If you want a healthy family business, then you need to devote the time and resources to developing a healthy family.” So says Sarah M. Schmidt, the formally acknowledged leader of the family that owns U.S. Oil Co. Inc., in Combined Locks, Wis.
Now in her mid-30s, Schmidt is one of 80 family shareholders of the company, primarily a marketer of petroleum products and a wholesale distributor of automotive parts and tires. It has 700 employees and generates about $1.2 billion in annual revenues.
Despite her pride in the family business, Schmidt, a member of the third generation, chose not to join it. She earned a Ph.D. in clinical psychology instead and set up her own family business consulting firm in Evanston, Ill.
At about age 25, however, she recognized that her stake in U.S. Oil was her major asset and that she wanted to be involved in it in some way. She pursued a role as a family leader, heading up a task force to establish a family council and serving as chair of its executive committee.
The family council evolved into an owners' council and is evolving still. Schmidt has been named family president, a role in the family that corresponds to and works in partnership with the president and chairman of the business.
Many family business authorities agree with Schmidt that a sound family is essential to the endurance and strength of a family company and that the family's solidarity depends on effective family leadership. “The family is really the foundation of a successful multigeneration family business,” says Henry D. Landes, president of the Delaware Valley Family Business Center in Sellersville, Pa.
“One of the things that sets long-lasting, successful family businesses apart is that they understand and acknowledge the role of family leadership and plan for its continuity,” writes family business adviser John L. Ward in Perpetuating the Family Business: 50 Lessons Learned from Long-Lasting, Successful Families in Business (Palgrave Macmillan, 2004).
Family leaders, says Ward, keep channels of communication open, make sure everyone in the family is treated as fairly as possible, see to it that younger family members are educated about the business and serve as mediators. Other family business experts point out that good family leaders build the trust among family members that enables them to unite behind decisions that support the business.
Family leadership need not involve a formal role, observes Bonnie Brown Hartley, president of Transition Dynamics Inc., a family business consulting firm in Venice, Fla. While families like Sarah Schmidt's designate leaders to head specific governance structures, such as a family council or a family foundation, “in my experience, there are also less formal leaders who exert influence because of their wisdom, their experience and their charisma,” Brown Hartley says. Such people, she notes, lead by example or indirect suggestion or through nurturing, mentoring and coaching other people.
“The primary function of leadership in the family is to help its members learn how to evaluate risk and make responsible, effective decisions,” she says. Other responsibilities, she suggests, include communication planning and relationship management, helping family members build skills and learn to work together as a team, and teaching them to be good stewards of their wealth.
Evolution of leadership
Until recently, the overwhelming majority of family businesses were founded by men. In these companies' first generation, family leadership was usually the informal and unheralded responsibility of “Mom.”
As Ward points out, a successor to “Mom” doesn't have to be a woman. The role can be assumed by a caring uncle, a council of elders or a family council. By the third generation, as a business and its owning family become much larger and more complex, many family members may take on family leadership roles, such as chairing a committee or overseeing a family council, a family office or family charitable activities.
Family leaders can come from anywhere, even from outside the family. Sometimes, family business advisers or non-family executives fill in, helping a family to hold itself together until the family develops its own internal leadership strengths.
And it's not uncommon for a family to turn to an in-law, male or female, for leadership. One such in-law is Ronda Brubacher, 30, whose husband, Keith, 34, is the president of Brubacher Excavating Inc., a 350-employee company in Bowmansville, Pa. Last fall, she was elected chair of the Brubacher family council, consisting of the three second-generation Brubacher siblings, their spouses and the company founder, Ben Brubacher. Ben turned ownership of the company over to his three children in the spring of 2005.
When it looked as though Ronda would be nominated for the family leadership role, she and her husband expressed concerns to the family. As president of the company, Keith Brubacher was already the boss of his brother, Myron, and brother-in-law, Keith Hershey. Ronda and her husband did not want the siblings and spouses to feel that too much power was being concentrated in their branch of the family.
But Ronda was elected anyway. She says the others told her, “We can't see any of us doing this at all because it's not our gift.” But Ronda notes that they are younger than she is. Eventually, she predicts, they will develop their skills and family leadership will be rotated.
One goal Ronda hopes to achieve is to help the second-generation family members understand the importance of what they are doing. The fact that the company ownership has been transitioned to them, she says, is “not a matter that we take lightly because there are lots of people depending on us for their livelihood.” She wants to continue to use the council as a forum for family education and as a means of keeping family growing closer together. She observes that the council helps maintain the separate realms of business and family. Since business issues are aired in family meetings, they don't get discussed at family get-togethers when fun is the priority.
Patricia M. Cole recalls that her mother, Catherine (Kitty) Meredith, stepped in to fill a leadership void in her husband's family. The Meredith family owned a farm supply company in Atlantic, Iowa, but the second-generation business partners, Cole's grandfather and his brother —egged on by wives who did not get along—were at odds with each other. Kitty always hosted the family get-togethers, Cole recalls. When family members were not speaking to one another, Kitty would carry on as if there were no tension, using her effervescent personality to get people talking.
“She would sort of be in the kitchen nipping to get through the whole thing because it was very stressful for her,” adds Cole with a laugh. But Cole, an associate professor of family therapy and family business at Nova Southeastern University in Fort Lauderdale, Fla., sees her mother as the one who held the family and the business together.
After Cole's father's death in 1994, the business was sold, but Cole and her mother and siblings went on to own ventures together in radio and farming. Cole assumed the leadership role, organizing family meetings and making sure the family retained its “family feeling.”
Before Kitty died, she insisted that her children keep her condominium in the family's hometown. Cole now believes her mother knew the condo would become the gathering place for the far-flung siblings, who are still business partners—Cole in Florida; her brother, who lives near Boston; and her sister in suburban Washington.
The job description
What do family leaders actually do? That depends on the complexity and size of the family as well as the family culture. An important part of the Brubacher family culture is that everyone, including spouses, is kept fully informed about the business, even if they do not work there or have ownership.
Ronda Brubacher organizes and conducts the monthly meetings of the family council. She is spearheading current priorities to develop a family mission statement, a statement of vision and goals for the company, and policies in such areas as family learning and family employment in the business. Ronda estimates that she puts in a couple of hours a week on her leadership role.
By contrast, Sarah Schmidt spends about three days a week carrying out her responsibilities, and the family regards her role as important enough to warrant a substantial salary.
“My No. 1 job, really, is communication,” Schmidt says, “so in the last year, we've developed a shareholder website that we update regularly.” In the Schmidt culture, virtually all family members are shareholders, including spouses. The youngest owners are not yet five years old.
Overseeing family education and development is Schmidt's second priority, and she's also moving more into family charitable activities. Recently she initiated the Schmidt Family G4 Fund, a grant-making arm of the family's foundation. It is run by the fourth generation, but Schmidt has been active in helping its members work as a group and determine their mission.
Relationship building is another important part of the job, according to Schmidt. When she became family president, she launched a three-month tour around the country to visit every shareholder who was 18 or older and managed to see about 90% of them. What she learned from the conversations was not as important as the fact that she actually went out and listened to relatives' concerns, she says.
Traits and skills
Often, particularly in second-generation family businesses, the business leader ends up being responsible for the family as well. But experts and families alike recommend that the family leader be someone other than the head of the company. A CEO just doesn't have the time.
What's more, says consultant Brown Hartley, “You can't use the same sort of take-charge, assertive methods that you would use in business. With your family, it doesn't work.”
Business leadership and family leadership require different skills, she explains. More emotion is involved in the family, “so the person who is leading the family council needs to be somebody who understands how to build consensus in emotionally charged situations.”
A 2004 case study from the Kellogg School of Management at Northwestern University includes a discussion of the leadership of James R. Scott as chairman of his family's council. The Scotts own First Interstate BancSystem, based in Billings, Mont. One of Jim Scott's siblings described him as “the conscience of the family,” according to the study, “Scott Family Enterprises,” by Canh Tran and John L. Ward. The study found that Scott, in his mid-50s, kept the family “focused on family unity, development, and good governance practices.”
Family leaders must put their personal agenda aside and act in the best interest of the whole group, says Schmidt. When family leadership is effective, she points out, family members tend to think about what's best for the entire family rather than what's best for their own branch.
On a practical level, Ronda Brubacher says that some of the skills needed by a family leader include organization, the ability to keep meetings focused and running on time, and a sense of humor so that meetings don't get boring.
“Leadership roles should be distributed to people who are competent to perform them,” says Landes. Effective family leaders range from high school graduates to people with doctoral degrees, from young people in their 20s to senior citizens, and from individuals with vast business experience to those whose experience is entirely outside of business.
Brubacher, a stay-at-home mom with only a high school education, is dedicated to learning and reads business books frequently. She and her husband meet regularly with consultant Landes and are members of Landes's family business center. Landes agrees with her family's opinion that she is the best person for the job.
Family leaders prepare in a variety of ways for their responsibilities. Some attend education programs offered by family business centers throughout the country. Schmidt, for example, participated in the Next Generation Family Leadership Institute at the Loyola University Chicago Family Business Center.
Some families develop members' leadership skills with the help of consultants. Brown Hartley, for instance, runs family council meetings for some clients until the family is ready to take on the responsibility—a process that can take several years or more.
Ronda Brubacher says her experience working in a meat company before her children were born also shored up her skills. She learned scheduling and organization and gained an interest in business finances.
Beyond business
One thing to keep in mind is that family leadership centers on the family, not the business. Family business adviser Henry Landes notes that the goal of a healthy family is “nurturing children to become productive adults who can claim their mission in life and express that in whatever vocation they select, whether or not they're going to work in the business.”
Family leadership, he points out, will be good for the business, but a family leader's concerns should extend beyond business considerations.
Sharon Nelton has been writing about family business issues for more than 20 years. She is a former board member of the Family Firm Institute.
Resources for family leaders
Family leaders and family business advisers suggest the following resources for people who are or aspire to be family leaders:
Organizations:
Family Firm Institute, 200 Lincoln St., Suite 201, Boston, MA 02111; (617) 482-3045; www.ffi.org. Can provide information on family business centers and programs.
Family Business Network, 23, ch. De Bellerive, P.O. Box 915, 1001 Lausanne, Switzerland, 41 21 618 0223; www.fbn-i.org. An international organization of business families.
Council on Foundations, 1828 L St., N.W., Washington, DC 20036; (202) 466-6512; www.cof.org. Offers services and information for family leaders who are involved in family foundations.
Center for Nonviolent Communication, 2428 Foothill Blvd., Suite E, La Crescenta, CA 91214; (800) 255-7696; www.cnvc.org. Offers training on effective communication.
Publications:
The Family Business Leadership Handbook, Family Business Publishing Co., 1999.
The Family Business Policies & Procedures Handbook, Family Business Publishing Co., 2006.
Family Meetings: How to Build a Stronger Family and a Stronger Business, by Craig E. Aronoff and John L. Ward, 2nd ed., Family Enterprise Publishers, 2002.
Love, Power and Money, by Dean Fowler with Peg Masterson Edquist, Glengrove Publishing, 2002.
Sharing Wisdom, Building Values: Letters from Family Business Owners to Their Successors, by Denise H. Kenyon-Rouvinez, Gordon Adler, Guido Corbetta and Gianfilippo Cuneo, Family Enterprise Publishers, 2002.
Succeeding Generations: Realizing the Dream of Families in Business, by Ivan Lansberg, Harvard Business School Press, 1999.