Something bigger than the company itself
Many family businesses are united by a common goal or a strong set of values shared over several generations. But by the third generation at the latest they often face an existential problem: how to secure successful succession within the family if the younger family members want to follow their own path in life? What role do they have and how can they be encouraged to engage with the family business?
More than 20 years ago, Swiss luxury watch manufacturer Patek-Philippe published a pioneering print ad with the slogan: “You never actually own a Patek Philippe. You merely look after it for the next generation”. This iconic advertisement made it clear that there are things that go beyond the monetary value of a luxury watch, that are bigger and more important . At the same time, the watch manufacturer - itself a family-run business - also described how business dynasties can run a stable and successful company within family ownership for generations. They need what is commonly referred to as a ‘purpose’: this can be a goal, an objective, a sense or a reason that has held the family together for centuries , definitely something bigger and more important than profit, the family and the business itself.
This almost philosophical sensibility is certainly the recipe for success of the oldest independent family business in economic history, Japan’s Hoshi Ryokan hotel, where the identities of the family and the business have been inextricably linked for more than 1,300 years. The handover from one generation to the next has been working successfully for 50 generations - thanks to an all-embracing commitment to the family legacy and the continuity of the family business.1
This may be easier to imagine in Asian societies than in Western ones. In much of Asia, family is particularly important, the rules governing family membership are more stringent, and family members are willing to comply with them because outside the family lies the threat of social death . At least, that’s how things used to be. Globalisation and digitalisation are beginning to break down these old social structures. Many potential successors in Asian family businesses go abroad to study and return home with new priorities and perspectives - if they come back at all. They may start their own company and break away from the family. The crown prince can often go astray in this way.
New paths, independent ideas
In the West it has been quite normal for subsequent generations to follow new paths away from the family, building up independent businesses with their own ideas, and establishing their own families. However, something that has been regarded as a duty and honour among members of Asian family businesses is now also being rediscovered in the West. Younger family members are returning to independent family businesses, side-stepping shareholder pressure for short-term profit orientation and changing to decision-making processes that are shorter and involve greater self-determination. Long-term perspectives can be developed across generations of the family on the basis of strong equity ratios , instead of pursuing a short-sighted race from one quarterly balance sheet to the next.
Instead of shareholder value, the family’s business philosophy –its sense of purpose –takes precedence over profit: maintaining a tradition or a set of values, preserving a legacy, developing dynamically and innovatively like Ems-Chemie, or focusing on first-class service or handicraft like Chopard and Caran d´Ache. Entrepreneurial families that have already achieved huge economic success, like the Roche family, see it as their duty to be a positive influence through patronage on the fortunes of a city or region. Many successful Swiss family businesses also share a particular expectation from their products: a commitment to precision and cutting-edge technology often lies at the centre of the family philosophy.
If there is no clear successor, a shared goal is often also lacking
How can you persuade the younger generation to sign up to these family values and organise business succession? This where things often get sticky. Research from the United States shows that 30 percent of all family-run businesses encounter this problem after only the second generation, and only ten percent of companies remain under family management into the third generation. Figures for Switzerland are similar.2 One of the key reasons for this is the lack of a common goal.
So what special roles and tasks can younger generations expect in family businesses? Some companies set up individual business units for younger family members as places to experiment, or send them off on innovation trips. They then return with new ideas, new technologies and modern management methods. For example Carole Hübscher took over Caran d´Áche in the fourth generation, having previously proven herself as a marketing manager at Calvin Klein, demonstrating her ability to lead her family business into the future: she succeeded her father as chair in 2012.
Likewise Magdalena Martullo-Blocher, Christoph Blocher’s eldest daughter, who now heads up Ems-Chemie, first gained business experience in various companies abroad, including a two-year stint at Johnson & Johnson, before returning to Switzerland and first working as marketing manager for Rivella.
At the Swatch Group, after the unexpected death of Nicolas Hayek, the Hayek family showed that the next generation can quickly join and lead the company, provided they have received the necessary preparation and training. Son Nick and daughter Nayla Hayek even managed to expand the product portfolio with a number of innovations.
The family parliament as a forum for the exchange of ideas
An orderly changing of the guard from one generation to the next can only be achieved through open communication. Families need to establish a platform, a kind of family parliament that allows continuous discussion about the family business, and where personal inclinations and interests can be aligned with the interests of the business (in problematic cases perhaps with the involvement of an external mediator).3
About 88 percent of all companies in this country are family-run. Projections indicate that just five percent of Swiss family-owned companies will still have a family member at the top after five generations. Thus, it is high time that the younger generations rediscovered Swiss family businesses. After all, the chances of survival for an existing business are around ten times higher than for those of a newly-established company.4
1. Deloitte Global Family Business Survey 2019, Deloitte, June 2019, https://www2.deloitte.com/content/ dam/insights/us/articles/r7-12011_long-term-goals-meet-short-term-drive-family-business-survey2019/DI_Long-term-goals-meet-short-term-drive.pdf.
3. Global perspectives for family businesses: Plans, priorities and expectations, Deloitte, March 2018, https://www2.deloitte.com/global/en/pages/strategy/articles/global-perspectives-for-family-businesses.html.