U.S. Trust, UVA Darden Partner on New Report Revealing Lessons Learned From Family Businesses
Family-owned and -controlled businesses, which account for 90 percent of all U.S. companies, rarely outlive their founders to survive the next generation. Only one in three defies the odds, but that requires a well-thought-out transition plan and, in some cases, even a non-family member to step in and lead, according to a new white paper by the University of Virginia Darden School of Business and U.S. Trust, Bank of America Private Wealth Management.
The paper reveals eight lessons learned about building a family business and enhancing its value across generations. U.S. Trust — a CEO-level member of Darden’s Corporate Partners Program — collaborated with the Darden School to explore the distinct challenges and advantages of owning a family business, particularly when it comes to transitioning leadership, ownership and control. Their findings are outlined in a jointly published report, “Family Matters: Cultivating human capital, financial capital and innovation across generations in family businesses,” with insight from proprietary and academic research, case studies, and in-depth conversations with business owners.
“We are pleased to partner with U.S. Trust to shed light on these important and often little-considered issues,” said Greg Fairchild, Isidore Horween Research Associate Professor of Business Administration at the Darden School and the University of Virginia’s director of Northern Virginia Operations. “The lessons distilled from these family businesses have applicability for both business creation and preservation.”
According to business owners recently surveyed by U.S. Trust with family members involved in or employed by their business, seven in 10 see family involvement as a competitive advantage. When asked about their transition plans, 52 percent of business owners hope to eventually sell or transfer ownership of the company to family members or employees. Despite this optimism, history shows that the smooth transition of a family business is an exception, not the rule, and the rate of success decreases with each subsequent generation.
Lessons learned from multi-generational family businesses are distilled into eight actionable insights for family business leaders as they consider generational transitions, make strategic investments, work to create an inclusive culture and innovate without losing their roots.
Eight lessons learned
- Take a stewardship approach: Leaders should speak publicly and often about the company’s mission and values, and make decisions that show a willingness to place the long-term interests of the employees and community over short-term profits.
- Lean on values: Demanding that family members model the company’s values builds goodwill with customers, employees and the community, and helps organizations stay resilient during tough times.
- Continuously engage and develop the next generation: Family members are encouraged to learn what the business does and how they might build a career; those not interested in the business remain engaged in other ways, such as philanthropic organizations related to the company.
- Balance cohesion with respect for difference: Families practice unity through common purpose, but also welcome diversity of thought and experience; intergenerational differences are a form of diversity and cultivated as a potential source of strength.
- Reward innovation: Employees who ask questions, propose new ideas and take smart risks are rewarded. Real-time problem-solving and superior, customizable services increasingly are needed in a rapidly changing business world.
- Treat outsiders as well as “insiders”: Every family member may not have the capacity, interest or temperament to succeed in the business. Non-family employees may be better suited to lead and may be encouraged through meaningful career paths and even ownership shares.
- Talk numbers: Family stakeholders should understand the company, its risks and performance, and how it integrates with their own financial lives and plans. If possible, they should consider diversifying their investments or funding their own ventures with family support.
- Communicate, communicate, communicate: Family members are connected, personally and professionally, and remain in regular contact so that institutional knowledge is shared and there is a common sense of identity and mission.
“Because a family business is a source of pride, identity and wealth, founding generations understandably want to see the business continue for the ongoing benefit of family,” said Karen Reynolds Sharkey, managing director and National Business Owner Strategy executive for U.S. Trust. “Keeping the passion alive, engaging and developing future leaders, and effectively passing the baton to the next generation can be as hard as building the business in the first place. By sharing these insights, we hope to help business leaders plan a transition that protects, and even enhances, the value and legacy of the family business.”
The report features four original case studies of businesses spanning one to five generations of family ownership. Collectively, the three issues family business owners say they contend with most are: human capital, financial capital and innovation. The report covers each of these areas with in-depth contributed commentary from Darden School professors and an exploration of five core leadership themes, including spotting and harnessing talent; developing the next generation; engaging ownership through communication; innovating and staying agile; and building and sharing wealth.
A full copy of the Family Matters report is available for free download on the Recruiters & Companies section of the Darden website.
The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.
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Darden School of Business
University of Virginia