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1JANUARY2010ThefiveattributesofenduringfamilybusinessesThekeystolong-termsuccessareprofessionalmanagementandkeepingthefamilycommittedtoandcapableofcarryingonastheowner.ChristianCaspar,AnaKarinaDias,andHeinz-PeterElstrodtorganizationpractice2Familybusinessesareanoftenoverlookedformofownership.Yettheyareallaroundus—fromneighborhoodmom-and-popstoresandthemillionsofsmallandmidsizecompaniesthatunderpinmanyeconomiestohouseholdnamessuchasBMW,Samsung,andWal-MartStores.One-thirdofallcompaniesintheS&P500indexand40percentofthe250largestcompaniesinFranceandGermanyaredefinedasfamilybusinesses,meaningthatafamilyownsasignificantshareandcaninfluenceimportantdecisions,particularlytheelectionofthechairmanandCEO.Asfamilybusinessesexpandfromtheirentrepreneurialbeginnings,theyfaceuniqueperformanceandgovernancechallenges.Thegenerationsthatfollowthefounder,forexample,mayinsistonrunningthecompanyeventhoughtheyarenotsuitedforthejob.Andasthenumberoffamilyshareholdersincreasesexponentiallygenerationbygeneration,withfewactuallyworkinginthebusiness,thecommitmenttocarryonasownerscan’tbetakenforgranted.Indeed,lessthan30percentoffamilybusinessessurviveintothethirdgenerationoffamilyownership.Thosethatdo,however,tendtoperformwellovertimecomparedwiththeircorporatepeers,accordingtorecentMcKinseyresearch.Theirperformancesuggeststhattheyhaveastoryofinterestnotonlytofamilybusinessesaroundtheworld,ofvarioussizesandinvariousstagesofdevelopment,butalsotocompanieswithotherformsofownership.Tobesuccessfulasboththecompanyandthefamilygrow,afamilybusinessmustmeettwointertwinedchallenges:achievingstrongbusinessperformanceandkeepingthefamilycommittedtoandcapableofcarryingonastheowner.Fivedimensionsofactivitymustworkwellandinsynchrony:harmoniousrelationswithinthefamilyandanunderstandingofhowitshouldbeinvolvedwiththebusiness,anownershipstructurethatprovidessufficientcapitalforgrowthwhileallowingthefamilytocontrolkeypartsofthebusiness,stronggovernanceofthecompanyandadynamicbusinessportfolio,professionalmanagementofthefamily’swealth,andcharitablefoundationstopromotefamilyvaluesacrossgenerations(Exhibit1).FamilyFamilybusinessescangounderformanyreasons,includingfamilyconflictsovermoney,nepotismleadingtopoormanagement,andinfightingoverthesuccessionofpowerfromonegenerationtothenext.Regulatingthefamily’srolesasshareholders,boardmembers,andmanagersisessentialbecauseitcanhelpavoidthesepitfalls.Largefamilybusinessesthatsurviveformanygenerationsmakesuretopermeatetheirethosofownershipwithastrongsenseofpurpose.Overdecades,theydeveloporalandwrittenagreementsthataddressissuessuchasthecompositionandelectionofthecompany’sboard,thekeyboarddecisionsthatrequireaconsensusoraqualifiedmajority,theappointmentoftheCEO,theconditionsinwhichfamilymemberscan(andcan’t)workinthebusiness,andsomeoftheboundariesforcorporateandfinancialstrategy.Thecontinualdevelopmentandinterpretationoftheseagreements,andthegovernancedecisionsguidedbythem,may3involveseveralkindsoffamilyforums.Afamilycouncilrepresentingdifferentbranchesandgenerationsofthefamily,forinstance,mayberesponsibletoalargerfamilyassemblyusedtobuildconsensusonmajorissues.Long-termsurvivorsusuallyshareameritocraticapproachtomanagement.There’snosingleruleforall,however—policiesdependpartlyonthesizeofthefamily,itsvalues,theeducationofitsmembers,andtheindustriesinwhichthebusinesscompetes.Forexample,theAustralia-basedinvestmentbusinessROIGroup,whichnowspansfourgenerationsoftheOwensfamily,encouragesfamilymemberstoworkoutsidethebusinessfirstandgainrelevantexperiencebeforeseekingsenior-managementpositionsatROI.Anyappointmenttothemmustbeapprovedbothbytheowners’board,whichrepresentsthefamily,andtheadvisorycouncil,agroupofindependentbusinessadviserswhoprovidestrategicguidancetotheboard.Asfamiliesgrowandownershipfragments,familyinstitutionsplayanimportantroleinmakingcontinuedownershipmeaningfulbynurturingfamilyvaluesandgivingnewFamilyWeb2010FamilybusinessExhibit1of3Glance:Forafamilybusinesstobesuccessful,fivedimensionsofactivitymustbeworkingwellandinsynchrony.Exhibittitle:Fivedimensions•Familyforums•Familypolicies•FamilyservicesWealthmanagement•Investmentoffice•Legacyassetsandnewopportunities•GovernanceBusinessandportfoliogovernance•Corporategovernance•Dynamicportfolioevolution–Businessportfolio–Capitalcomposition,structure–New-businessdevelopmentFoundations•Managementandgovernanceoffamily’sownfoundation•Third-partyfoundationsOwnership•Shareholderagreements•Holdingstructures•LegaldocumentsExhibit1Fivedimensions4generationsasenseofprideinthecompany’scontributiontosociety.Familyoffices,someemployinglessthanahandfulofprofessionals,othersasmanyas40,canbringtogetherfamilymemberswhowanttopursuecommoninterests,suchassocialwork,oftenthroughlargecharityorganizationslinkedtothefamily.Theofficemayhelporganizeregulargatheringsthatofferlargefamiliesachancetobond,toteachyoungmembershowtobeknowledgeableandproductiveshareholders,andtovoteformallyorinformallyonimportantmatters.Itcanalsokeepthefamilyhappybyprovidinginvestment,tax,andevenconciergeservicestoitsmembers.O