Organizations Leadership Mar 7, 2016

How a Fam­i­ly Busi­ness Can Cap­i­tal­ize on Its Unique Culture

You need a dif­fer­ent play­book when the CEO is your sister.

Yevgenia Nayberg

Based on insights from

John L. Ward

Fam­i­ly busi­ness­es don’t always have it easy. Inter­nal con­flicts, incon­sis­tent stan­dards, a lack of align­ment, and any num­ber of oth­er pit­falls can be mag­ni­fied by an exec­u­tive board whose mem­bers have known each oth­er since they were in diapers.

But top-per­form­ing fam­i­ly busi­ness­es also enjoy cer­tain advan­tages. Being fam­i­ly owned is a great source of strength,” says John L. Ward, clin­i­cal pro­fes­sor of fam­i­ly enter­prise and the codi­rec­tor of the cen­ter for fam­i­ly enter­prise at the Kel­logg School. The most cen­tral of these strengths is the abil­i­ty to foment a val­ues-dri­ven cul­ture — some­thing that comes to fam­i­ly busi­ness­es more nat­u­ral­ly due to a shared sense of his­to­ry, vision, and pur­pose — as well as a shared legacy.

As in all orga­ni­za­tions, cre­at­ing a win­ning cul­ture is an active process. But what can fam­i­ly enter­pris­es in par­tic­u­lar do to har­ness their inher­ent cul­tur­al advantages?

Learn more about Kel­logg Exec­u­tive Edu­ca­tion pro­grams relat­ed to the Cen­ter for Fam­i­ly Enter­prise here.

Take the Long View

All busi­ness­es share a fun­da­men­tal need to com­pete and grow. But the best-per­form­ing fam­i­ly busi­ness­es com­pete and grow a bit differently.

Unlike their bot­tom line – dri­ven com­peti­tors, fam­i­ly busi­ness­es are dri­ven by the desire for con­tin­ued suc­cess over gen­er­a­tions. Because they have a longer time hori­zon, they can be a lit­tle more patient and take a more cal­cu­lat­ed risk — and they can pro­tect their risk,” Ward says.

This allows fam­i­ly com­pa­nies to take on ini­tia­tives that need more time to gain trac­tion. One clas­sic exam­ple of this deter­mi­na­tion is the fam­i­ly-owned con­fec­tion­er Mars, which made a deci­sion to repo­si­tion its Snick­ers can­dy bar as a snack for adults. The com­pa­ny invest­ed in the strat­e­gy for years before it saw any return.

There is a healthy ten­sion between those who advo­cate a longer-term view and those who advo­cate an ear­li­er per­for­mance result.”

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Of course, Snick­ers is now the num­ber-one can­dy bar,” Ward says. They were will­ing to spend a lot of mon­ey in pro­mo­tion and mar­ket­ing to get the mes­sage across that this was a spe­cial brand. Most non­fam­i­ly busi­ness­es would not invest for 3 – 5 years before they expect a return.”

A long view also can come to define a company’s unique iden­ti­ty. Being fam­i­ly owned has allowed the phar­ma­ceu­ti­cal com­pa­ny F. Hoff­mann-La Roche to put its pri­ma­ry focus on advanced R&D projects, rather than copy­ing the time hori­zons, projects, and prod­ucts of most of its competitors.

A caveat is in order: a long-term view can con­ve­nient­ly excuse a cul­ture that pro­motes inef­fi­cien­cy, a lack of dis­ci­pline, and poor per­for­mance. Fam­i­ly com­pa­nies should take care not to fall into this trap. An inde­pen­dent Board of Direc­tors can act as a real­i­ty check, pro­vid­ing an objec­tive view to the fam­i­ly own­er­ship and leadership.

There is a healthy ten­sion between those who advo­cate a longer-term view and those who advo­cate an ear­li­er per­for­mance result,” Ward says.

Mind the Flock

The par­ents, chil­dren, sib­lings, and cousins that may pre­side over a fam­i­ly enter­prise tend to have very close rela­tion­ships. These bonds define and enrich a cul­ture that, in the business’s ear­ly stages, might be indis­tin­guish­able from the family’s per­son­al lives.

As the busi­ness grows larg­er, how­ev­er, it inevitably needs to hire tal­ent beyond the fam­i­ly. Because its unique cul­ture may be dif­fi­cult for new hires to deci­pher, suc­cess­ful fam­i­ly busi­ness­es must pay spe­cial atten­tion to the peo­ple they bring onboard — and the way those hires are acculturated.

Smart fam­i­ly busi­ness­es cre­ate a lead­er­ship team that bal­ances con­ti­nu­ity and fresh ideas. This can be done by set­ting guide­lines for the senior man­age­ment team’s com­po­si­tion — for instance, by aim­ing for equal por­tions of fam­i­ly mem­bers, long-stand­ing employ­ees, and new lead­ers from out­side the company.

Carv­ing out space for new hires can be done by split­ting func­tions in a grow­ing com­pa­ny. For exam­ple, if a com­pa­ny has a long-stand­ing head of sales and mar­ket­ing, a new hire may be brought in to take over the mar­ket­ing func­tion, or a long­time chief oper­at­ing offi­cer may bring in a qual­i­ty-con­trol expert. There are ways in which you can find spots for peo­ple that are not tru­ly vir­tu­al­ly redun­dant,” Ward says. This cre­ates a group of peo­ple in the orga­ni­za­tion that are com­ing up to speed, but they are not also push­ing out the door the pre­vi­ous gen­er­a­tion of management.”

In addi­tion to hav­ing the right skills, prospec­tive employ­ees must have the right mind­set. First, to do jus­tice to a fam­i­ly business’s robust sense of lega­cy, a new hire must val­ue long-term per­spec­tive over short-term gains. It helps if the prospec­tive employ­ee has a sense of ide­al­ism about the company’s mis­sion. While this may hold true for oth­er types of busi­ness­es, this ide­al­ism becomes espe­cial­ly impor­tant when one’s cowork­ers might be descend­ed from its deeply revered founder.

Luck­i­ly, iden­ti­fy­ing, attract­ing, and select­ing new peo­ple for employ­ee and board posi­tions tends to be the hard part, Ward says. Reten­tion? Not so much. Once they’re part of the cul­ture, it’s not as tricky to keep them,” he says. When they are in, they are in to stay.

Stay Close

The biggest obsta­cle to a fam­i­ly enter­prise can, para­dox­i­cal­ly, derive from its success.

I think the biggest chal­lenge to main­tain­ing a suc­cess­ful cul­ture is if the fam­i­ly becomes dis­tant from its busi­ness,” Ward explains. As a fam­i­ly and its busi­ness grow, so does the dis­tance among its mem­bers. A family’s close­ness can wear away with time as the fam­i­ly gets old­er and larg­er and fam­i­ly mem­bers live all over the world.”

As a fam­i­ly spreads out into oth­er coun­tries, their shared vision — and the cul­ture it cre­ates — runs the risk of disappearing.

Hav­ing a fam­i­ly busi­ness is a beau­ti­ful oppor­tu­ni­ty for a fam­i­ly to have rea­son to stay togeth­er,” Ward says, So the more time the busi­ness has to spend buy­ing out fam­i­ly share­hold­ers, the less it has for strategy.”

As they grow, many com­pa­nies are tempt­ed to break them­selves up into small­er units as a way to oper­ate more effi­cient­ly. Fam­i­ly busi­ness­es, by con­trast, tend to try to stay uni­fied because they view the busi­ness as a lega­cy or a pur­pose, rather than a col­lec­tion of assets. But that uni­fied vision can be dif­fi­cult to maintain.

For the fam­i­ly that found­ed the Dow Jones com­pa­ny, inter­gen­er­a­tional apa­thy led to the sell-off of the busi­ness after years of frag­ment­ing inter­ests. There was vir­tu­al­ly no out­reach from the busi­ness or fam­i­ly lead­ers to engage and to sup­port the inter­ests and attach­ment of the fam­i­ly mem­bers,” Ward says. It led in a large part to the sale of the com­pa­ny. Some fam­i­ly mem­bers then wrote pub­licly that if only their par­ents had told them about the busi­ness while they were grow­ing up, they would have appre­ci­at­ed it much more.”

So what can a fam­i­ly do to stay close?

They can host fam­i­ly for com­pa­ny edu­ca­tion­al meet­ings. These may include site vis­its to the company’s facil­i­ties to give fam­i­ly mem­bers expo­sure to the inner work­ings, cul­ture, and even geo­graph­i­cal reach of the com­pa­ny. Fam­i­ly busi­ness­es can also use tar­get­ed pub­li­ca­tions such as newslet­ters to pro­vide infor­ma­tion about and fos­ter con­nec­tion to the business.

The real key,” says Ward, is to cre­ate oppor­tu­ni­ties for fam­i­ly mem­bers who don’t work in the busi­ness to feel close to the busi­ness emo­tion­al­ly so that they get the plea­sure and priv­i­lege, but they are also com­mit­ted long term to the impor­tance of fam­i­ly involve­ment for growth.”

Featured Faculty

John L. Ward

Clinical Professor of Family Enterprise, Co-Director of the Center for Family Enterprises

About the Writer

Eugenia Williamson is a freelance writer based in Chicago.

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