When it comes to family enterprises, longevity is often the exception rather than the rule. Many struggle to maintain their success beyond the second generation, and sustaining wealth and cohesion across multiple generations is a rare achievement. In his latest work, "What Really Works? Tapping the Wisdom of 100-Year-Old Global Family Enterprises," Dr. Dennis Jaffe offers a deep dive into what sets these enduring families apart.

What really works? Tapping the Wisdom of 100-Year-Old Global Family Enterprises

By Dennis T. Jaffe, Ph.D.

Family enterprises form most businesses large and small in every country in the world. At the same time, few sustain themselves with the same level of wealth and success even into their second generation and sustaining shared family wealth after the third generation is nearly improbable.

 

Overcoming these challenges is the focus of Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises (Wiley, Feb. 26, 2020). It presents the findings of a multiyear project of interviews with 100 business families around the globe that have succeeded for 100 years or more. The book presents families’ experiences and learnings that allowed them to survive for the long term. As each generation of a family enterprise becomes larger and more complex, the book describes how the family must evolve through internal and external challenges to remain cohesive.

In a time when there is much concern about the concentration of wealth in the hands of “the 1%,” this study shows how, in many successful family enterprises, business values and culture aren’t focused solely on wealth generation, but on using resources responsibly. These successful families appear to succeed for several common reasons: they have defined their values and purpose, continually innovated and changed across generations, and expressed their social vision in philanthropy and socially responsible ventures created family learning activities and a family council, and passed their values, capability and commitment to the next generation. Their stories can help families who are beginning this journey and their advisors discover how to create harmony and effective governance to position their family for this journey.

The family business field is ripe with myths and assumptions that bias the work of advisors and color the desires and requests of families. There are models and tools assumed to be useful, but almost no studies of actual family governance activities and practices.

Some of the assumptions that have grown up in the field are that family wealth is created largely in the first generation, that innovation comes from the top and the older generation, that family wealth tends to disappear by the third generation, that the family enterprise ends with the sale of the business, and that family involvement weakens the business. The research challenges some of these and shows how these features evolve as the family grows internally and faces challenges and threats in their economic world.

The findings of the research are very hopeful. The families see their values as the key to their success, but each generation has to put the values into action by creating governance, communication and family education and development. They are always adapting and changing what they do and how they do it. They are transparent across generations and allow each part of the family enterprise to express its voice. Each new generation redefines the family and their portfolio of business and financial activities, as they face new internal and external challenges. They have a social and philanthropic mission that grows over each generation. Their stories help advisors and families make choices in their first and second generation that can set them on a long-term path for success.

Key Insights

The 100-year families interviewed for the study are “generative” because they continue to create further wealth, both financial and non-financial, over generations. The key elements of success uncovered by the research team are:

Build a Great Family Tribe

After creating great wealth, the family made a decision to invest in building a “great family”, to use their wealth to develop capability and responsible behavior in succeeding generations. They can be seen as tribes, or clans, with members dispersing but sharing common values and purpose as business and financial partners. Their definition of family is inclusive and expansive, and often extends to include their employees, key advisors and even their home community.

Culture Change to Transparency and Collaboration 

The family originates with a paternalistic orientation, taking care of family members, but by the second or third generation, the culture shifts to become more transparent, open and collaborative. This entails having clear policies, practices and organization to set goals, define leadership, make decisions and hold people accountable. The family culture shifts from family to business first, a more professional orientation to business and investment, and also toward transparency and collaboration. 

Continual Innovation

What happens to generative families after the third generation?

- Families disperse and become numerous and highly diverse. 

- Branches less important and generations begin to overlap. 

- They did not know the founder personally and are less attuned to the legacy “story”. 

- Councils established but struggle to define their role and relevance.

- Boards become more professional, gain independent directors.

Resilience

These families are continually changing and adapting as their internal and external circumstances change. They evolve from a single legacy business, often to sell it and become a family office, to include multiple assets, including a foundation.

Values-based

New generations turn attention to implementing the family’s values and its social commitment. It links its values to its business and investment practices and becomes involved in philanthropic ventures. These build the identity and commitment of the family to remain together.

Family and business governance

They separate family from business affairs. They organize and make decisions about family activities such as shared education, family gatherings, use of family assets and special places, celebrating their legacy and getting to know each other deeply. There is consensus that families should form family councils and boards with independent members, family constitutions and that highly specific trust ownership are all best practices for families. The development of family governance is parallel and interconnected with their business governance. It engages new family leaders and adds to the shared “capital” of the family.

Generative stakeholder alliance

Three groups of stakeholders are essential to resiliency:

- Elders: hold the legacy, wisdom and core values.

- Advisors: professionals who help the family develop business discipline and professionalism.

- Rising Generation: young people who are the future, with their own values and global experience.

The successful generative family enables each group to have a voice and develop structures and processes where all these voices are balanced, that we call the “generative alliance”.

Develop Rising Generation

The family invests in teaching, guiding and engaging members of their rising generations, seeking to recruit the most talented to roles with the family enterprise. They train them to become stewards and add value to the enterprise.

These principles are not theory—they are the experience of global families that have succeeded for multiple generations. They are curious because they focus more on the values and culture of the family than on business practices. The research is clear that a family enterprise, where extended family members share assets and business ventures, will run into difficulties if the family owners only see each other as financial partners. The real value of an intergenerational family enterprise is that the family partners are both a business and a family. They combine the best features of each, and act as both financial partners and from a culture of shared values and sense of purpose.

About the Author

Dr. Jaffe, a San Francisco-based advisor to families about family business, governance, wealth, and philanthropy, is Senior Research Fellow at BanyanGlobal Family Business Advisors. He is an author of:

- Wealth 3.0: The Future of Family Wealth Advising, 

- Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises;

- Finding Her Voice and Leaving a Legacy;

- Cross Cultures: How Global Families Negotiate Change Across Generations;

- Stewardship in your Family Enterprise: Developing Responsible Family Leadership Across Generations and

- Working with the Ones You Love.

The Family Firm Institute awarded him the 2017 International Award for Service, and in 2005 the Beckhard Award for service to the field. In 2020 he was awarded a special commendation as an individual thought leader in the field of wealth management by the Family Wealth Report. His global insights have led to teaching or consulting engagements in Asia, Europe, the Middle East, and Latin America.

He has a BA degree in Philosophy, MA in Management, and Ph.D. in sociology, all from Yale University, and professor emeritus of organizational systems and psychology at Saybrook University in San Francisco.

Reach out to him by email: djaffe@dennisjaffe.com

Visit his website: www.dennisjaffe.com