All In the Family

By Steve Zumbach

When an underground spring near Japan’s Mount Hakusan was discovered in 718, it was decided to build a spa and hotel on the site. The hotel owner, known by his family name Hoshi, did well and passed it along to the next generation. And the next. And next, and … now Family Business magazine sees Hoshi Ryokan as the world’s oldest reining family-run company—46 generations’ worth.

That is a far cry from the 15 percent of family businesses that Des Moines attorney Steve Zumbach sees as surviving even into their second generation. Running any business is full of pitfalls, and family-owned versions face even tougher odds due to, well, the family. The interest and commitment of family members may differ, as may their skill levels. Marriages, divorces, births and deaths bring in and drop out players. Public company shareholders are free to come and go as they please, a status not available to family owners.

“Business has never been more competitive. When combined with the family dynamic, planning for the family business is geometrically more complicated,” says Zumbach, a specialist in family business and a partner in the Des Moines firm Belin McCormick.

To prep for guiding family businesses, Zumbach obtained a law degree, a CPA designation and a Ph.D. in Economics. He then learned there was one more education hurdle—psychology. His knowledge there has been acquired on the job, which overall has led him to build some useful observations on making a go of a family-owned firm:

  • A governance structure should be created that enables all family interests to be represented without interfering with efficient decision-making.
  • Family members must perform their responsibilities beyond expectations. In short, they have to work harder than anyone else.
  • Co-workers often feel that family members have an unfair advantage. Hard work and performance are the best ways to earn their respect.
  • Some family members may have a sense of entitlement that diminishes the work ethic. This is not conducive to positive performance.
  • The fact that non-family members may be better qualified to lead a company should be accepted. (Harvard Business Review notes that limiting the head office to a family member only reduces the pool from which management is drawn).
  • Outside directors with appropriate skills can add expertise and stability. (Zumbach often sees first-generation entrepreneurs balking at outside counsel.)
  • Performance criteria must be set and the family member should be evaluated annually and held accountable by non-family managers.
  • A mentoring program is useful, though family members should not mentor other family members as training and constructive criticism are generally better received from people outside the family.

Family businesses are hard work, both to build and to maintain. There are lawyers and accountants such as Zumbach to help see that the cogs of the gears run smoothly. And luckily, academics who can help are abundant. The Center for Family Enterprise is based at Northwestern University in Evanston, Ill. And right down the road, in Chicago, are family business counseling groups tied to the business schools at both Loyola University and DePaul University. See them — see someone — on how best to nurture your life’s work.

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