family businesses—at any stage of their journey—to focus on the following key areas:

• Work out if family or business logic is behind key decisions, and if one of them tends to prevail. Reflect on whether the balance between the two shifts when it comes to different types of decisions and over time. 
• Consider if family needs and expectations have driven decisions in directions that hampered the business. Or, if business needs shaped decisions in directions that made some family members unhappy and frustrated.
• Make an effort to understand if all family members are truly invested in creating economic and social value creation. Systematically measuring or assessing the creation of economic and social value within family-controlled businesses could be a useful activity.
• Make sure all members understand that if decisions are not driven by the primary goal of keeping the business healthy, chances for longevity are significantly reduced. Try to help them understand that running a successful business is in the best interest of the family.

Our research shows that, at some point, the most successful family businesses have all chosen to put the needs of the business ahead of the wants of the family. They see their primary goal and purpose as working together to run a solid, growing, and profitable operation. They set aside egos, family pride, and short-sighted self-interests, and united around the single goal of growing the business.  

That is not to say that they adopt a business-takes-all mentality. Other motivations, such as family harmony, conflict reduction, and the preservation of family values, are still important. But they are always secondary to the guiding mission of ensuring a viable and successful family business.

When family members adopt a business-centric purpose, it creates a unique combination of attitudes, structures, and behaviors that all work together to promote business longevity.

While the natural inclination of a company founder and direct successors could be to hand over control of the company from one generation to the next, family businesses that grew successfully over several generations have in common that at some point they made tough decisions by placing the needs of the business ahead of the needs of the family.