The success gene of family businesses

Only one in every ten family companies still remains in family hands in the fourth generation. This observation prompted Professor Fritz B. Simon, a psychiatrist at the University of Witten-Herdecke whose current focus is on organizational research and consulting, to ask the simple question, "Why is that so?" In his therapeutic practice, Simon, came into contact with people who had sold their family businesses and had subsequently suffered from very different kinds of crises. This sparked his interest in exploring the flip side of the coin: namely what holds together traditional multigenerational companies with well-known names such as Oetker, Haniel, and Merck over far more than four generations? Merck, for example, has already been in family hands for 12 generations.

According to Simon, the first generation of owners is preoccupied with the work of building up the company. The second generation is dominated by the demands and expectations of their parents, who in many cases also take a long time to hand over control to their children. Only the grandchildren are once again somewhat freer to make their own decisions. If the business has thrived until then, the sustainability gene is in many cases strong enough to survive in later generations. More often, however, the dynasty ends in the way that is described by Thomas Mann in his Nobel Prize-winning novel Buddenbrooks. Here, the grandson Hanno draws a line right through the entry for his own birth in the family tree. When asked by his father to account for his behavior, Hanno stutters, "I thought...I thought...there wouldn't be anything more..."

Such failures made Simon all the more curious about what exactly happens when a family business continues. "The family is a resource for the company, and the company in turn is a resource for the family," he explains. This reciprocal relationship harbors opportunities but can also cause difficulties. It's certain that family companies are characterized by long-term perspectives; their development is not limited by quarterly reports. Family assets that are invested in a company are not abstract concepts but rather have a concrete meaning for the family members. This includes a sense that the family assets must be managed responsibly.
The example that proves the rule can be seen in the opposite case, the sale of a family-owned company. "In some cases this leads to the collapse of long marriages, because now the partners can use the money to buy themselves freedom," says Simon. He adds that so far almost everyone has overestimated the liberating role played by money and that some people in this situation have fallen into clinical depression.

But what exactly makes the money invested in a family-owned company so different? Jon Baumhauer, Chairman of the Family Board of the Merck Family who is himself a psychologist, answers this question as follows: "The family's values are the same as the values of the company." He adds that respect is the core value of these value systems. Simon has also observed a similar phenomenon in the course of his research: "Time and again, one sees family companies refusing to engage in ethically questionable business practices."
Family companies act as one person who feels like a link in a chain of responsibility that connects past and future generations. Nonetheless, they're absolutely competitive in a market that is mainly capital-driven (on this topic, see also the interview with Benoît Leleux). From Simon’s viewpoint as a psychiatrist, such companies have succeeded in resolving various "fundamental paradoxes" that separate families and commercial enterprises. For example, communication within families is person-oriented, whereas within companies it is oriented toward objective facts. Moreover, tradition ideally safeguards the survival of the family, whereas a company owes its longevity to innovation.

"Successful family companies resolve these paradoxes productively within the family unit — in a process that sometimes lasts for decades," Simon observes. There's no recipe for success in this process. The companies, business sectors, and families are too diverse for that. Only one thing is for sure: The companies' success is always measured over the long term.

Ethical standards and sustainability — do they mean that family-owned companies are the corporate pattern of the future? To answer this question, Professor Simon begins by advocating an extended concept of family that also includes partners who establish companies and are bound by emotional ties. "For example, take the famous garage in Palo Alto where William R. Hewlett and David Packard laid the cornerstone in 1939 for what ultimately became Silicon Valley," he says. "Microsoft, Apple, and Google began in a similar way."
Taking a look into the distant future, Simon speculates that the citizens of a future state might one day regard themselves as a "family" and manage state companies in line with this model. This is an idea that brings together very contradictory concepts — but merges them at a future point on a timescale that is not yet visible.