An often overlooked fact by business schools, the media and many Americans is that the success of our nation’s economy is largely based on the success of family businesses. You might be surprised to learn that there are less than 4,000 public companies in the United States and that total is declining annually. The hundreds of thousands of other businesses in our country are the growing number of private companies, with the bulk of those family owned.
This is especially true in Eastern Washington where family farms are so vital, but it permeates throughout our local economy with businesses like car dealers, funeral homes, wineries and so many other industries. The jobs (for both family and employee), philanthropy and services provided make Walla Walla, Yakima and Tri-Cities the thriving and sought after communities they are.
Though Baker Boyer has helped thousands of family businesses over the years, with the pace of change accelerating, the challenges of keeping these businesses successful and passing them on to future generations are tougher than ever.
Helping these families and companies succeed is something Baker Boyer has been passionate about for decades. Having led a division of my own 5th generation family business, I have significant training and personal experience with family business strengths, pitfalls and best practices.
Based on this emergent need, Baker Boyer has placed an increased focus on helping our family business clients. This past June we launched an exciting new educational initiative called DS Baker University, with the inaugural session held June 3rd, which focused on Family Business Continuity and Success for local family businesses. Other sessions of DS Baker University will begin this fall and focus on key areas of financial and life planning for all of our clients.
The June 3rd session was facilitated by renowned family business expert and Northwestern’s Kellogg Graduate School of Management Professor, Ivan Lansberg. We had representation from nearly twenty local families, including both junior and senior generations. The primary focus was to give these families the tools to create action plans to address the real issues facing each family/business in the coming months/years.
We learned from Professor Lansberg that the primary reasons for the success of family businesses and their longer lifespans over public companies comes down to four strategic advantages:
- Long-term perspective with their business strategy involving their children and their children’s children. This gives them a long investment horizon that allows for investment in challenging times when market share can be gained more easily.
- Concern for quality because their name is on the door. This encourages family businesses to invest in quality, as poor quality could negatively affect their reputation in the community.
- Sweat equity from family members working in the business who are literally often “cheap labor”. Family members are also invested in the outcome, living and breathing the businesses which rubs off on employees.
- Accumulated experience of all involved (both family and non-family) helps with running the business and with serving clients. In some cases this comes naturally as the type of business they are operating is literally in their DNA.
The biggest take-away from the seminar was that while all families are unique, many of the issues and challenges facing them apply to all family businesses. The majority of these have nothing to do with the actual industry or daily operation of the business. More common are the human or more right brained type of family issues involving things like perceptions, expectations, history, spouses, etc.
All family businesses have challenges related to family dynamics which are often “elephants in the room”. The most important thing is to confront issues via developed processes and communication (and at times help from outside third parties to facilitate these). This is where Baker Boyer can offer help, through discussions with our experienced team of Family Advisors.
Looking more granularly, before issues become deep fracture points, we can help explore solutions based on best practices for areas like:
- Family Goals – important to establish them to ensure all are on the same page.
- Work Policies – family members working day-to-day in the business is important, with outside employment first the preference. Real performance feedback is also critical.
- Spousal Involvement Policy – involvement is the best practice at whatever level the family can get comfortable with.
- Board Selection – independent, professional directors is “perhaps the single most important thing you can do,” according to Professor Lansberg. This is due to the fact that the number one enemy of family businesses (like all businesses) is the market and competition.
- Sharing of Information – important to communicate to all types of family members and shareholders from their perspective.
- Contingency Planning – can be a great tool to help get everyone on the same page as you analyze who does what if/when.
- Transition and Succession planning – this is vital, as the “enemy of the transition of any family business is surprise,” according to Professor Lansberg.
- Dividend Policy – needs to take into account those both in and out of the business.
Overall, the day was a tremendous success and we are pleased with the positive feedback we have received. Much of that was thanks to the thoughtful discussion and participation from everyone involved.
Baker Boyer is committed to helping local families manage assets to build local legacies. If we can be of assistance in facilitating discussions please let us know.
Finally, look for additional D.S. Baker University sessions continuing next spring. As this newsletter goes to print, we have just completed our October session which addresses the following topics: when to utilize a trust, how to increase the value of your business and how to deal with issues related to wealth and financial planning. If you missed the October session, we invite you to call us or visit our website for more information on upcoming D.S. Baker University sessions. We believe financial education is a significant part of our commitment to the communities we serve. We also welcome any comments, questions or suggestions you have.