Notes from the Family Innovations Summit

Written by Pierre duPont

cornell-2018-0523-0105Thanks to Daniel Van Der Vliet and Cornell’s Smith Family Business Initiative for a stellar event earlier this week. This was a day of private discussions between family-owned businesses of all types and sizes – from some of the largest in the world with 20-50 family members to some small and with only two or three family members.

Across all the sessions, I heard one overriding message: communicate with your family about your business and understand your family’s views and needs – now. Do it openly and as soon as possible, as the business starts and grows, and even if the business is large or it appears to be too late to start such communications. And do this whether you think your family (and the business) needs it or not.

Another message seen clearly: many families with successful businesses have visible and not-so-visible dysfunction, and that dysfunction can create nearly-insurmountable hurdles for continued success or a leadership transition to the next generation. And yet, dysfunction CAN be overcome as we heard several times.

In one case (all will remain anonymous given the incredible amount of openness, and even raw emotional pain, expressed by some of the participants) we heard of several older generations of the leaders in a family-business who appeared to want to limit the continuing success of the company – the next-gen leader overcame this across ten or twenty years through perseverance, many creative ideas, standing ground when faced with strong family pressure, and even by walking away to force the family’s approval of the desired business-change. The result? A household-name business expanding in new directions and generating new levels of success, to the benefit of the whole family.

In another case, we learned of a family faced with discord amongst the older leaders at the top of a large and prominent global company. The discord was clearly hurting the business, so the next-gen came together as a whole to drive leadership changes and new family-control-mechanisms which proved to be the right steps for all generations and for the business itself.

We learned of family-communication done well, too. There were several examples of 20-something and 30-something children who were given leadership roles in their family businesses, and who then rose to the challenges of evolving markets and changing technologies – with appropriate guidance from their parents to the youngers, and from the youngers to their parents.

And we heard an illuminating example of a very prominent family where the elder-generation cousins who lead the business meet regularly to have their business arguments and ‘family squabbles’ behind closed doors, rather than in the public view.

Tactical advice was given by two family-leaders regarding how to strengthen multi-gen families and their businesses, and how to head-off or repair the dysfunction that can arise: engage external family-business advisors/consultants/therapists early, whether or not you think you need to do so today. I was pleased to hear this said several times, confirming the value such external and independent advisors can have – partly that value arises because such advisors have no ‘horse in the race’ (and be sure to look closely for that – sometimes there are hidden agendas and unclear profit-opportunities for external advisors), and partly it arises because the better advisors have seen and learned from many situations.

Contact Daniel if you are a family business who might like to participate in future events like this week’s. And even if you don’t want to participate, I am sure Daniel will welcome calls (as do I 🙂 from family-business owners (whether you are the older generation or a younger generation) to talk confidentially about successes and challenges and failures – lessons can be identified and shared, and paths-forward found, just by talking it through with a suitable outsider.

Pierre duPont is an advisor, entrepreneur, investor, partner and business owner.

Why are conflicts in family owned businesses so common ?

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Ujjval Shah, MBA ’18

“Why are conflicts in family-owned businesses so common, extreme and intractable and what can individuals do to manage these?” This question formed the overarching theme at the San Francisco Family Business Roundtable organized by the Smith Family Business Initiative, Cornell. The roundtable brought together a highly distinguished set of global individuals involved either directly or indirectly in the world of family business. This included conflict mediators, academics in the field of family business, family business consultants, lawyers, owners of family businesses as well as students from both SC Johnson College of Business and Hult International Business School seeking to join their respective family businesses.

The first session at the roundtable chaired by Doug Baumoel ’78, – a family business consultant – explored the primary reason for conflict in family businesses: interdependence. When families are deeply entrenched in businesses it is not easy to separate emotions from rational behavior especially when there are disagreements over fundamental values, beliefs, or skill sets. Frank Burke who describes himself as a recovering lawyer and spends much of his time now on arbitration for family businesses moderated the next session on methods of dispute resolution. The participants discussed instances when they had to utilize reactive methods such as negotiation, mediation, arbitration, and the most damaging of all – litigation. These stories brought out many insights into the complex world of family businesses and showed the importance of having well-crafted rules, procedures and shareholder agreements via consensus building to proactively anticipate all that can go wrong and prevent the need to have reactive dispute resolution.

The next two sessions at the roundtable were focused on identifying the emotional triggers that breed conflict, especially in an increasingly cross-cultural world. Many students, like myself, are returning to their family businesses in different parts of the world and it is important to understand that there are various cultural patterns that can affect decision making. Dennis Jaffe, a leading academic, highlighted three major ones: Collective Harmony (SE Asia), Individualist (N. Europe, N.America, Australia) and Honor (S. America, S. Europe, S.Asia, Middle East). As families become more and more global they might move from one culture to the other which was highlighted in the enriching experiences of the participants of the roundtable which collectively represented 6 continents. Joan Difuria, who herself had a family business and now provides consulting services to other private organizations, showed how even seemingly trivial matters can act as emotional triggers and can stall decision making in family businesses. Through various anecdotal examples, she demonstrated how communication with low risk was the key to manage such identity-based conflicts.

The real value of the roundtable lay in its diverse group of participants and as a freshly minted MBA student looking to join the family business soon after graduation, I found this opportunity very enlightening as I utilized each of the participants as a source of learning. I also had the opportunity of sharing my story in front of the distinguished panel and was able to garner some great insights which I can put to use once I return. The discussions were stimulating and the stories encouraging as one participant aptly put – “don’t be afraid when you run into conflicts in your family business – you are not alone”. With the number of contacts I made at the roundtable I surely feel confident of entering the world of family-owned organizations.

Ujjval Shah, MEng ’17, MBA ’18, is a third generation member of his family’s business, Prakash Chemicals International Private Limited, in India. 

We are a Tribe

 

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Sabrina Fung Co, MBA ’18

Applying Corporate Best Practices to Family Businesses

 

Cornell University’s Smith Family Business Initiative hosted its first roundtable discussion on family conflict in partnership with the Hult International Business School in San Francisco last April 5, 2018. With the theme of “Conflict: From the Inside Out”, the roundtable discussed how family businesses differ from traditional corporations, and how to adapt corporate practices into family business settings.

What makes family businesses and its conflicts different?

A family business can range from your mom-and-pop stores to big multinationals (SC Johnson, for example). Ideally, a family business is at its core, a business. In practice, however, it is not.

Conflicts within a family business are more common, extreme, and intractable. There are a lot of factors as to why this is, but we focused on two—interdependency and lack of common language and bond.

Interdependency. As Doug Baumoel, one of the roundtable facilitators emphasized, families running businesses have more interdependency with each other and the business. Family members within the business are interdependent on both fronts—the family unit and the business unit. Therefore, conflicts can cross lines and get personal quickly.

Lack of common language and bond. As families grow bigger, there tends to be a lack of common language and emotional ties to the business. This may be especially true for 3rd and subsequent generations as they see the wealth but not necessarily understand where the wealth came from. A common language and bond can be formed by investing in resources that focus on the family’s learning and development about the business’ background.

Corporate practices into the family business

“The best practices for your family business has not been written yet”

 No family business is alike. While a family organization can apply best practices as much as they can, they face organizational politics unique to their own family dynamics. Therefore it is important to adopt best practices that can fit into how your own constraints.

I worked in my family business for five years before coming to Johnson. Based on my experiences, I chose two scenarios that could get… “delicate” with some advice on how to overcome it.

 Scenario 1: Giving feedback

Giving feedback to a supervisor or subordinate can already get awkward. Can you imagine if you had to give feedback to a family member?!

“Hey (insert parent, aunt, uncle, sibling, cousin), you tend to take over during meetings. I think you should step back and allow others to share their ideas. I’ll see you for Sunday dinner!”

I don’t think so.

If family members are already hesitant to give feedback, employees may be even more hesitant due to the repercussions they can face.

Solution: While having non-family supervisors, an independent board of directors help evaluate performance; they may not have their ears to the ground. To get a more well-rounded evaluation, implementing an anonymous 360-degree feedback system can incorporate subordinates’ and colleagues’ feedback.

 Scenario 2: Initiating Change

When your boss or supervisor has known you since birth, it gets hard to be taken seriously. Furthermore, they may already be resistant to change because it can signal the need of letting go of their ‘baby’ a.k.a. family business.

Solution: It may not come as a surprise that research on 100-year-old family businesses show that change is usually initiated by the younger generation.

While initiating change may be easy, getting buy-in from the older generation can be tedious. The facilitators suggest building allies and accounting for intergenerational cultural differences to help bridge the gap.

Allies can be in the form of family or non-family members. The important thing is they understand the business’ history from a different point-of-view than yours. These allies can help you to build a better context of the situation. A non-family member also has a different relationship than what you have with your boss (most likely your elder family member) and you can gain insight on their communication preferences in a professional setting.

Intergenerational cultural differences can be found in 8 scales—communication, evaluation, persuasion, leadership, decision-making, trust, disagreements, schedules. For example, an older generation may follow a hierarchical leadership style. A younger family member may be influenced by a Western education and prefer a more democratic process for decision-making.

Sabrina Fung Co, MBA ’18, is a third generation member of her family’s business, Manly Plastics, in the Philippines. Sabrina is also the immediate past president of the Cornell Family Business Club

2018 Family Business Club officers elected

The conclusion of each calendar year also brings a transition in leadership with the Family Business Club . Under the leadership of co-Presidents Sabrina Fung Co and Aradhana Rae Gupta, Treasurer Kevin Kang and Vice President Ben Rashbaum, the club saw remarkable growth over the past year under their consistent leadership. Thank you, Sabrina, Aradhana, Kevin, and Ben. In 2018, we welcome the following slate of officers:

  • Adriano Campos, President
  • Ryan Limb, Executive Vice President of Student Engagement
  • Ben Rashbaum, Executive Vice President of Special Programs
  • Andres Ramirez, Treasurer
  • Christina Chen, Communications Chair
  • Gustavo M. Camargos, Vice President of Special Events

 

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Lessons from the Cornell Families in Business Conference

We recently concluded the 3rd Anual Families in Business Conference at Cornell. The event brought together over 175 family business owners, Cornell alumni, and students for three days of exploration on the theme of “The Future of Family Business.” 

I was pleased to receive this email shortly after the conference, from Bruce Werner, Managing Director of Kona Advisors LLC, and a member of the Werner Ladder family business. With his permission, I share it with you:  

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I have been told that getting to Cornell is difficult, but it is beautiful once you get there. That is certainly true. Here are a few thoughts I brought back from the Smith Family Business Initiative Conference.

The lessons of family business are timeless, but each family needs to learn for themselves. Being on campus, it reminded me of the freshman introductory courses. The same textbook is used every year,  but it is still new material for each class.

Like physics, the principles are universal, but what matters is how you apply this knowledge. I was in a discussion with two people. One recently sold a $1B business, while the other was the owner of a $250K business. Everyone was engaged in debating the issues, but they will use what they learned differently.

Managing conflict is everything. Good family governance allows owners to manage family conflict, which allows them to run a successful business. For obvious reasons, these issues don’t exist in public companies.

Money changes almost everything: expectations, effort, risk/reward appetite. How you deal with these changes likely determines your happiness. You can be successful, but not happy.

While these topics were discussed in the context of running family businesses, much of it equally applies to privately owned businesses.

Thank you for sharing Bruce. 

 

 

Smith Family Business Initiative creates connections across Cornell’s ecosystem

 

Daniel G. Van Der Vliet is the John and Dyan Smith Executive Director of Family Business at Johnson. We caught up with him recently for an update on the Smith Family Business Initiative.

Tell us about the Smith Family Business Initiative (SFBI).

We’ve tried to create a portal for all things family business—for students, for alumni, and for those who are within our network for any of our programs and offerings. Globally, family businesses represent as much as 90 percent of all firms, so it’s a significant slice of the world economy. Members of family businesses often have many opportunities coupled with complex challenges to figure out—whether to return to the business or not, whether to innovate and change or stick with what’s worked for generations.

At SFBI, we connect students who come from family businesses with alumni and business leaders who want to remain engaged with Cornell and see this as a much-needed resource. It’s exciting, because we get to work with businesses from across the economic spectrum, from the corner store and entrepreneurs just getting started, to some significant global players and iconic brands.

2016 Families in Business ConferenceNick Matt, MBA ’73. CEO and Chairman of FX Matt

Johnson just hired Margarita Tsoutsoura, associate professor and the first John and Dyan Smith Professor of Management and Family Business. What impact will this hire have on SFBI and Cornell?

Professor Tsoutsoura comes to us from the Chicago Booth School of Business, and she is a rising scholar in the family business field. Family business is still emerging as a research space, so the body of literature is rapidly being formed. Tsoutsoura brings added capacity for the initiative to increase family business–related curriculum across Cornell, and she is considered a genuine thought leader in this area of study.

Tsoutsoura will help elevate the field and get more family business articles published in top-tier journals. We hope she will also inspire other faculty, here at Cornell, but also in her own network, to engage in top-level family business–related research.

SFBI is expanding its course offerings this year. What information can you share about the new classes?

Professor Tsoutsoura is currently developing two new courses. The first will be an undergraduate course covering the basics of family business—call it a “Family Business 101.”

The second course will be graduate level. Tsoutsoura’s training is in finance, so this course will be more technical in nature, dealing with how money flows in and out of the family and the business. The graduate course will likely appeal to those working in, or potentially with, family businesses. We’re finding that many of our students end up in consulting, investment banking, and other fields where, unbeknownst to them, they will find themselves working with many of these families.

We expect the undergraduate course to be delivered in spring of 2018, and we hope the graduate course will be ready by then as well.

What role does SFBI play within the SC Johnson College of Business?

Having a program like SFBI with academic as well as programmatic capacity, embedded within a university like Cornell that has such great breadth and depth of expertise across many different academic areas, really helps to differentiate not just the College of Business but all of Cornell, at both the undergraduate and graduate levels.

We are beginning to see students choose Cornell because of the family business program. As SFBI continues to develop and the network and academic offerings grow, it will only help to further differentiate the college.

There are so few schools that embrace family business wholeheartedly. Particularly among our peer schools, very few have comprehensive programs. If Cornell continues in this direction, it bodes well for the future.

What are SFBI’s long-term goals?

In entrepreneurial terms, we’re just getting started. Eventually, SFBI needs to grow into a center, meaning cross-disciplinary, cross-college activity at the undergraduate and graduate levels, with multiple faculty members engaged in research and as practitioners.

That’s going to require additional funding for research and additional staff and faculty lines. Because of the SC Johnson gift, with its challenge component, we’ve already started to see some gifts coming in benefiting family business, and we hope that will continue.

Whether you are a student, a member of a family business, or someone seeking resources to help you work with family businesses, I see Cornell becoming the global resource for family business.

2016 Families in Business Conference
L-R Jessica Gerson, 15, VP, Gerson & Gerson, Marisa Sergi, 15, CEO, Redhead Wines, Pablo Borquez Schwarzbeck (MBA 15), CEO, Produce Pay

How can people connect with SFBI?

There are numerous opportunities for alumni to come back to campus and participate in a conference, be a panelist, or be a supporter. In 2018, there will be more opportunities to connect in New York City as well. Because we’re still young, it’s all about growing the network. I encourage alumni to reach out and get added to our list, since we are actively trying to connect students, alumni, and businesses in the Cornell ecosystem.

The 2017 Families in Business Conference, “The Future of Family Business” will be held October 25–27, 2017, at the Statler Hotel in Ithaca.

Leadership Lessons from a Family Business CEO

Submitted by Ujjval Shah, MBA 18

Imagine being a part of the fourth oldest family-owned brewery in the United States, having brewed beer since 1888. That’s what Nick Matt (MBA 73) came to when he was called upon to lead the then-struggling Matt Brewing Company in 1989. Having been on track to be the CEO of a much larger company – Richardson Vicks (now purchased by P&G) he made the call to leave that job to steward the family business out of troubled waters. Ask him now how he made that decision and he says with a smile “it’s about family, there’s a 100-year-old family run business that might go under and so you’ve got to step up.”

Things weren’t easy for him though. Notwithstanding the multi-million dollars the company was losing year over year, there was also the situation of Nick becoming the chairman by replacing his older brother, who would technically work under him now. Nick describes this shift in power as “awkward”. This is something many family businesses have to go through. Balancing work and family is delicate and Nick says the key is to be sensitive to people and their needs. Moreover, having worked in a major multinational before coming to the family business, Nick came in with a lot of confidence and that he says helped rally his employees and family behind him. Says Nick “I had a lot of sleepless nights but no one knew that. I had this never give up attitude which I think percolated to everyone else.” He also mentioned that to succeed as a leader it’s important that people see you as authentic which is his secret to being comfortable with leadership.

As we got to talking more, the beer flowed and so did time. Nick has this playful, almost childlike, demeanor which immediately makes his audience comfortable. Being the modest individual he is, he accepts the role of serendipity in his success at the brewery. “We decided to put all our resources behind Saranac – a product only responsible for 2% of our sales at the time. It is pure chance it worked out. No one could have predicted how the craft beer market exploded” he says.

Soon it was time to make our 2-hour journey back to Ithaca and we asked him for a parting word of advice for newly minted MBAs like us. He said “Never take business decisions without proper research. Knowing your limitations as an individual as well as a leader is imperative so that you can consult more knowledgeable experts and take the right decisions.” Being eager to learn Johnson MBA’s we did just that and asked for his expert advice on the best freshly brewed beers to take back with us along with our memories.

From left to right: Virginia Dellizzotti (AMBA ’18), Ujjval Shah (AMBA ’18), Nick Matt (MBA ’73), Chris Massari (AMBA ’18)