Why is there a big green tree on the front cover of a book titled FAMILY BUSINESS?
Because author Ernesto J. Poza says, “You never own a family business. You just grow it for the next generation.” Poza uses an oak tree as a symbol for family business; and growing a family-led business is the theme of his book. With an emphasis on stewardship, leadership, and positioning for the future, FAMILY BUSINESS shows how the family enterprise can achieve sustained growth and continuity. “I can’t think of anything better or more noble,” Poza explains, “than to have somebody else take the baton from you and run with it for another generation.”
Poza is a professor of Global Entrepreneurship and Family Enterprise at the Thunderbird School of Global Management in Glendale, Arizona. He is on the editorial board of Family Business Review and The Journal of Family Business Strategy, and is a contributing editor to Family Business Magazine. Fluent in Spanish, Poza is an internationally recognized consultant to family-owned and family-controlled firms around the world. He has advised executive management of Fortune 500 companies as well as privately held businesses in many countries including Chile, Colombia, the Dominican Republic, Ecuador, Guatemala, Honduras, Ireland, Mexico, Panama, Puerto Rico, Perú, Spain, the United States, and Venezuela.
Poza grew up in Cuba, where his family owned a cattle ranch and sugarcane plantation. His parents dreamed of passing their enterprise to the next generation, but they lost the opportunity when Fidel Castro came to power in 1959. Castro made radical changes including nationalizing industry, collectivizing agriculture, and seizing American-owned businesses and farms without compensation. After relocating to the U.S., Poza attended Yale University and MIT, where he received his M.S. in Management from the Alfred P. Sloan School of Management in 1974. Now Poza specializes in helping other business families make the transition from one generation to the next.
Even though family businesses are the oldest form of enterprise, serious research on the topic was not done until the early 2000’s. Poza was a pioneer researcher in the field, having first published the critically acclaimed and oft-cited FAMILY BUSINESS book in 2003. Still one of the few books specifically written about family businesses, FAMILY BUSINESS is recommended for anyone considering working in or learning about running a family business. The 4th edition, written with co-author Mary S. Daugherty and published in early 2013, is the most comprehensive family business book available to date.
After a decade of research, Poza continues to challenge assumptions about the differences between traditional publicly-owned companies and family-owned businesses. “Contrary to the prevalent stereotype of family businesses as nepotistic, conflict ridden underperformers,” observes Poza, “in reality family firms perform better than nonfamily firms.” He says the Achilles’ heel of many family businesses is governance issues, especially when leaders fail to establish proper ownership structures, boards of directors, family constitutions, and employment policies. As an expert in family culture, strategic management, and succession planning, Poza points out 13 governance pitfalls that can derail family businesses before the second or third generation:
1. Nepotism – When the hiring process is driven by last name and not merit, morale and professionalism suffer. Sometimes it’s best to seek nonfamily talent.
2. Loss of family identity and values – Family values often erode as the family business grows in size and wealth.
3. Family conflicts – Due to the overlap between ownership and management, a family mired in conflict can lose its business focus.
4. Belief that fair means equal – Wise parents understand that not all children have the same abilities or interests; likewise, not all children are prepared to take over the family business.
5. Unwillingness to let go – No one person can know everything, but some family business owners don’t want to relinquish control, even to someone with more experience in a certain area. Family business owners also tend to stay in office much longer than other CEOs, which can cause problems when they grow out of touch with market changes. This is why it’s a good idea to recruit professional managers with fresh perspectives on how to run a successful business.
6. Entitlement culture – Family members can have unreasonable expectations about what they deserve – such as special privileges, benefits, and rewards for just showing up – all of which can reach an unsustainable level.
7. Dilution of wealth – The erosion of capital as a result of entitlements and taxes can limit a family’s access to funds for investments and acquisitions.
8. Erosion of entrepreneurship – This happens when creativity and risk-taking gradually become replaced by bureaucracy, rules and regulations.
9. Insufficient professionalism – In order to compete, the family business must present themselves and conduct their enterprise in a professional manner just like other firms.
10. Lack of transparency – Family members often disregard the importance of openness, communication, and accountability which can put outside stakeholders at a disadvantage or even worse, result in hidden agendas.
11. Lack of oversight – Family businesses that fail to establish some form of independent oversight can result in complacency, resistance to change, and other problems.
12. Lack of boundaries – Family businesses must maintain a proper professional balance between the family, the ownership, and the management.
13. Altruism – The tendency of family members to look out for each other can lead to irrational business decisions.
FAMILY BUSINESS is excellent reading for business students as well as family business owners. The book will provide the next generation of family business persons with the knowledge and skills needed for the successful management and leadership of the family enterprise. FAMILY BUSINESS takes an honest look at the advantages and challenges facing family firms, while teaching how to effectively deal with the conflicts that inevitably happen. Although focusing more on large wealthy enterprises, the book covers a lot of valuable concepts and ideas that can also be applied to smaller mom and pop shops. Just think, many of today’s household brand names started out as small family businesses!
NOTE: This book is rather high-priced because it’s used as a textbook in college and grad school classes, but if your family has a business the advice will be well worth the price. You can even turn it into a high school elective for your homeschool student! The book is available at Amazon.com in hardcover, paperback, and Kindle versions.
TABLE OF CONTENTS
Preface.
About The Author.
Part I. THE FAMILY BUSINESS: WHAT MAKES IT UNIQUE?
1. The Nature, Importance, and Uniqueness of Family Business.
2. Great Families in Business: Building Trust and Commitment.
3. Ownership of An Enterprise Built To Last.
Case 1. The Binghams and the Louisville Courier-Journal Companies.
Case 2. SMALL FAMILY BUSINESS Power Play at the Inn.
Case 3. The Ferre Media Group.
Case 4. SMALL FAMILY BUSINESS “She’ll Always Be My Little Sister”.
Case 5. The Vega Food Company.
Part II. LEADERSHIP IMPERATIVES FOR THE FAMILY AND BUSINESS: SUCCESSION AND CONTINUITY.
4. Succession: Continuing Entrepreneurship and The Next Generation.
5. Succession and The Transfer of Power.
Case 6. Sigma Motion, Inc.
Case 7. SMALL FAMILY BUSINESS The Ambivalent CEO of The Construction Company.
Case 8. SMALL FAMILY BUSINESS Borrowing to Grow at Andrews Company.
Case 9. SMALL FAMILY BUSINESS Adams Funeral Home.
Case 10. Fasteners for Retail (Part A).
Case 11. Ferre Media Group (Part B).
Case 12. The Cousins Tournament.
Part III. BEST PRACTICES FOR THE MANAGEMENTAND GOVERNANCE OF THE FAMILY BUSINESS.
6. Creating the Strategy.
7. Planning the Estate.
8. Financial Considerations and Valuation of The Family Business.
9. Key Nonfamily Management: The Visible Commitment to Managing The Family Business Professionally.
10. Family Business Governance: Advisory Boards and Boards of Directors.
11. Family Communication: Family Meetings, Family Councils, and Family Offices.
12. Change, Adaptation and Innovation: The Future of Family Business.
13. Continuing The Spirit of Enterprise: Lessons From Centennial Family Companies.
Case 13. PrivateCo Business Valuation Report.
Case 14. Reliance Industries (Part A).
Case 15. SMALL FAMILY BUSINESS The Son-In-Law.
Case 16. SMALL FAMILY BUSINESS The New MBA.
Case 17. SMALL FAMILY BUSINESS Real Estate Development Partners, Inc.
Case 18. SMALL FAMILY BUSINESS Glassking Distributor Company.
Case 19. New Way Distributing.
Case 20. The Reliance Group (Part B).
Index.
For stories about how different family businesses have navigated governance challenges to create successful outcomes, see the Fall 2013 issue of Thunderbird Magazine at http://magazine.thunderbird.edu or read “T-bird Stewards Share Family Business Lessons,” by Daryl James at http://magazine.thunderbird.edu/article/t-bird-stewards-share-family-business-lessons