The family firm succession rate according to John Ward is 30/13/3 indicating 30% of the firms sustain through the second generation, 13% through the third generation, but only 3% through beyond the third. Why is that? Is it because the third generation just enjoy too much of the family wealth that they’re not motivated and creative and innovative anymore? Not enough fighting spirit in the third generation anymore?
But before we directly go to the important pointers for breaking this curse, first, what is a family business (family + business)? “Family” and “business” are paradoxical and yet co-exist in our ecosystem called the “Family Business”. Why are they paradoxical? “Family” considers the affective and non-economic values, consisting of socioemotional wealth (SEW) that can be defined as “non-financial aspects of the firm that meet the family’s affective needs, such as identity, the ability to exercise family influence, and the perpetuation of the family dynasty” (Gómez-Mejía, 2007: p. 106). “Business” on the other hand, is objective as it considers the rationale and economic values, consisting of nominal data for decision-making.
In Mandarin, however, “business” or “ 生意 Sheng Yi” denotes the inspired meaning of “the birth of a meaningful venture”, rather than merely the activities of generating profits. Instead of profit-driven, this is the era of passion-driven and purpose-driven. A wise friend used to remind me that we’re in the era of the passion-driven generation entering into purpose-driven. Without the purpose of staying in the family business, the younger generation will not step up to continue the family legacy.
The endless journey of a family business legacy has to be envisioned with attaining a desired stance, called infinity. Family businesses usually have the mindset of an infinite journey with no exit plan. This mindset then creates an awareness to be strategically prepared for long-term everlasting family business legacy passed on from generations to generations. In business, Sinek (2019) called this the “infinite game” that each firm has to play by focusing on its own unique core competency for the longevity of the business. There is no time frame like in a basketball game where 48 minutes is up and the game is over; instead, the game carries on and on to infinity. This infinite process is what family business usually considered as family legacy: the passing of family values and wealth from generation to generation.
A legacy is often misunderstood as the passing down of wealth only. Or as Jaskiewicz et al. (2015) mentioned, merely the ownership and control of the firm. In reality, it is actually the passing down of values that uphold the family’s reputation, and hopefully good reputation. A good reputation is what makes a family business distinctively unique. Indeed, in family business, each family is unique and thus its products and management styles are also idiosyncratic. The heterogeneity in the cultural aspects of different countries and ethnic groups also play a vital role in the uniqueness (Eddleston et al., 2019; Tan et al., 2019; Zellweger et al., 2012), and this uniqueness becomes the secret recipe that others can hardly duplicate.
So how to break the curse? The followings are some pointers with inquiries you could ask yourself to explore:
- Be aware of the purpose and core values of your family business. This becomes the main strength of the family and business.
- Improve the communications among your family members via family governance. Do the members know what their roles are in family and business?
- Include the younger generations early by informing and educating. Simply, do they understand how their family business makes money? Do they want to be involved in the business and why or why not?
- Trust the trustable key non-family professionals to support your business. They will be able to bridge the transition during the succession process to stabilize your family business.
Attaining stewardship in the successor is key for breaking the curse because at the end, the incumbent has to pass on the relay baton to the successor. Stewardship is upholding the roles and responsibilities of the predecessor/incumbent with trustworthiness. This stewardship and trust are self-sacrificial and must be earned. When juxtaposed with Adam Smith’s (2010) concept of unintended benefits are generated when all parties act on their self-interests, the mechanism in family business instead denotes yielding or sacrificing one’s self-interest to align oneself towards the betterment of the whole family.
Dr Jacob Tan
Eddleston, K. A., Kellermanns, F. W., & Collier, G. (2019). Research on family firm innovation: What do family firms actually think and do? : Elsevier.
Gómez-Mejía, L. R., Haynes, K. T., Núñez-Nickel, M., Jacobson, K. J., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms: Evidence from Spanish olive oil mills. Administrative science quarterly, 52(1), 106-137.
Jaskiewicz, P., Combs, J. G., & Rau, S. B. (2015). Entrepreneurial legacy: Toward a theory of how some family firms nurture transgenerational entrepreneurship. Journal of business venturing, 30(1), 29-49.
Sinek, S. (2019). The infinite game. Penguin.
Smith, A. (2010). The Wealth of Nations: An inquiry into the nature and causes of the Wealth of Nations: Harriman House Limited.
Tan, J. D., Supratikno, H., Pramono, R., Purba, J. T., & Bernarto, I. (2019). Nurturing transgenerational entrepreneurship in ethnic Chinese family SMEs: exploring Indonesia. Journal of Asia Business Studies, 13(2), 294-325.
Zellweger, Nason, R. S., & Nordqvist, M. (2012). From longevity of firms to transgenerational entrepreneurship of families: Introducing family entrepreneurial orientation. Family Business Review, 25(2), 136-155.