It’s A Family Affair
Ninety percent of businesses in the U.S. are family affairs and they form a critical component of our local economy. They also face unique challenges, which is where Tulane’s Family Business Center can offer invaluable support.
“The greatest advantage of being a part of a family business is their level of loyalty and commitment to their stakeholders.”
Defined as any business in which two or more family members are involved and majority ownership or control lies within a family, family-owned businesses are the foundation of the U.S. economy, but they face unique issues and challenges.
According to an old adage, “The first generation builds the business, the second generation grows the business, and the third generation squanders the business,” but in reality only 30% of family businesses today succeed to the second generation and only 10% succeed into the third generation.
To improve the odds that family businesses find success, Tulane’s A.B. Freeman School of Business formed the Family Business Center (FBC) in 1992. Its mission is to provide support in the form of professional expertise, systems and educational resources that assist family businesses with managing their enterprise and increase their prospects for transitioning to the next generation.
Membership to the center is open to anyone whose family has a majority ownership of a company, even if they themselves are not employees of the business. Member benefits include networking opportunities with other center members who have experienced the unique challenges of the family-owned business, updates on the latest research and articles on family business, access to all of Tulane University’s libraries and the family business collection housed in the business school library, and direct access to the FBC staff for discussion and referral on specific issues.
To learn more about the FBC and the top issues facing family businesses today, Biz chatted recently with Rosalind G. Butler, director of Tulane University’s Family Business Center. Butler has spent 22 years at the university working in entrepreneurship. Among her accomplishments are serving as staff adviser for the Freeman Consulting Group and Tulane Entrepreneurs Association, where she established the first business plan competition, now in its 20th year.
After being engaged with the FBC off and on for five years, Butler said she developed a strong relationship with some of the members and grew to have a high regard and interest in family business.
“Family business is just a natural evolution of entrepreneurship,” she said, “especially down South where relationships are very familiar and communal in nature. This bodes well for family businesses.”
In addition to serving as the FBC’s director, Butler became a member of the Family Business Directors Alliance Group, an association of directors that manage approximately 54 centers across the U.S. and Canada.
In a recent chat, we asked her to weigh in on the biggest issues affecting this unique, but critical, sector of the business world.
What do family businesses mean to our country? At the risk of sounding cliché, family businesses truly are the cornerstone of the U.S. economy. According to the U.S. Census, they represent 90% of businesses in the United States, make up 60% of our national GDP, employ 83.3 million people and represent 59% of the private sector workforce. They drive innovation and are producers of the next generation of entrepreneurs. The vast majority of startups around the world are family businesses.
Family businesses are also very philanthropic. According to consulting company Family Business USA, 93% of family businesses are engaged in some form of social or philanthropic endeavor. In fact, the Albert Lepage Center for Entrepreneurship and Innovation, where The Family Business Center is located, was named on behalf of alumnus Albert Lepage, the retired co-chairman of family-owned Lepage Bakeries, which has since been acquired by Flowers Food Inc.
What do they mean for our regional economy? We are fortunate that this region has fifth-, sixth-, and even seventh-generation family-owned businesses. However, we haven’t been able to collect enough data to confirm the number of family businesses. I am working with our graduate students to develop this database. I am hoping to collaborate with our other partners to get a clearer picture.
Who do you look up to? Too many to name. Just ordinary people who intentionally live to better the lives of others.
Biggest life lesson learned? Things are replaceable, people aren’t.
Favorite book? I Know Why the Caged Bird Sings by Maya Angelou
Favorite TV Show? King of Queens
How do family businesses operate differently than non-family businesses? Family businesses can be less formal — and I don’t mean that in in a negative sense. Having access to decision makers can be less complicated. Family business employees also often wear multiple hats that require utilizing different skill sets. This allows employees to explore varying aspects of the business. It can also be problematic, however, if roles and responsibilities are too loosely defined. The greatest advantage of being a part of a family business is their level of loyalty and commitment to their stakeholders.
What are the biggest issues affecting family businesses? Succession and next-generation leadership development are still the biggest challenges for most. I speak with our members all the time, and succession continues to be at the top of the list. There is a lot at stake for founding or current family business owners and some are not feeling fully ready to entrust the next generation with ownership and management of the business. There is a great consideration for non-family employees and job security, established business relationships, and maintaining a valued reputation if the business doesn’t do well after the handover. On the other hand, the next generation can feel stifled by the ambiguous notion of “someday,” when there is no defined timeline or the path to retirement is constantly changing.
As part of the Family Business Center’s vision for addressing both sides of this conundrum, we have started working to establish the NextGen Family Business Leadership initiative. The center spent a year and a half with Trepwise Consulting on developing and launching its NextGen survey to 500 family-owned businesses, conducting 50 one-on-one interviews with owners and family executives, and hosting five NextGen focus groups with family business employees. In addition, we assessed 76 other university-based and non-university-based family business centers across the country. The research also included reviewing the top 50 MBA programs, top 25 exec education programs, and 25 top-tier undergraduate business programs.
We wanted to ensure that we are taking a fully comprehensive approach to establishing the NextGen Family Business Leadership program. The survey findings indicated that there are limited vehicles for training and developing NextGen family business members. The FBC seeks to bridge the gap by bringing a systematic approach for adequately preparing NextGen leaders.
Does this type of business typically face any other pitfalls? Never allow the family business to be a testing place for family members who are deciding what they want to do professionally or with the rest of their life. When they come into the business, a person should have skill sets and talents that add value to the business, and in return, the business should provide opportunity for growth that comes with defined roles and responsibilities. Bringing in a family member who isn’t a good fit could have long-term implications far beyond addressing their immediate needs.
What advantages do family businesses have? Family businesses have a lot of positives. There is a greater alignment in leadership because there is a shared vision and DNA. Family businesses are more committed to their non-family employees and often view long-term employees as extended family. They are also less likely to execute layoffs. They are more risk averse and are less likely to take on debt, making them more sustainable during tough economic time. They also can pivot more quickly when quick decisions need to be made. They don’t have a lot of bureaucracy that you can find in corporate settings.
Did You Know?
Some of the biggest companies in the world are family businesses. Aome obvious ones iinclude Wal-Mart and Berkshire Hathaway, but other surprising titans that remain family-owned include:
Ford Motor Company
Porsche Automobil Holding
In Louisiana, just a few large, family-owned businesses include:
The McIlhenny Co.
How did the Tulane Family Business Center come about? When the Tulane Family Business Center was established in 1992, it was under the division of the Levy-Rosenblum Institute, where Dr. John Elstrott served as executive director. Elstrott was a serial entrepreneur and the former chair of Whole Foods. Under his tenure, he served on the board of many family businesses and saw there was a need for these companies to learn how to function as a family in business. In 2015, a named gift from Mr. Lepage created the Albert Lepage Center for Entrepreneurship and Innovation, which now houses the Levy-Rosenblum Institute and the Family Business Center at the Freeman School of Business.
During this time there were a couple of universities providing services to support family firms and the center used this as a model for building its program.
Our purpose is to offer a platform where family business members can come together and learn, have open discussions about what concerns them, develop strategies that minimize emotional decision-making, and gain insights that will allow them to grow and flourish from one generation to the next.
What kind of services does the center provide? We offer five half-morning forums per year that are facilitated by professionals, thought leaders, and experts who are nationally and internationally recognized in family business education. The topics are very germane to family business. This includes estate planning, establishing family governance, family councils, conflict resolution, next-generation leadership and succession.
Participants are guided through case studies based on real family business scenarios. It is a working forum where they apply their business practices to each case study. The center also conducts “live” case presentations where family business owners are invited to share their own challenges or successes. This is done in a peer-to-peer learning environment that provides networking and shared learning experiences.
Past presentations have included Tony Simmons of the McIlhenny family (Tabasco), Jamie Richardson of White Castle, Carol Bernick of Alberto Culver, and Mitchell Kaneff of Arkay Packaging. What our members appreciate about the live case presentations is that they know they are talking to other owners who are in the trenches with them. The program also offers breakout sessions where participants can engage. The greatest value that our members get from forum is not only learning from the experts but learning from each other. They have indicated that it’s like family business therapy.
In addition, they receive annual one-on-one consultations, access to our articles and periodicals in the Freeman School’s Turchin Library, and personal referrals to professionals who can provide support and resources.
How many people are on staff? I am the only full-time staff member, but we have great resources through the Lepage Center with Executive Director Rob Lalka and our Freeman faculty. Also, we have a new dean, Paulo Goes, who is very focused on innovation and (has) expressed an interest in family business research.
How many people and businesses has the center helped? Over the past 21 years we have serviced over 200 family businesses as members of the center. Through our programming, site visits and consultations we interface with more than 400 individuals of family businesses annually.
How does the center help its members? The center provides a structured peer-to-peer environment for family business owners and members to learn how to manage, grow and navigate the unique challenges of their business.
Participants are coached in taking a less emotional approach to decision-making and being more strategic when dealing with sensitive issues such as family dynamics or leadership styles.
Why is it specifically important for our region to support family businesses? We do not benefit from the Fortune 500 companies that may have existed a few decades ago. As such, family businesses have been the constant regarding job creation, growing the economy, and providing philanthropic
“[Family businesses] are more risk averse and are less likely to take on debt, making them more sustainable during tough economic times.”
What are you most looking forward to in the next year? Spending more time, in-person, with family and friends, Mardi Gras, and officially celebrating our daughter’s wedding… New Orleans style.
Daily habits? Listening to classical music during my morning drive to the office — it tempers my spirit.
Pet peeve(s)? (Media) depicting people from New Orleans with heavy Cajun accents.
Best advice ever received? Spend time sitting by a window. As long as you can see life you’ll want to live life.