The Two Sides of the Business Family: Governance and Strategy Across Generations 3030601994, 9783030601997

Table of contents :
Foreword: Practitioner´s Perspective
Foreword: Researcher´s Perspective
Preliminary Remarks
References
Acknowledgments
Contents
Part I: Introduction
1: Family Strategy over Generations
1.1 Family Strategy in Fact Has Always Been There
1.2 The Business Family as an Object of Research
1.3 Defining Terms
1.3.1 Family Businesses and Business Families
1.3.2 Family Business Governance and Family Governance
1.3.3 Family Strategy
1.3.4 Family Constitution
1.3.5 Family Management and Family Compliance
1.3.6 Shareholder Competence
1.4 Longevity as a Subject of Research
1.4.1 Previous WIFU Projects
1.4.2 Family Strategy Across the Generations: The FüG Project
References
Part II: Managed by Neglect: Solutions that Create Problems
2: Riding a Ghost Train: ``What Happens If `Nothing´ Happens?´´
2.1 Yesterday´s Solutions: Today´s Problems?
2.2 ``Equal Treatment´´: Equality and Fairness Among Siblings and Their Children
2.3 Destruction of the ``Fictional Consensus´´: Revelation of Differences and Loss of Face
2.4 ``Learning Trap´´: It Had Always Worked Before
2.5 ``Change of Paradigm´´: The Transition from an Operationally Active Family to a Shareholder Family
2.6 ``The Mindset of Family Branches´´: He Who Sows Equality Risks Reaping Inequality
2.7 ``Loss of Purpose´´: A Stock Market Launch and Its Consequences
2.8 ``Post-patriarchal Paralysis´´: Nobody Is Allowed to Take Power
2.9 ``Shareholder Competence´´: Who Has What It Takes to Work on a Committee?
2.10 One of the Most Important Questions: What Happens If ``Nothing´´ Happens?
References
Part III: The Witten Theory of the Business Family
3: Family and Business: The ``Impossible Endeavour´´
3.1 Families and Businesses Don´t Really Go Together
3.2 Three ``Circles´´?
3.2.1 Three Circles and Four Intersections
3.2.2 An Interpretation Based on Role Theory
3.2.3 The Perspective of System Theory: Three Simultaneous Expectational Contexts
3.3 Paradox and Paradox Capability
3.3.1 Logical and Pragmatic Paradoxes
3.3.2 Pragmatic Paradoxes in Family Businesses
3.3.3 Paradox-Friendliness, Paradox Tolerance and Paradox Awareness
References
4: Family and Business Family at the Same Time: The Duplicated Family
4.1 The Theory of the Business Family: A Process-Oriented View
4.2 Unresolvable: Paradoxes and Oscillations in the Business Family
4.3 The Business Family as a ``Duplicated Family´´: A Reversible Figure
4.4 A Different Three-Circle Model
4.5 The Core Paradox of the Business Family
4.6 Family Strategy as a Mission
References
Part IV: Core Issues of Family Strategy
5: Appointment Decisions: A Sense of Belonging and Drawing Limits
5.1 The Paradox of Belonging and Selectivity
5.2 Affiliation Issues in a Business Family
5.2.1 Inclusion/Exclusion as a Critical Distinction
5.2.2 Questions of Belonging as Put to the Family and the Business Family
5.2.3 Answers Provided by the Family as a Business Family
5.3 Structures to Ensure a Sense of Belonging: Contact, Information and Voice
5.3.1 Family Meetings and Family Days
5.3.2 Relations with Parts of the Family That Do Not or No Longer Belong to the Business Family
5.3.3 Specific Groupings in Connection with Family Governance
5.3.4 Committees and Bodies
5.4 Access to Positions and Committees
5.4.1 The Problem
5.4.2 Appointments to Operational Positions
5.4.3 Access to Committees
5.5 Handling the Boundaries of Family Branches
References
6: Legitimation: Decide Without Deciding!
6.1 Fairness: A Core Issue
6.2 From Outcome-Based to Process-Based
6.3 Avoid the Impression of Arbitrariness
6.4 Paradox-Friendly Legitimation Practices
6.4.1 Creating a Sense of Obviousness
6.4.2 Transforming a Decision into Dialogic Processes
6.4.3 Meta-complementarity
6.4.4 Externalisation: Family Does Not Decide on Family
6.5 Vote by Head Count or by Shares?
6.6 Four Generic Legitimation Models
References
7: Being Aware of Mental Models
7.1 Four Ways of Envisaging the Relationship Between Business and Family
7.1.1 Patriarchal Logic
7.1.2 The Logic of the Operational Business Family
7.1.3 The Logic of the Active Owner Family
7.1.4 The Logic of the Investor Family (Fig. 7.4)
7.1.5 At a Glance
7.2 Challenges Involved in Post-patriarchal Structures
7.2.1 The Shadow of the Patriarch
7.2.2 Inverted Power Struggles
7.2.3 The Role of Spouses
7.3 Decision-Making Procedures: From Person-Based to Process-Based Orientation
7.4 Changing a Mental Model
References
8: What´s the Point of It All? Cross-Generational Meaningful Purpose
References
Part V: Developing a Family Strategy
References
9: Reinventing the Wheel! The Witten Model of Family Strategy Development
9.1 Towards a Family Strategy: Twelve Topic Areas
9.1.1 Topic Area 1: Commitment to Family Entrepreneurship
9.1.2 Topic Area 2: Definition of Family
9.1.3 Topic Area 3: Values and Goals for the Business and Family
9.1.4 Topic Area 4: Role and Function of Family Members in the Business
9.1.5 Topic Area 5: Role and Function of Family Members as Shareholders
9.1.6 Topic Area 6: Family and Business Governance
9.1.7 Topic Area 7: Information, Communication and Behaviour
9.1.8 Topic Area 8: Crisis Prevention and Conflict Management
9.1.9 Topic Area 9: Dividend Policy and Asset Management Strategy
9.1.10 Topic Area 10: Existing Family Management System
9.1.11 Topic Area 11: Developing Shareholder Competence
9.1.12 Topic Area 12: Changing of the Rules and Family Compliance
9.2 From a Family Document to a Family Strategy Embraced in Practice
9.3 Family Strategy Development According to Mental Models
9.3.1 Typical Issues Arising in the Mental Model of Patriarchal Logic
9.3.2 Typical Issues Arising in the Mental Model of the Operational Business Family
9.3.3 Typical Issues Arising in the Mental Model of an Active Owner Family
9.3.4 Typical Issues Arising in the Mental Model of an Investor Family
9.4 Family Strategy as an Ongoing Mission
References

Citation preview

Management for Professionals

Arist von Schlippe Tom A. Rüsen Torsten Groth

The Two Sides of the Business Family Governance and Strategy Across Generations

Management for Professionals

The Springer series Management for Professionals comprises high-level business and management books for executives. The authors are experienced business professionals and renowned professors who combine scientific background, best practice, and entrepreneurial vision to provide powerful insights into how to achieve business excellence.

More information about this series at http://www.springer.com/series/10101

Arist von Schlippe • Tom A. Rüsen • Torsten Groth

The Two Sides of the Business Family Governance and Strategy Across Generations

Arist von Schlippe Witten/Herdecke University Witten, Nordrhein-Westfalen, Germany

Tom A. Rüsen WIFU Witten/Herdecke University Witten, Germany

Torsten Groth Witten/Herdecke University Witten, Nordrhein-Westfalen, Germany Translated by Allan Auld München, Germany

ISSN 2192-8096 ISSN 2192-810X (electronic) Management for Professionals ISBN 978-3-030-60199-7 ISBN 978-3-030-60200-0 (eBook) https://doi.org/10.1007/978-3-030-60200-0 Translated from German-language edition: Die beiden Seiten der Unternehmerfamilie, by Arist von Schlippe, Torsten Groth, Tom A. Rüsen Copyright # Vandenhoeck & Ruprecht GmbH & Co. KG, 2017 All Rights Reserved # Vandenhoeck & Ruprecht GmbH & Co. KG 2021 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword: Practitioner’s Perspective

The importance of family businesses in both Western and Asian societies is undisputed. In many cultures, they are regarded as the much-vaunted backbone of the economy—and rightfully so. After all, a family associated with a business pursues a particular kind of economic activity. Rather than having profit as its major focus, it also seeks to secure the existence of the business as a family enterprise in the long term, endeavoring to ensure that the families’ good name is reflected in the way it conducts its business dealings. Family businesses ensure that their entrepreneurial objectives are compatible with their family values. Management is normally bound by the family’s guardrails and policies. Furthermore, the company will often be engaged in an activity that benefits society—precluding any trade in arms or addictive substances, for example. The entrepreneurial family regards itself in many ways as taking responsibility vis-à-vis society, as reflected in its involvement in social projects, its commitment to staff interests, or the fact that the company’s home region is of special importance to the entrepreneurial family. If the business increases in complexity and a family grows over time, new structures are required that allow the family to exercise influence and control and enable its voice to be heard. In the past, such structures were not developed until an actual situation called for it. Sometimes these decisions were made too late, so the solutions were not always sustainable across different generations. Nowadays, a more systematic approach is adopted to issues that typically arise as the business and the family develop alongside each other. The term “family strategy” has become established in this context. Family strategy concerns everyone: from the very moment at which the founder of an enterprise considers how he can pass on the business to the next generation, up to the question of how the family can consolidate its influence over the business. Frequently, however, families are left on their own in tackling these questions. Support is available, such as the governance code for family businesses based on the experience of family entrepreneurs, academics, and consultants; guidebooks and consultancy services are becoming increasingly common, as well. But it is still rare to find well-founded, qualitative, and systematic research in this field—even though it is precisely here that deeper insights are needed into the wide range of potential problems and the concrete strategy options to solve them. Only by acquiring an accurate understanding of the sensitive dynamics of the interaction between family v

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and business is it possible to respond by establishing the appropriate arrangements that are perceived as supportive rather than paternalistic or restrictive. These dynamics are unique for each entrepreneurial family: they vary from one family to the next; no universal solutions are available. The research presented in this book draws on the experience of numerous different entrepreneurial families. WIFU—the Witten Institute for Family Business—collaborated closely with these families over a prolonged period of time. My company, Merck in Darmstadt, was a key participant in several of the projects. We regard the collaboration as having been highly beneficial: it consistently promoted reflections on our family’s regulatory systems, relevant to a family strategy, allowing us to review these critically and develop them further as part of the projects. The results of more than 20 years of focused and often groundbreaking research conducted by WIFU are now presented here, and the reader can be rest assured that the practice of family strategy has been subjected to expert reflections and set within the context of a theoretical framework. As someone who is directly involved, I can say that the ideas published here are of great relevance, even though—or perhaps because—the authors do not seek to put forward concrete suggestions or provide instructions as to “how things ought to be done.” An empirically sound, theoretically based heuristic is provided that enables people to reflect on what they are actually doing when they become involved in developing a family strategy. This book offers valuable support, and members of family enterprises of all sizes will benefit from reading it. Meanwhile, readers from the areas of science and consultancy will find it to be not just a tool but also a guide to how the relationship between family and business has to be constantly reconceived. The aim is not to provide universally correct solutions but to establish a cognitive model that can help families to find the right way forward. Anyone reading this book should do so with curiosity and enthusiasm—and will benefit considerably! Chairman Executive Board and Family Board of E. Merck KG Darmstadt, Germany

Frank Stangenberg-Haverkamp

Foreword: Researcher’s Perspective

Family business is the dominant form of business worldwide, accounting for more than half of the world’s economic activity and representing a major driver of global economic growth. Yet, little attention has been devoted to the scientific study of family business, and even less to the development of actionable ideas for the betterment of families, business, their employees, and many other stakeholders. What little data we have suggests that family businesses outperform their non-family counterparts due to the many strategic advantages they enjoy. These advantages include the concentration of ownership and the alignment of interests of ownership and management owing to family on supervisory boards as well as in leadership positions. This heightened alignment, which is often rooted in their shared values and goals, increases agility and thus their ability to make rapid changes, even under pressure. And while some have reported that family businesses can prize personal interest above economic performance, the vast majority of studies show them to be superior performers. Their ability to think and plan for the long term, often measured in decades, as opposed to the quarterly driven focus of listed companies, fuels their desire to form stable and lasting relationships with key constituencies, which is supported by employee- and customer-centered philosophies. Family businesses can be characterized by a blending of family emotionalism and business logic, which can lead to colorful reports of conflict and trouble. Yet, as I often say to audiences, those that manage to successfully harness the emotional energy of the family and turn it into productive pursuits become quite unstoppable. This leads to the question of how we, as researchers providing data-based advice to the community of family business practitioners, can best support business families and family businesses in overcoming challenges inherent in the interconnection of the family and business domains. Answering the call for research that can have an immediate impact on family business, WIFU—the Witten Institute for Family Business—launched many ambitious research projects over the years, while successfully navigating the gap between scientific rigor and relevant research. The hallmark of this approach is their work with business owners in defining questions to be answered and the approaches they take in collecting and analyzing data. WIFU has become a beacon for guiding others toward meaningful research. They are successfully doing what most academic vii

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programs in family business, and other business sciences for that matter, dramatically undervalue or fail to manage appropriately, which is developing theory and lessons from those whom they study, and doing so in a rigorous manner that allows for the maximum number of people to benefit, including other scholars, business owners, business leaders, and all those who strive to serve them. Their work has led them to a profound conclusion: “Large and continuously growing business families [. . .] make a crucial contribution to securing the sustainability of their family business” (see Chap. 9, p. 189). This dovetails well with my belief that the family is at the heart of the family business-business family system and that paying attention to, developing, and nurturing cohesion and family and ownership competence are essential to family and business well-being, a train of thought that was conceptualized in Pieper’s (2007) work on cohesion in business owning dynasties. Almost 40 years of work with business families around the world has substantiated my belief that structural solutions cannot solve relational and emotional issues—at best, they can augment families that are already functional, and at worst, they can concretize conflicts and lead to family chaos and catastrophe. Unfortunately, much of the existing literature on family governance fails to acknowledge this “dark side” of a mechanism meant to manage and govern the family. Structural solutions (such as family strategies, employment policies, or shareholder agreements) often end up being rigid, resulting from the family’s (or the advisor’s) desire to curb the adverse effects of negative family dynamics. In reality, the rigidity of these practices often exacerbates underlying conflicts, causing more harm than good, and limits the subsequent generations’ ability to continuously adjust said practices as the family grows and evolves. This book extends this lineage of thought and provides a much-needed advancement of the topic of family strategy, which in the authors’ view encompasses the values, goals, and actions needed to ensure family business sustainability. I would like to encourage business families to consider one additional step to the process proposed in this book, which is developing a strategy that gives the family a reason for cohesion, and that details actions the family would take to maintain family unity even in the absence of shared business ownership. Such a strategy, for a family that owns an enterprise, would likely undoubtedly view the business, and the things which a business provides, as a means to if not an end in itself. This addition to what is contained in this volume characterizes a version of family business strategy that myself, together with my colleagues Andrew Keyt and George Manners, believe must go beyond the business. It is our belief that any long-lived business family relies on one or more core reasons that are independent of any assets to remain a family, for without meaning and a reason for being, the pressures from the business and within the family itself are generally too high to maintain family integrity (cf. V. Frankl, Man’s Search for Meaning). In addition to the hands-on lessons contained in this book, I urge readers to pay attention to the treatment of paradox and various logics. Too often—and in line with the oft-cited trade-off logic generally referred to as “family first vs. business first”— issues are framed as win-lose in families. An appropriate and healthy appreciation of a paradox can guide family leaders toward resolution in constructive ways, helping

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to break the often-downward spiral of family conflict. Balancing the need for strong, open, and mature relationship development with the clarity of expectations afforded by sound policies, statements of values and ethics, and having simple and easily understandable yet highly compelling goals is but one important component of managing the way out of the paradox. While the tasks of family strategy as regards the business are critical, we need not lose focus on the tasks of family. These include the development and guidance of young family members to become productive members of society who find worth and emotional and physical sustenance in their vocational pursuits. One might conclude that this is not at all a task of business leadership, but I would beg to differ—developing people and allowing room for mistakes in the pursuit of learning is necessary in both the business and the family spheres. Caring for employees, including family and non-family employees, is a core part of the learning from failure process. Without a caring context, the freedom to commit and the willingness to learn from mistakes is severely constrained owing to a pervasive fear of failure. And while many will hold that a key difference between business and family is in the threshold of bad behavior before removing an individual from the system, I prefer to see it as culturally circumscribed and maintain that both systems eject people. Ejection from/by the family is in part a cultural issue; I have encountered many instances where family members discovered late in life that they have relatives who were cast out of the family and never heard from or mentioned again. Furthermore, both family and business systems share the fact that they manage their selection and entry of members (through marriage and adoption and the raising of children). And perhaps most importantly, individual behavior in both systems cannot be separated from system dynamics; the system shapes behavior as individual behavior molds the system. As the foundational theorists in the group dynamics field (e.g., Wilfred Bion, Margret Rioch, and Eliot Jaques) have maintained, individuals choose and are chosen for their roles in systems, be they seemingly productive or counterproductive. The roles chosen fill emotional needs for both the individual and the group. One powerful antidote to the chokehold of emotional dynamics rooted in early experiences and often transferred across generations is a high level of self-awareness at the individual, group, and system level, which allows the dynamics to be acknowledged, their sources identified and demystified, and communication and behavioral patterns changed. Perhaps one of the hardest tasks of parenting—and this particularly pertains to business owning families—is instilling a sense of responsibility in our children. Too often, problems arise when indulgent parents implicitly demonstrate the fantasy that children have only rights and no responsibilities. Without responsibilities and higher purpose, it is hard to develop a sense of the need to sacrifice one’s own individual interests for a greater, collective good. The idea that sacrifice brings satisfaction in such cases is equally foreign. If the family does not address responsibilities in multiple spheres, how can we expect their children to truly understand responsibilities of employment in general and in the family business in particular? And if such responsibilities are not understood, how can we expect the family system

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to minimize destructive conflict (e.g., the classic dispute of who gets to work in and benefit from the business), to benefit from creative and constructive conflict (e.g., in the process of developing solutions to content disagreements), and to work to support and achieve shared dreams? If my years in the family business field have taught me anything, it is that the vast majority of business owning families have the best of intentions and want to have a positive impact on the world through their businesses and through the generations of family yet to come. The desire to improve faces a gap in scientifically produced information that provides new and insightful ideas and actions that can have an immediate impact. This book squarely helps fill the needs of business families. The work WIFU and of Arist, Tom, and Torsten in particular should be required for owners wishing to take the continuity challenge seriously. These are solid researchers who consistently demonstrate concern for the business owners they work with. Their understanding of family and system dynamics and their sensitivity to business constraints and human interaction place them at the forefront of the family business field. They show working with family businesses to be a higher calling, a belief that I share. It is no surprise that I have been honored to have been a colleague and, like in business families where the line between business and personal relationships blends, friend of the authors for more than a decade. Their work has inspired me and has been of great value in my service as a member of many family business boards. That is a rare feat for research. Atlanta, Georgia, USA

Joseph H. Astrachan

Preliminary Remarks

This is a book about family governance and family strategy. We use these terms to summarize the wide-ranging efforts made by families who own a business enterprise and who wish to successfully maintain their family ownership for a long period, in some cases over many generations. What specific tasks and efforts are required of a family that runs a business, either with one of its members in the top management team or by realizing responsible ownership as a strategic partner with external management? How can a family ensure the strategically successful market positioning of the company and pursue sustainable growth while, at the same time, ensuring that the family members live together peacefully and happily without being crushed by the work involved or torn apart by envy, resentment, and conflict? This book summarizes the experience we authors have gathered in various roles at the Witten Institute of Family Business (WIFU) at the University of Witten/ Herdecke. Ever since it was founded in 1998, the institute has addressed the question of how family enterprises can achieve longevity (Rüsen, Hülsbeck, Gerken, & Vöpel, 2018). Indeed, one of WIFU’s first major projects examined this very topic: what are the patterns of success that enable businesses to remain in family ownership over several generations, to the benefit of both the business and the family (Simon, Wimmer, & Groth, 2005)? Longevity was also the focus of a second large-scale project that aimed to provide an overview of how Germany’s large, long-established companies (dating back 100 years and more) are organized on both the business and the family side (Plate, Groth, Ackermann, & von Schlippe, 2011). The present publication continues this tradition, integrating the knowledge and experience that we have gained over the years. A current project of our institute concentrates on the specific needs and challenges of large business families (more than 80 shareholders) with a report imminent (first insights in Kleve, Köllner, von Schlippe, & Rüsen, 2020). “Family Strategy Across Generations”—the subject of this book—was one of our largest research projects. For more than three years we were in close contact with the representatives of twelve large, successful family enterprises based in the German-speaking countries of Europe. Every year we met at least twice with those responsible for the family management of all 12 family businesses. The meetings followed the logic of action research (see Sect. 1.4 for details); i.e., the xi

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aim was not to observe an unchanging research object as objectively as possible. Instead, we wanted to initiate a collective learning journey where both the individuals conducting the research and the research partners come together to examine the social practices pertaining to a particular topic in family strategy. In this type of project, it is desirable for the so-called object of research to change and develop over time so that both academics and practitioners can expand their knowledge collaboratively. This kind of process implies a group approach and a joint search for understanding and appreciation. In a total of nine workshops, each lasting one and half days, the project partners provided a very open account to one another of the concrete practices applied in handling the relationship between family and business in their particular case. Critical points, conflicts, and current weak spots were also addressed. The presentation was followed by critical reflection, as described in Sect. 1.4 in greater detail: observers and protagonists were called upon to sit down together in a circle and reflect jointly on the presentations while the rest of the group listened. This created a reflecting space that offered a wider range of options for free contemplation and association than if the presentation were to be picked apart and watered down in subsequent discussion by self-appointed critics (“You should do it in such and such a way!” or “This or that has always worked very well for us . . .!”). Not until this reflection phase was complete did we open the discussion to the group as a whole, and this phase was likewise extremely productive and intense. All discussions were recorded and analyzed along with previously conducted individual interviews. In this way, a culture of openness and trust was established on a step-by-step basis which grew in strength as the project progressed. Indeed, the willingness to provide insights into confidential aspects of family strategy even led to new friendships. Working groups comprising representatives of business families of similar size and complexity continued to work on their various issues independently of the institute’s project (and are still doing so to this day as support groups). One of our research partner companies would frequently subject its system of family strategy regulations to closer scrutiny while, in some cases, families were inspired to establish such a system for the first time. The terms of family governance, family strategy, and family management are not clearly differentiated: the fine points of this differentiation will be discussed in the first chapter (Sect. 1.3). At this point, let us just say that family governance is regarded as the generic term that covers the other two; family strategy comprises all deliberate considerations and reflections as to how the connection between family and business can be constructively secured in the long term, while family management defines the implementation of these ideas in the family’s day-to-day practice. They all share one core aim: to secure the family’s decision-making capacity vis-à-vis the business. Initially, we will also be looking at how family governance and processes of family management existed long before the words were found to describe them. Over the course of the centuries, practices developed aimed at preserving family assets, while at the same time mitigating any negative ramifications. The ideas underlying such practices are reflected in modern-day inheritance law and

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succession arrangements. Aristocratic families developed and established “house laws” to regulate the issue of succession. These ideas took on various forms in the reality of social practice. The Golden Bull of 1356 set down the procedure for the election of the king by the prince-electors, even earlier, in the sixth century, the Lex Salica (Salic Law) restricted succession to males only, and, in Germany, many Höfeordnungen (regulations concerning the inheritance of farm estates) specified how property was to be passed down, with the principles frequently differing greatly from one region to the next. The sheer range of solutions found is particularly fascinating from the vantage point of today. Looking at these practices, we find a clue to understand the problem that they attempt to solve. They reflect an inherent tension that will run through this book as a key paradox of family strategy: what are the criteria of fairness, correctness, and appropriateness? Is it right, just, appropriate, and legitimate for all other personal interests and destinies to be subordinated to the primacy of the unit as a whole, whether kingdom, country, or business enterprise? Or is it right, just, appropriate, and legitimate if, for the good of individuals or smaller social entities, such as families or clans, the latter’s rights and needs are assigned a higher priority than the aim of preserving the economic whole? In the modern age, research into the handling of these contradictory expectations has progressed considerably. Paradox friendliness and paradox management are terms that will run through this book like a golden thread as the fundament of family strategy, so to speak, enabling a response to the paradoxical starting point of family businesses and business families: the aim is to develop more or less intelligent approaches to dealing with the paradox that may well contradict the logic of rational business management. Following Ortmann, we would like this book to be regarded as a “rejection of fixed ideas and ready-made solutions, instead encouraging an appreciation of the incomplete” (Ortmann, 2011, p. 93).1 How should this book be read? Although we have written it to academic standards, it is intended to be more than—and different from—a mere project report. It is in fact aimed at a range of different readers at the same time. Firstly, and in particular, we would like to address practitioners in family businesses, for whom we hope to provide ideas and options in understanding and influencing situations in their own family enterprises. In the same way, we believe consultants wishing to support members of business families in their endeavors will also benefit from reading the book. And last but not least, our work is of course aimed at the scientific community, to whom we would like to present our projects and the theoretical ideas derived from them. After all, we regard this book as a milestone along the path to achieving a goal which the WIFU has pursued ever since it was founded: to put forward a comprehensive systems theory of the business family.

1

All citations from German sources have been translated by the authors.

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As such, readers will find the book to be a mixture of theory, research outcomes, and recommendations for action. We have deliberately written some chapters in an essayistic style (Chap. 2, for example, which outlines situations in which family strategy was lacking or failed), while others are intentionally theoretical in approach; however, we have consistently endeavored to express even complex ideas in a comprehensible manner. Empirical observations appear repeatedly in the form of quotations from our interviews; since the focus is on the content and not on microanalysis, we have tidied the language, but the words are always authentic.2 Finally, we would like to add some words to the English version of our book, which had originally been written in German. We are aware of the fact that only German and German-speaking family businesses (one came from Switzerland) took part in our study. And not only are we German researchers (from different disciplines, too), but we also represent a specific perspective in our research: we relate strongly to the theory of social systems of Niklas Luhmann (1995), one of the most influential contemporary German thinkers. His theory is the basis in our endeavor of developing a systems theory of the family business and the business family (see Sect. 3.2.3). Some international publications so far have focused on Luhmann’s theory as a perspective on organizational studies (Cooren & Seidl, 2019; Seidl & Becker, 2005; van Lier, 2013) and only a few on family business research (von Schlippe & Frank, 2013, 2017). Thus, this book offers a chance by introducing quite new thoughts as well as the potential disadvantage of being too far away from the reader’s thinking. We are aware of the fact that including companies and scholars from other parts of the world would bring about different findings and different ideas. Taking all this into account, we hope that our work provides some interesting challenges and fruitful impulses for both practitioners and researchers—our two forewords give us reason to be optimistic in that respect. We hope that the book meets with interest among the target groups mentioned above and that they will benefit from reading it. We are very much aware that the ideas collated here are not solely the product of our own minds but the result of numerous interactions with members of business families (both as part of WIFU projects and otherwise), not to mention countless discussions with WIFU members and scientific colleagues all over the world. We would like to express a special thank you to two friends on this occasion. One goes to Torsten Pieper who after having read the German version encouraged us strongly to make our research more visible by translating it to English; the other one goes to Joe Astrachan who provided us with feedback and a lot of valuable clues for improving this version of our book.

2 In some highlighted statements we have freely summarized what was said (in Chap. 2, in particular). The reader’s attention is drawn to this once more at the relevant points.

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However, we would like to dedicate this book to the representatives of the twelve companies who embarked with us on a learning journey for the FÜG project, without whom this book would not have been written. Arist von Schlippe Tom A. Rüsen Torsten Groth

References Cooren, F., & Seidl, D. (2019). Niklas Luhmann’s radical communication approach and its implications for research on organizational communication. Academy of Management Review, 45(2), 479–497. Kleve, H., Köllner, T., von Schlippe, A., & Rüsen, T. (2020). The business family 3.0: Dynastic business families as families, organizations and networks: Outline of a theory extension. Systems Theory and Behavioral Science, 37(3), 1–11. https://doi.org/10.1002/sres.2684 Luhmann, N. (1995). Social systems. Stanford, CA: Stanford University Press. Ortmann, G. (2011). Kunst des Entscheidens. Weilerswist: Velbrück. Pieper, T. (2007). Mechanisms to assure long-term family business survival: A study of the dynamics of cohesion in multigenerational family business families. Frankfurt: Peter Lang. Plate, M., Groth, T., Ackermann, V., & von Schlippe, A. (2011). Große deutsche Familienunternehmen. Göttingen: Vandenhoeck & Ruprecht. Rüsen, T. A., Hülsbeck, M., Gerken, M., & Vöpel, N. (2018). 20 years of WIFU – What really matters to family entrepreneurs? Witten: Study of the WIFU, University of Witten-Herdecke. Retrieved from https://www.wifu.de/en/bibliothek/ Seidl, D., & Becker, K. (Eds.). (2005). Niklas Luhmann and organization studies. Copenhagen: Copenhagen Business School Press. Simon, F. B., Wimmer, R., & Groth, T. (2005). Mehr-Generationen-Familienunternehmen. Heidelberg: Carl Auer Systeme. van Lier, B. (2013). Luhmann meets Weick: Information interoperability and situational awareness. Emergence: Complexity and Organization, 15(1), 71–95. von Schlippe, A., & Frank, H. (2013). The theory of social systems as a framework for understanding family businesses. Family Relations, 62(3), 384–398. von Schlippe, A., & Frank, H. (2017). Conflict in family business in the light of systems theory. In F. W. Kellermanns & F. Hoy (Eds.), The Routledge companion to family business (pp. 367–384).

Acknowledgments

This book summarizes the principal outcomes of our research project on family strategies across the generations (FüG), as well as developing the previously published results of WIFU research projects; it also constitutes a reflection and analysis of insights, events, and dynamics observed in the business families that we have supported as consultants on a range of different issues. The nature of our book is such that there are many people we would like to thank most sincerely for their ideas, feedback, and questions. First and foremost, our thanks go to Sebastian Benkhofer. It was not least due to his initiative that we started the FüG project in the first place, based on a wide range of ideas and experience relating to the subject of family strategy. It was he who helped initiate, coordinate, and implement substantial sections of the project, as well as organizing meetings with project partners. We would also like to thank our former WIFU employees, Till Jansen, Christina Erdmann, and Kirsten Georg, who provided us with proactive support during various phases of the project. Thanks also go to the doctoral students, Leonie Fittko, Julia-Carolin Schmid, and Jakob Ammer, for their willingness to expand the project by looking into specific topic areas; we very much look forward to the results of their work. We would also like to offer our warmest thanks to our fellow WIFU professors, Andrea Calabró, Marcel Hülsbeck, and Rudolf Wimmer, as well as visiting professors Joe Astrachan, Alberto Gimeno, and Andreas Hack, for their valuable expert input and the stimuli they gave us for our work in the course of reflections on the project. Additionally, we thank Monika Nadler and Ruth Orenstrat for their great support in working on and finalizing of the English edition of this book. We would also like to thank all those business families we have been able to support on a range of different issues over the years: the experience we have gained from this work has led us to continue to explore the implications of family strategy in business families. We have often drawn on the specific problems facing individual families to identify generic problem patterns or to refine our theories, based on internal reflection sessions. However, our greatest thanks go to the participants of the FüG project. It was initially Mr Jon Baumhauer of the Merck family who strongly encouraged us to pursue the idea of a research project that would enable us to collaborate with xvii

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representatives of long-established family businesses in exploring the core issues of family strategy. At that time we were not sure whether and how such a collaboration with practical partners might work, what form of research setting might be created to promote reflection, and—this was our biggest concern— whether project participants really would be willing to share their challenges, problems, and issues with other family entrepreneurs and researchers. We were surprised at the enormous trust shown to us right from the outset. As a result, the sessions were quickly able to tackle fundamental issues, and appreciative, friendly relations developed between all those involved. One positive outcome was that members of different families remained in close, regular dialogue even after the completion of the practical survey section of the project. We would therefore like to thank project participants, not only for their involvement but also for their openness, their spirit of experimentation—which was challenged at our reflection sessions in the course of the project—and, in particular, the enthusiasm with which family representatives became co-researchers in the course of our meetings. The many questions, ideas, and discussions stimulated our own thinking and helped build on our original research question. Representing all the business families who took part in the project, we would like to thank the following most sincerely once again for their participation: Dr. Simone Bagel-Trah (Henkel AG & Co. KGaA, Düsseldorf), Mr. Jon Baumhauer (E. Merck KG, Darmstadt), Mr. Christian Boehringer (C. H. Boehringer Sohn AG & Co. KG, Ingelheim am Rhein), Mr. Christoph Böninger (Franz Haniel & Cie. GmbH, Duisburg), Mr. Boris Canessa (Henkel AG & Co. KGaA, Düsseldorf), Mr. Jaques de Saussure (Pictet & Cie. Group SCA, Genf), Mr. Karl E. Dörken (Dörken AG, Herdecke), Dr. Wolfram Freudenberg (Freudenberg SE, Weinheim), Dr. Maria Freudenberg-Beetz (Freudenberg SE, Weinheim), Mr. Franz Haniel (Franz Haniel & Cie. GmbH, Duisburg), Mrs. Ute Herminghaus (Dörken AG, Herdecke), Mr. Emmerich Müller (B. Metzler seel. Sohn & Co. Holding AG, Frankfurt a. M.), Mr. Matthäus Niewodniczanski (Bitburger Holding GmbH, Bitburg), Dr. August Oetker (Dr. August Oetker KG, Bielefeld), Mr. Ivan Pictet (Pictet & Cie. Group SCA, Genf), Mr. Marc Pictet (Pictet & Cie. Group SCA, Genf), Dr. Martin Rethmann (Rethmann SE & Co. KG, Selm) Mrs. Rosely Schweizer (Dr. August Oetker KG, Bielefeld), Dr. Axel Th. Simon (Bitburger Holding GmbH, Bitburg), Prof. Dr. Frank Stangenberg-Haverkamp (E. Merck KG, Darmstadt), Mr. Hubertus von Baumbach (C. H. Boehringer Sohn AG & Co. KG, Ingelheim am Rhein),

Acknowledgments

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Dr. Leonhard von Metzler (B. Metzler seel. Sohn &Co. Holding AG, Frankfurt a. M.), Mr. Konstantin von Unger (Henkel AG & Co. KGaA, Düsseldorf), Dr. C. L. Theodor Wuppermann (Wuppermann AG, Leverkusen), Mr. Martin Wuppermann (Wuppermann AG, Leverkusen).

Contents

Part I 1

Family Strategy over Generations . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Family Strategy in Fact Has Always Been There . . . . . . . . . . . . 1.2 The Business Family as an Object of Research . . . . . . . . . . . . . 1.3 Defining Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.1 Family Businesses and Business Families . . . . . . . . . . 1.3.2 Family Business Governance and Family Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.3 Family Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.4 Family Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.5 Family Management and Family Compliance . . . . . . . . 1.3.6 Shareholder Competence . . . . . . . . . . . . . . . . . . . . . . 1.4 Longevity as a Subject of Research . . . . . . . . . . . . . . . . . . . . . 1.4.1 Previous WIFU Projects . . . . . . . . . . . . . . . . . . . . . . . 1.4.2 Family Strategy Across the Generations: The FüG Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II 2

Introduction 3 4 7 10 10 11 12 14 14 15 16 16 18 23

Managed by Neglect: Solutions that Create Problems

Riding a Ghost Train: “What Happens If ‘Nothing’ Happens?” . . . 2.1 Yesterday’s Solutions: Today’s Problems? . . . . . . . . . . . . . . . . 2.2 “Equal Treatment”: Equality and Fairness Among Siblings and Their Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Destruction of the “Fictional Consensus”: Revelation of Differences and Loss of Face . . . . . . . . . . . . . . . . . . . . . . . . 2.4 “Learning Trap”: It Had Always Worked Before . . . . . . . . . . . . 2.5 “Change of Paradigm”: The Transition from an Operationally Active Family to a Shareholder Family . . . . . . . . . . . . . . . . . . . 2.6 “The Mindset of Family Branches”: He Who Sows Equality Risks Reaping Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 “Loss of Purpose”: A Stock Market Launch and Its Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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“Post-patriarchal Paralysis”: Nobody Is Allowed to Take Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 “Shareholder Competence”: Who Has What It Takes to Work on a Committee? . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10 One of the Most Important Questions: What Happens If “Nothing” Happens? . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8

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47 48

Family and Business: The “Impossible Endeavour” . . . . . . . . . . . . 3.1 Families and Businesses Don’t Really Go Together . . . . . . . . . . 3.2 Three “Circles”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Three Circles and Four Intersections . . . . . . . . . . . . . . 3.2.2 An Interpretation Based on Role Theory . . . . . . . . . . . 3.2.3 The Perspective of System Theory: Three Simultaneous Expectational Contexts . . . . . . . . . . . . . 3.3 Paradox and Paradox Capability . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Logical and Pragmatic Paradoxes . . . . . . . . . . . . . . . . 3.3.2 Pragmatic Paradoxes in Family Businesses . . . . . . . . . 3.3.3 Paradox-Friendliness, Paradox Tolerance and Paradox Awareness . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53 53 55 56 57

Part III 3

4

Family and Business Family at the Same Time: The Duplicated Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 The Theory of the Business Family: A Process-Oriented View . . 4.2 Unresolvable: Paradoxes and Oscillations in the Business Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 The Business Family as a “Duplicated Family”: A Reversible Figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 A Different Three-Circle Model . . . . . . . . . . . . . . . . . . . . . . . . 4.5 The Core Paradox of the Business Family . . . . . . . . . . . . . . . . 4.6 Family Strategy as a Mission . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part IV 5

The Witten Theory of the Business Family

57 64 65 67 69 70 73 73 74 76 78 81 85 86

Core Issues of Family Strategy

Appointment Decisions: A Sense of Belonging and Drawing Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 The Paradox of Belonging and Selectivity . . . . . . . . . . . . . . . 5.2 Affiliation Issues in a Business Family . . . . . . . . . . . . . . . . . . 5.2.1 Inclusion/Exclusion as a Critical Distinction . . . . . . . 5.2.2 Questions of Belonging as Put to the Family and the Business Family . . . . . . . . . . . . . . . . . . . . . .

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5.2.3

Answers Provided by the Family as a Business Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Structures to Ensure a Sense of Belonging: Contact, Information and Voice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.1 Family Meetings and Family Days . . . . . . . . . . . . . . . 5.3.2 Relations with Parts of the Family That Do Not or No Longer Belong to the Business Family . . . . . . . . 5.3.3 Specific Groupings in Connection with Family Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.4 Committees and Bodies . . . . . . . . . . . . . . . . . . . . . . . 5.4 Access to Positions and Committees . . . . . . . . . . . . . . . . . . . . . 5.4.1 The Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.2 Appointments to Operational Positions . . . . . . . . . . . . 5.4.3 Access to Committees . . . . . . . . . . . . . . . . . . . . . . . . 5.5 Handling the Boundaries of Family Branches . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99 113 114 115 116 118 122 122 123 125 127 129

6

Legitimation: Decide Without Deciding! . . . . . . . . . . . . . . . . . . . . 6.1 Fairness: A Core Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 From Outcome-Based to Process-Based . . . . . . . . . . . . . . . . . 6.3 Avoid the Impression of Arbitrariness . . . . . . . . . . . . . . . . . . 6.4 Paradox-Friendly Legitimation Practices . . . . . . . . . . . . . . . . . 6.4.1 Creating a Sense of Obviousness . . . . . . . . . . . . . . . . 6.4.2 Transforming a Decision into Dialogic Processes . . . . 6.4.3 Meta-complementarity . . . . . . . . . . . . . . . . . . . . . . . 6.4.4 Externalisation: Family Does Not Decide on Family . . 6.5 Vote by Head Count or by Shares? . . . . . . . . . . . . . . . . . . . . 6.6 Four Generic Legitimation Models . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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133 133 135 137 140 141 142 144 145 146 147 153

7

Being Aware of Mental Models . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Four Ways of Envisaging the Relationship Between Business and Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1.1 Patriarchal Logic . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1.2 The Logic of the Operational Business Family . . . . . . 7.1.3 The Logic of the Active Owner Family . . . . . . . . . . . 7.1.4 The Logic of the Investor Family . . . . . . . . . . . . . . . 7.1.5 At a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Challenges Involved in Post-patriarchal Structures . . . . . . . . . 7.2.1 The Shadow of the Patriarch . . . . . . . . . . . . . . . . . . . 7.2.2 Inverted Power Struggles . . . . . . . . . . . . . . . . . . . . . 7.2.3 The Role of Spouses . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Decision-Making Procedures: From Person-Based to Process-Based Orientation . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 Changing a Mental Model . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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155 158 161 163 165 167 168 169 171 173

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What’s the Point of It All? Cross-Generational Meaningful Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part V 9

181 185

Developing a Family Strategy

Reinventing the Wheel! The Witten Model of Family Strategy Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Towards a Family Strategy: Twelve Topic Areas . . . . . . . . . . . 9.1.1 Topic Area 1: Commitment to Family Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.2 Topic Area 2: Definition of Family . . . . . . . . . . . . . . . 9.1.3 Topic Area 3: Values and Goals for the Business and Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.4 Topic Area 4: Role and Function of Family Members in the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.5 Topic Area 5: Role and Function of Family Members as Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.6 Topic Area 6: Family and Business Governance . . . . . . 9.1.7 Topic Area 7: Information, Communication and Behaviour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.8 Topic Area 8: Crisis Prevention and Conflict Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.9 Topic Area 9: Dividend Policy and Asset Management Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1.10 Topic Area 10: Existing Family Management System . . 9.1.11 Topic Area 11: Developing Shareholder Competence . . 9.1.12 Topic Area 12: Changing of the Rules and Family Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 From a Family Document to a Family Strategy Embraced in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 Family Strategy Development According to Mental Models . . . . 9.3.1 Typical Issues Arising in the Mental Model of Patriarchal Logic . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3.2 Typical Issues Arising in the Mental Model of the Operational Business Family . . . . . . . . . . . . . . . 9.3.3 Typical Issues Arising in the Mental Model of an Active Owner Family . . . . . . . . . . . . . . . . . . . . . 9.3.4 Typical Issues Arising in the Mental Model of an Investor Family . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 Family Strategy as an Ongoing Mission . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

189 190 194 196 200 202 205 211 216 220 223 225 228 232 233 234 236 237 239 241 243 244

Part I Introduction

This chapter introduces the underlying issues explored in the book, as well as establishing key terms and concepts. We start with a historical perspective, looking at the various ways in which ownership has been passed on and how these procedures have developed over the centuries. In doing so, we seek to address a central dilemma facing all societies that have developed around biological kinship and private ownership, indeed most societies: should acquired ownership be handed down within the family and, if so, how is it to be protected at the same time? In early times, society developed a wide range of rather rigid rules in response to this crucial question. Today, in a modern, open, and liberal society, we rightly regard these as inappropriate and unfair—such as the overriding right of the first-born or the exclusion of female offspring from the line of succession. In modern society, these rules are seen as obsolete, but their disappearance shifts the difficult task of resolving underlying conflicts back to the family. The question as to how successful modernday business families resolve these conflicts, and how they have done so in the past, is the subject of Chapter 1.4 “Longevity as a subject of research:” how do families arrive at solutions that are as fair as possible to their members while successfully managing an enterprise, and despite the often considerable tensions that arise from this dual task?

1

Family Strategy over Generations

A business family is a special type of family, at least in our culture and age, since it is distinct from the private, nuclear family that is more typical of today’s society. History has seen considerable changes in the structure of families and households. The separation of family and commerce during the course of the nineteenth and twentieth centuries saw a situation in which work “emigrated” from the family (Tyrell, 1976). Before, families were rather organised in economic productivity units, and survival, not relationship, was first and foremost on their minds. Nowadays, the family represents a private sphere: family is regarded as opposite to the workplace and seen as a protective retreat from the demands of society. Family life and the world of work are largely distinct from one another, with family life standing in contrast to the impersonal domain of work (Gestrich, Krause, & Mitterauer, 2003, p. 391; see also Mitterauer, 2009). However, in business families, the situation is different, and in many cases, work is still directly linked to the family. Research into family enterprises has widely tended to adopt a business management perspective and has rarely examined this particular problem in great detail (Litz, Pearson, & Litchfield, 2012). There has to date been little investigation into the business family as a specific type (Dyer, 2003). Recently, the interest in integrating theories from family science into family business research has grown (Combs, Shanine, Burrows, Allen, & Pounds, 2020; Jennings, Breitkreuz, & James, 2014; Rieg & Rau, 2017; Sharma, Chrisman, & Chua, 2019; von Schlippe & Schneewind, 2014; Zachary, 2011). The importance of the family to the business is, however, repeatedly emphasised. The family is seen as a special resource for the business, giving it a particular competitive advantage, although mention is also made of the worst-case scenario in which the family has the potential to disrupt, or even destroy, the business as a result of internal conflict. Both material and immaterial values are at stake here: “The biggest value destroyer in family business is discord” (Hennerkes & Kirchdörfer, 2015, p. 62).

# Vandenhoeck & Ruprecht GmbH & Co. KG 2021 A. von Schlippe et al., The Two Sides of the Business Family, Management for Professionals, https://doi.org/10.1007/978-3-030-60200-0_1

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1.1

1

Family Strategy over Generations

Family Strategy in Fact Has Always Been There

The challenges that this book examines in detail do not apply only to business families seeking to perpetuate an enterprise across the generations. If the spectrum was broadened well beyond modern forms of entrepreneurship, both historically and thematically, the fundamental issues involved concern the retention and transfer of land and property within a family or bloodline. Seen from this perspective, the subject of family strategy that interests us here, despite the term being of comparatively recent origin, in fact dates back many centuries and was a principal concern of royal dynasties as well as aristocratic families and clans and, later, also the bourgeoisie and farmers (see Felden, Hack, & Hoon, 2019; Gestrich et al., 2003; WeberKellermann, 1981). Over time, the solutions arrived at were repeatedly tested in terms of their sustainability and legitimacy, so we will begin with a brief examination of the formerly widespread strategies for dynastic preservation. The defining characteristic of a dynasty is the determination of a ruling family— later, as mentioned, also applicable to other social classes—to pass on property within its own bloodline, thereby securing power, influence and wealth over generations. In pre-industrial times, it primarily concerned estates and titles, but a close link can be seen between the succession strategies deployed by European dynasties and those pursued by family businesses in the twenty-first century. History provides numerous examples of inadequate and unsuccessful arrangements, often inflicting suffering on thousands of people over vast regions. To this day, the map of Europe is full of boundary demarcations reflecting solutions to inheritance conflict that were paid for with great hardship and a high death toll. Charlemagne provides an almost perfect example of the old saying: “Established by the first, passed on to the second, wrecked by the third!”1—his realm collapsed well over 1000 years ago as a result of his grandchildren’s fiercely waged wars of inheritance (Riché, 1991, p. 201 ff.). Charlemagne attached great importance to effective succession and had previously made provision for the division of his empire in the Divisio Regnorum of 806, possibly the first family strategy document in history. Married five times, he appointed his three sons as heirs and successors— even at that time, the question seems to have arisen as to whether everything should remain in the hands of one person, ensuring ownership is well protected, or equally distributed among the male descendants, which was more in line with family logic and solved at least 50% of the problem, according to the thinking of that era. Charlemagne opted for family logic: since two of his sons died during his own lifetime, the imperial honours were bestowed on his third son, Louis the Pious. Louis, however, failed to successfully oversee the succession as envisaged by his father (Booker, 2009). Charlemagne himself apparently had reservations about handing all his power to his son and for a time appointed his grandson—the son of his first-born—as king of some of his territories. Without digressing too far, the problem seems to have arisen from the way in which Louis the Pious handled his

1

In our view, this saying does not fit for family businesses (cf. also Felden et al., 2019).

1.1 Family Strategy in Fact Has Always Been There

5

succession. He had three sons from his first marriage and one from his second. His second wife, Judith, is said to have urged him to change the original plans for succession, which had favoured Louis’ three older sons, to the benefit of her own son (later known as Charles the Bald). This caused the elder sons to go to war against their father. The conflict culminated in Louis’ deposition, but it was not long before the brothers themselves became embroiled in internecine warfare. After many years of turbulence, Charlemagne’s three remaining grandchildren (Lothar, Charles the Bald and Louis the German) divided the empire up among themselves in the Treaty of Verdun of 843. This brought peace but tore apart the unity of the Carolingian Empire. The words of a poet of the time provide a suitable lament for the end of many a large-scale corporation in the modern world, fragmented as a result of family dispute, “The realm is now split into three. There is no longer an emperor, the king was replaced by a wren and the kingdom as a whole is nothing but a ruin” (Riché, 1991, p. 205). Even this brief foray into history reflects a core issue that will run throughout the book. How is it possible to combine two propositions that are barely compatible: to act according to the interests and expectations of each individual descendant while at the same time preserving the estate as a whole? The first follows a family-based rationale and a socially oriented logic of interests, while the second adheres more closely to the logic of economics and power. It would seem that balancing these two elements—i.e. preserving the family while also securing or augmenting the estate— is something that is rarely handled entirely satisfactorily. History provides examples of family strategies which prioritised preserving the whole as well as those focussed more on ensuring equal treatment of all descendants, often resulting in the division of land or property. Most identifiable practices reflect this contradiction: what are the criteria of fairness, correctness and appropriateness on each side and how can the two be combined? Is it preferable to act for the good of the overriding economic unit (the kingdom, country or estate) and subordinate all personal interests and destinies to it, or is it better to ensure the good of the various social units (families or clans) or individuals and attach a higher priority to respecting their rights and needs than to preserving the economic unit as a whole? Historically speaking, “the law of succession was the same throughout large areas of Europe, though in some cases customs varied at the local level from one dominion to the next” (Gestrich et al., 2003, p. 393). In any case, no clear solutions emerged, indicating that there is no right or wrong way of approaching the problem: different forms are capable of surviving, although there is often a high price to be paid. The wars of inheritance fought to secure the legitimacy of dynastic succession—resolving conflicts between generations and siblings through violence—were certainly destructive and bear living testimony to the fact that the issues confronting business families to this day can probably never be resolved without problems and dispute. The consequences of all these altercations continue to have effect to this day. Just as wars of succession defined the map of Europe as it stands today, so early business families had to survive diverse conflicts and “family wars” (Gordon & Nicholson, 2008). In one example, the Fugger family was involved in more than 300 lawsuits between 1497 and 1805 in which family members litigated against each other—

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approximately 1 legal dispute per year (Herre, 2005; Schneider, 2011, p. 120 f.). With the rise of the bourgeoisie from the eighteenth century onwards, the predominance of the aristocracy dwindled, and there was a huge spread in entrepreneurial activity (Ziegler, 2000), with many master craftsmen who were economically independent. With property no longer a privilege reserved for the aristocracy, the problems associated with the transfer of ownership and succession now applied in the same way to middle-class business enterprises. Clearly, no single appropriate solution to the problem of succession was found, and no ideal family strategy was identified, so the sheer range of solutions is hardly surprising. A common, but not exclusively used, system observed early on was the right of primogeniture with a focus on male descendants. However, a right of the most industrious is also to be found (Gestrich et al., 2003, p. 252), introducing the issue of selection and the criteria this involves. There are examples of arrangements whereby predecessors selected their successors (designation) and procedures by which electors chose their representative. All these systems were ultimately aimed at solving problems that can be regarded as issues of family strategy. In the Mediterranean region, as well as in Central and Western Europe, it is possible to “distinguish between two fundamental systems: the equal division of an inheritance among all children and the indivisible inheritance, which in the agricultural domain could mean the division of an estate or an indivisible (impartible) inheritance” (Gestrich et al., 2003, p. 394) with the following likely outcomes2: • Whenever the option of equal treatment for all descendants was chosen, the price to be paid for peace within the family, whereby nobody felt disadvantaged, was that the estates became increasingly small in size. In some cases, this meant that individual rooms in the small farmhouses had to be divided up by chalk lines or that plots of land were so small they were insufficient to feed families. “Where equal division of the inheritance was common, land ownership became increasingly fragmented and therefore led to antiquated forms of land tenure, in many cases resulting in indebtedness and the inability to keep up with the idea of private enterprise with its free market and monetary system” (Weber-Kellermann, 1981, p. 151). • Where a single heir was given preference, whether as the first-born (primogeniture or impartible inheritance) or—less commonly—the last-born (ultimogeniture), priority was attached to securing the unity of the property (usually land and houses). But here the family often broke up, either as a result of dispute or else because the impecunious siblings subsequently moved away or were marginalised. “This often involved injustice to the younger siblings, especially the sisters, who may have felt compelled to marry boys from the poorer tradesman class or even spent several years serving under their own siblings. The result was

2 Gestrich et al. also mention that actual local and regional practices were far more complex and did not necessarily adhere to these broad patterns.

1.2 The Business Family as an Object of Research

7

frequently significant social inequality within one and the same family” (op. cit., p. 151). • One particular form of aristocratic law of inheritance was the entailed estate, whereby the entire family estate—often very large in size—was declared to be indivisible. It was a form of trust model by which an estate was withdrawn from the existing inheritance laws and established as inalienable. One family member, usually the first-born, became the beneficiary and custodian of the estate during their lifetime. Seen as a way of securing obsolete aristocratic privileges, this particular arrangement was abolished in Germany in 1919 (Gestrich et al., 2003, p. 397). There have been frequent attempts throughout history to strike a balance that would do justice to all protagonists involved. In the German-speaking countries, the Hausordnungen or family contracts were especially important. These may be regarded as an early form of today’s family strategies, since they set out rules governing the line of succession, general legal succession and, in particular, issues concerning the inalienability or the division of property. The middle classes had an early tendency towards treating all children equally, especially in the larger European cities. At the same time, large private enterprises and banks in this milieu endeavoured to avoid any distribution of an estate so as to preserve the business as a whole (Gestrich et al., 2003, p. 397 f.). Concern about excessive fragmentation was especially relevant in farming. In southern Germany, for example, the practice of distributing estates led to the impoverishment of the rural population, increasing the pressure on the inhabitants to move away from their home territory and—on a more positive note—forcing them to engage in commercial activity. This brief historical survey, while far from complete, shows that the endeavour to combine the two principles that have defined our culture for thousands of years— kinship and private ownership—almost inevitably generates a conflict that is anything but trivial, posing an ongoing challenge to both society as a whole and the individuals concerned. The next section will take a more concrete look at modern family businesses and the question of what ownership of an enterprise means as far as a family is concerned.

1.2

The Business Family as an Object of Research

The economic importance of family businesses has been widely emphasised in both the literature and the press (for an overview, see Wimmer, 2009). Over 90% of businesses in Germany are controlled by a family (for details, see Stiftung Familienunternehmen, 2014; Kay, Suprinovic, Schlömer-Laufen, & Rauch, 2018), although it should be noted that the figures vary between 60% and 95%, since varying definitions are applied in different studies (Astrachan, Klein, & Smyrnios, 2002; Klein, 2004). Similar figures apply in many Western countries (e.g. for the USA, see Astrachan & Shanker, 2003; e.g. for Switzerland, see Fueglistaller &

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Family Strategy over Generations

Zellweger, 2007). With an estimated total of about 3.38 million family businesses in Germany (Kay et al., 2018), we are clearly talking about more than just a few negligible exceptions. If we then consider that many of the families behind a family business are organised as extended families, we begin to realise the sheer number of people affected by the specific issues that arise when a family is closely linked to a company in its immediate environment. Not only does the family have to organise its own relations; in many respects, its day-to-day existence is also closely linked to what happens in the business. There is considerable variety here, ranging from micro-enterprises and small-scale businesses, in which family and business life are barely distinguishable because all family members work in the business, through to large-scale corporations in which only individually selected family members—if any—are actively involved in running the business, or indeed the family is explicitly excluded from business operations. In the latter case, the family only influences proceedings from its majority shareholder position. There are also huge differences among business families from the point of view of size alone: from the family of four that runs a restaurant together or the small shareholder group with a holding interest in a large company through to cases of extended families of well over a hundred individuals (Klett, 2009) sharing ownership of a corporation worth billions. The “characteristic potential of chance and risk” (Wimmer, Domayer, Oswald, & Vater, 2005, p. 7) of business families has to do with the fact that these families are faced with particular challenges (see the next chapter for a definition) compared to non-business families (for the sake of simplicity, we shall refer to the latter as other families). Other families exist as self-contained entities. By contrast, the members of a business family are joint owners of a business (in whatever precise form or on whatever scale) and are, thus, permanently involved in three very different social systems: the family, the business and the group of owners (the three circle model is addressed in more detail and from a critical perspective in Sect. 3.2). This imposes communicative demands which can be described as paradoxical from the outset (cf. Groth & von Schlippe, 2012); in contrast to other families, the business family is constantly called upon to make economic decisions and requires some form of structure and organisation. As such, an external element is introduced to the family which is alien to other families. A family is normally a social unit that is not subject to any explicit organisation but centres around personal dialogue, relationships and ties. The family system is determined by kinship and emotional intimacy, while the business system tends to be dominated by rational criteria, although on closer inspection this is not always the case (as already discussed by March & Simon, 1958). The need to establish organisation-like structures, selection processes and voting procedures is often felt as a disruption to the family peace, provoking responses along the lines of “We don’t need things like that!”, “We never used to do things that way!” The question of how business families respond to these challenges is the starting point of this book. We were interested in discovering the various structures and regulatory systems used by these families to organise and administer themselves, learning about their experiences—both positive and negative—of the various solutions found to address insoluble problems and ascertaining how feasible these

1.2 The Business Family as an Object of Research

9

solutions were over time. Time is indeed an important factor here: one thing quickly becomes apparent when looking at families: they operate according to different time scales than the fast-moving organisations of the modern era. Nor is the time scale of a family the same as that of a human lifetime. Processes in families encompass generations, and it is sometimes not until decades have passed that a particular solution to a problem is revealed as having been a success or a failure, as illustrated by the following little case study. A company founded at the end of the nineteenth century was bequeathed in equal parts by the father to his three sons; the daughters received a monetary payment as was common practice at the time. The father also stipulated that the parts must remain a unified whole in terms of voting rights and that the clans thereby established were each to be represented by one managing director in the company. This arrangement, which from today’s perspective reflects a “family first” approach, ensured that family relations remained relatively harmonious. In fact, the plan was executed fairly smoothly over several decades: within each of the three sons’ families, there was one son who carried on business operations in collaboration with his cousins. It was not until the transition from the grandchildren’s to the greatgrandchildren’s generation that the weaknesses of the model were revealed. At this point, representatives of both the third and the fourth generations were simultaneously involved in the company, and, although their ideas as to how the company was to be managed diverged starkly, no action was taken to buy in external expertise and the highly divergent business philosophies were not discussed. As one of the individuals involved reported when interviewed, “It was swept under the carpet. People just ignored it—the attitude was: ‘Where problems aren’t wanted, they simply don’t exist’”. At one fateful meeting between the cousins and uncles, everyone realised far too late that their fairly large-sized company was in fact dramatically at risk, and this later resulted in insolvency (Rüsen & von Schlippe, 2007, p. 368 f.). Only with the hindsight of several decades was it possible to see the weaknesses in how the family had managed the “family/business fairness paradox” (which will be discussed in the course of this book), and this was why it ultimately failed to secure the family’s decision-making capacity in the long term: “None of us was really in charge” (p. 373).

This case story is a good example of how a business family is continuously faced with a multiple mandate: it has to organise its interaction as a family or family alliance and run a business enterprise—whether in person through individual members involved in business operations, strategically by taking far-reaching leadership and management decisions, or on a controlling basis through supervisory and advisory functions. While each of these tasks on its own is challenging enough, in addition, all decisions must adhere to corporate law and procedural rules which, in itself, places constraints on the capacity to switch between formal and informal communication (Waibel, 2016). Moreover, it is not uncommon for individual family members to receive special attention, following the family logic, especially if they are in need, and, finally, decisions frequently have to consider the usually close connection with the region or more general social concerns. The art of family governance—a core element of which is the establishment of a family strategy and the resulting practice of family management—is to tackle the challenges involved in ensuring that the family and the business enterprise remain reliable partners to each other over generations (Aronoff, Astrachan, & Ward, 1998;

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Koeberle-Schmid & Caspersz, 2013; Mustakallio, Autio, & Zahra, 2002; Suess, 2014). In essence, the primary requirement of family management boils down to securing the solidarity of the family on the one hand and ensuring the capacity for entrepreneurial decision-making on the other (Wimmer, 2014). For this purpose, competences and structures are needed which help ensure that family cohesion is preserved and that decision-making capacity is retained despite growing numbers— this may apply when making selection decisions between family members, for example. In summary, the business family is to be regarded as a unique family type. To be successful in the long term, business families have to align their selfcharacterisation, their philosophy and their decision-making structures to this specific set of requirements: “Anyone who believes such a family is quite normal with just the ‘small’ difference that they jointly own a business will miss out on the opportunities available to strengthen the family as a result of its situation [. . .] while at the same time fail to recognize the risks associated with its status” (von Schlippe, Groth, & Plate, 2011, p. 523).

1.3

Defining Terms

This section looks at the fundamental terms to be used in our study of family strategy and business families across the generations. First of all, we will explain how we understand the terms underlying this study, and then we will go on to outline the state of knowledge and research context on which these understandings are based.

1.3.1

Family Businesses and Business Families

To this day, no standard definition of a family business exists, nor is there a standard definition of a business family (Kleve, 2020; Kleve & Köllner, 2019; Litz, 1995, 2008). Some definitions, for example, require not just ownership but also active involvement of the family in the operational management of a business for it to be described as a family business. Others regard a share of at least 51% as the decisive factor. It is also possible to regard the question “Family business or not?” less as an either-or question but rather as a question of determining the degree of the “family nature” of a business enterprise (for more detail on this, see, e.g. Astrachan et al., 2002; Klein, 2004; Wimmer et al., 2005; Zellweger, 2017). The inconsistencies among these definitions pose a major problem for research (Harms, 2014), especially in terms of the comparability of studies, since the findings can sometimes convert the definition into its very opposite (Hack, 2009). This is not a dilemma we will be able to resolve here. In this book, we follow the definition of Wimmer et al. (2005), which takes as its point of departure the influence exerted by the family on a business, based on its ownership (p. 6 f.). This is a deliberately broad-based definition that encompasses a wide range of possibilities as to how each family is linked to its business, regardless of the latter’s size: the influence of the owner family can be felt through active operational involvement

1.3 Defining Terms

11

at diverse points in the business as well as through active participation in a monitoring or supervisory body. We talk of a family business when the business in question is partially or wholly owned by one or more families or family associations. The latter exerts a defining influence on the development of the business, based on its entrepreneurial responsibility via either a management or a supervisory function or both. If the family is not represented on the management, it sees itself as a partner to the business, in particular in the development of entrepreneurial strategy. The legal status and size of the business are irrelevant to this definition, so a family business is not equated with an SME (micro, small and medium-sized companies), but the transgenerational element is crucial (Basco, Calabrò, & Campopiano, 2019; Suess-Reyes, 2017). A business is a family business if there is discernible will to pass on the enterprise in whatever form (whether in concentrated or split ownership or through management) to the next generation. Start-ups or owner-managed companies are therefore not family businesses per se. We talk of a business family where there is a definable group of people with distinct membership criteria who are related to each other (going back to an original couple, usually the founders of the business, who thereby determine the boundaries of the family) and where the development of this group of people is shaped by a business enterprise owned by one or more family members (Kleve, 2019; Kleve & Köllner, 2019). This group does not necessarily have to live under one roof but is defined by the fact that all members are descendants of the original couple. The question as to how ownership is passed on within the family group is an issue that occupies the family. The type of solution reached (the clan alliance, so-called “crown prince” arrangement or extended family organisation) is of less importance, as long as there is a discernible will to transfer ownership to the next generation, in whatever form, whether through concentrated or split ownership or through management. In the following, we shall also deliberately use the term business family when it comes to issues usually decided on and assessed by the shareholders or the shareholder group of a business enterprise. The aim here is to show clearly that the individuals involved are not simply shareholders or managers, investors or owners but that, as a result of mutual ties of kinship, they share—and to some extent endure—additional social dealings with one another. To put it in the words of one participant in a real-life case study: “When I married him, as he was a shareholder of company XYZ, I realised at the time that, one way or another, I had in fact married the entire business family. All close and not-so-close relatives have their own particular role to play within the family or business milieu. So, we had significantly more guests at our wedding than originally planned, for instance”.

1.3.2

Family Business Governance and Family Governance

The terms discussed here, like many others, have a shared but approximate understanding among the general public. There is no standard definition of governance, for example, although it is generally understood to refer to the principles of responsible

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management. The term is, of course, used in different ways in political and economic contexts, as well as in different disciplines, and we do not need to concern ourselves with the details here (Benz & Dose, 2010). At a general level, it concerns the control of complex systems, while in the economic context, it refers to the management of an organisation: corporate governance or business governance (Horváth, 2015). In recent years, following the seminal work of Carlock and Ward (2001), the term family business governance—or family governance—has entered the debate (Chrisman, Chua, Le Breton-Miller, Miller, & Steier, 2018; Hack & Meyer, 2012; Koeberle-Schmid & Caspersz, 2013; Koeberle-Schmid, Fahrion, & Witt, 2012; Mustakallio et al., 2002; Suess, 2014), referring to equal attention being paid to managing family and business affairs (on this point, see also the last chapter in this book).3 Within family business governance, family governance and business governance are two distinct areas, with family governance focussed on laying down rules for the family and its dealings with the business. The family council, shareholders’ committee and the family office are regarded as the main bodies here, while conflict management, family activities, shareholder competence development and social responsibility are the main instruments (Koeberle-Schmid et al., 2012, p. 37 ff.). We shall discuss these various aspects in the course of the book, in particular in the last chapter.

1.3.3

Family Strategy

For some time now, the term family strategy has appeared in the context discussed above (Baus, 2009, 2013; Carlock & Ward, 2001; Plate, Groth, Ackermann, & von Schlippe, 2011) although the term “owner strategy” is also used in this connection (May, 2017). In German-speaking countries, family strategy is regarded as a key component of family business governance or family governance, although, interestingly, the term has not been adopted in the same way in the English-speaking world. As with the notion of strategy in a business context, family strategy is used to refer to the development of a medium- to long-term vision of the future. Here the family takes a critical look at its self-perception as a family and examines to what extent it is able and willing to retain the business as a resource in the long term. It is crucial to bear in mind at all times that a family business enterprise is a complex construction of three distinct social systems, each with its own very different communicative logic (we discuss this in detail in Sect. 3.2). Circumstances look very different from the various perspectives of family, business and ownership, and a balance has to be continuously struck between the resulting paradoxes. One of the key purposes of family strategy—especially when everything seems to be running smoothly—is to 3 The German “Family Business Governance Code” was drawn up in 2010 and revised in 2015 (the next revision is due in 2020). It sets out the topics to be clarified within the context of this type of family organisation, though without specifying any “correct” answers (http://www.kodex-fuerfamilienunternehmen.de/images/Downloads/Kodex_englisch_2015.pdf, accessed 18 May, 2020).

1.3 Defining Terms

13

identify the potential future risks. Two points of focus are required here, both factually and socially speaking: firstly, consideration needs to be given to the family as a whole, for instance, by those responsible for doing just this (often the family CEO or the internal family chairperson of the advisory council or family council); secondly, the individuals concerned and their specific needs must be taken into account. This requires opportunities for communication to exist and be used in such a way that the interests of all individual family members are presented and considered. The issues at stake are the same in both cases: “What holds us together? Where do we want to go? What roles are to be assigned to whom in the process?” (Baus, 2013, p. 21), as well as the question “What will happen if ‘nothing’ happens?” (cf. Chap. 2 “Riding a ghost train: What happens if ‘nothing’ happens?”). In other words, what will the outcome be if we, as a family, continue in the same way without assessing the potential risks? This involves finding concrete answers to questions that will determine how the relationship between the family and the business develops in future. Management in business families has to be capable of pursuing a twin-track approach in terms of both thought and action, i.e. it must be able not only to manage and strategically guide the business but also to provide appropriate management and strategic guidance for the family. Cases of neglect can frequently be observed, especially on the family side, and may not involve any perceptible negative effects for a long time—family members are often patient and forgiving. Failure to take action can, however, have critical or even existence-threatening consequences: • If shareholders gradually lose their sense of identification with the company over the years, this can ultimately lead to disinterest. Disintegration into individual investor interests is reflected in a purely investor mentality, i.e. a mindset focussed solely on maximising profit, which cannot usually be reversed (Simon, Wimmer, & Groth, 2005). • Deep personal disappointment at a lack of appreciation for an individual’s loyalty and commitment to the business can lead to a lasting sense of bitterness and betrayal. This goes hand in hand with a loss of the sense of family. Such individuals may adopt apparently irrational behaviour in an attempt to redress the betrayal suffered. Such actions are not uncommonly linked to the business experiencing an existential crisis (Rüsen, 2008). • Feelings of indignation at a sense of having been treated unfairly, or of someone else having been favoured, can be expressed through hardened sibling conflicts or other disputes, which are often very difficult to resolve due to their long history and the deep-seated emotions associated with them (Kellermanns & von Schlippe, 2012; von Schlippe, 2014); von Schlippe (op. cit., p. 124) tells of two estranged brothers. When one is told that, if he continues to act in the same way, he will contribute to the downfall of the company, he replies, “So what? Then at least we will have justice for all!” To him, seeking to satisfy some abstract notion of “justice” was evidently worth any sacrifice (cf. Chap. 6). • In large families, individual interests may predominate where greater priority is attached to nuclear family structures than to the cohesion of the whole. If mutual

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Family Strategy over Generations

Fig. 1.1 Development risks of the three systems (from: Simon et al., 2005, p. 20)

perceptions among the various family branches or clans are coloured by envy and jealousy of the group perceived as favoured or greedy, rifts can form that eventually take on the proportions of “family wars” (Gordon & Nicholson, 2008). Figure 1.1 shows the development issues and risks in a family business. Avoidance of the six risks shown in Fig. 1.1 can provide a sound initial rationale and orientation for developing a family strategy.

1.3.4

Family Constitution

We define a family constitution as the legally non-binding document issued by a business family in which it sets out the main principles of its approach in relation to both the family and the business (Kirchdörfer & Lorz, 2011; Kormann, 2011; Lange, 2009). In addition to values, these guiding principles may also contain concrete definitions, requirements, expectations, procedures and descriptions of processes, as determined by the business family. In practice, such documents are also referred as a family charter, code, statutes, mission statement, etc. Members of a business family will often sign the charter together to indicate their acceptance of the document and their intention to adhere to its content.

1.3.5

Family Management and Family Compliance

Family management can be described as the concrete implementation of family strategy considerations in the form of actions and measures applied in day-to-day practice (von Schlippe et al., 2011; Wiechers, 2005). Again, it is no surprise to learn that this term is far from precise in its definition, with the terms “family strategy” and “family management” often used interchangeably. It is certainly useful, however, to differentiate between the two, to distinguish between the two complementary tasks

1.3 Defining Terms

15

involved in a business family’s management: in addition to formulating a strategy, the aim is to achieve ongoing development, self-managing the various changes and steps required. Formulating a strategy is only half the job, and possibly the simpler half. When working with families and family members, the devil is indeed in the detail, and an instinct for communication and handling individual sensitivities is essential. Even the best ideas on succession, pay-outs, appointments, etc. can be ruined through management errors made in the process of generating ideas, communicating the outcomes of discussions or implementing actions. An important aspect of family management is expressed by the term family compliance. Derived from the meaning of the term in its business context, this refers to the willingness of the business family to adhere to the voluntary code it has laid down for itself, often in the form of a written family constitution or family charter (see Sect. 9.2 on the problems of the legally binding nature of such documents).

1.3.6

Shareholder Competence

The term shareholder competence has started to appear more frequently in recent times, which may well be directly linked to a decline in patriarchal forms of management (we examine this in detail in Sect. 7.2). As the shareholder group expands, and the concentration of decision-making power in the hands of one individual lessens, there is an increasing need for shareholders who are capable of acting as knowledgeable dialogue partners with the business (see, e.g. Groth & von Schlippe, 2011; Horváth, Kirchdörfer, & von Schlippe, 2015; Rüsen, von Schlippe, & Groth, 2014). A WIFU study on this subject showed that it has, so far, been relatively rare for German business families to adopt specific measures to develop shareholder skills and capabilities (Vöpel, Rüsen, Calabró, & Müller, 2013). Shareholder competence covers the full range of skills required in the existing and potential shareholders of a family business in order that they can successfully perform their ownership function as well as exercise their rights and obligations within the shareholder family. It also includes the ability to manage successfully unfamiliar situations in the business and the shareholder family. The development of shareholder competence thus refers to all measures that members of a business family may implement to secure training and development in the skills and experience that will help them perform their role as shareholders of the joint family business. Our definition also includes members of the shareholder family who do not yet hold shares in the family business or who perform key child-raising or educational duties (Rüsen et al., 2014, p. 102). A study that has come out recently coins the term ownership competence which we see quite close to our understanding of shareholder competence (Foss, Klein, Lien, Zellweger, & Zenger, 2020). They describe three aspects of ownership competence: (1) matching competence (what to own); (2) governance competence (how to own); and (3) timing competence (when to own). The importance of having a competent group of shareholders is clear to see. Depending on the chosen governance structure, and the shareholder family members

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integrated within it, the family will potentially be involved in all key decisions affecting the business, in the following ways: • By active determination: business strategy objectives are dictated by the family to the management. • By active consent: the family is able to follow decisions made by management, critically question them and vote on the relevant submissions. These functions will, of course, be performed very differently from one family to the next. If they are ignored, however, the future sustainability of the company is likely to be at risk. Giving ongoing consideration to shareholder competence is probably one of the key success factors in multi-generational family businesses. Irrespective of the size and complexity of both the family and the business, it is helpful to have a sufficient number of competent shareholder family members available to guide the business, for example, by becoming involved in dialogue with management regarding strategic issues. A precise knowledge of what strategy entails is required for such dialogue to be more than simply a generalised interference in operational matters (Kormann, 2015). The issues that arise may vary considerably between, for example, a family business in which management has been taken over by one or more active shareholders from different generations and a management comprised entirely of individuals who are external to the family. While, in the former instance, an excessively large competence gap between active and non-active shareholders might lead to problems, the latter case would presumably permanently exclude the possibility of family shareholders taking on active management responsibilities if they lack the necessary skills. In this latter instance, if the family is unable to develop individuals capable of representing it on supervisory bodies, it faces a substantial risk of ultimately falling completely under external control, thus failing adequately to perform its role as a responsible owner.

1.4

Longevity as a Subject of Research

1.4.1

Previous WIFU Projects

Following the basic outline provided above, it makes sense to examine the question of how families tackle the impossible task of balancing family, business and ownership issues on a long-term basis. The family and the business undergo a process of co-evolution which results in them exerting a mutual influence on each other (Simon et al., 2005; Wimmer et al., 2005); as the family becomes a bit more like a business, the business becomes a bit more like a family. The question of how management handles the inevitable crises that occur in the course of this co-evolution over many decades is critical. What are the secrets of business success in enterprises that have survived over prolonged periods of time? Why have they been able to survive, despite failure being the more likely outcome? How do they

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develop such an astounding capacity for resilience, often referred to as organisational resilience and frequently observed in family businesses (for a detailed examination of this aspect, see Wimmer, 2013a, 2013b)? Conflict ought to be the “expected norm” in business families. Of course, conflict does indeed occur in many business families, but there are also numerous instances in which the complexity and contradictions of the challenges involved are handled surprisingly well. We therefore see the issue of scientific interest here as being the following: how do families, or associations of families, succeed not just in achieving economic success but also in providing their members with a meaningful and satisfying framework in which they regard their fundamental need to belong as being fulfilled (Baumeister & Leary, 1995)? Prolonged survival over more than four generations is highly unlikely, and this applies equally to non-family businesses, so the secret of success is clearly related to the way the “family effect” is handled (Dyer, 2003): something which apparently enables the precarious link between family and business to consolidate into a powerful alliance, stabilising both systems to an equal extent. These issues, the “secrets of longevity”, have occupied the Witten Institute for Family Business (WIFU—www.wifu.de) at the University of Witten/Herdecke ever since it was founded in 1998: • The project “Success patterns of multi-generational family businesses” (Simon et al., 2005) sought to discover how the participating businesses succeeded in balancing specific paradoxes. The authors’ conclusion was that the family businesses under investigation (all of them at least in the fourth generation) presented a form of counter-model to the “fast-moving logic of the shareholder value approach” (Wimmer, 2002) in that family businesses succeed in converting the link between family and business into a competitive advantage by “conveying values that go beyond the expectation or promise of financial profit, providing a sense of higher purpose for the business enterprise” (p. 249). • The project “Large German family businesses” looked at 50 of the biggest family businesses in Germany still in existence after at least a hundred years. Detailed portraits were drawn up describing the companies, as well as depicting the family background in each case and the way in which each family had organised itself (Plate et al., 2011). • Closely related to these issues, a project run by a group under Alberto Gimeno of the ESADE Business School in Barcelona, a visiting professor at WIFU, looked at the question of the mental model (or inner roadmap) used by a family, examining the fundamentals of good management on which the relationship between the family and the business is based in each case. Here, enormous differences are revealed between different companies, and, even within one family, there may be a struggle between models to become established as the central orientation (Gimeno, Baulenas, & Coma-Cros, 2010; Rüsen, von Schlippe, & Gimeno, 2012). The concept of mental models is addressed in detail in Chap. 7.

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Family Strategy over Generations

Family Strategy Across the Generations: The FüG Project

The research question The FüG project (Familienstrategien über Generationen—family strategies across the generations), explored in more detail in this book, is based on the projects mentioned above and their outcomes (Groth & von Schlippe, 2012). However, the research focus in this case has shifted to concrete issues of how business families are managed. The central question is how the various, and largely contradictory, expectations in the contexts of “family”, “business” and “shareholder group” are brought together in such a way as to maintain both the identity of the family (or extended family) and its entrepreneurial decision-making capacity. We were interested in the specific family strategies applied over decades by the business families concerned in tackling this challenge and what conclusions might be drawn from the solutions reached, in terms of the perceptions of the various problems at the time they arose. "

Research Question

Our research question was therefore the following: “How do business families apply family strategy to establish a sense of purpose that survives for generations, in spite of growing complexity in the family, in the shareholder group and in the environment, thereby ensuring a capacity to communicate, act and make decisions?”

Design and Sampling The design of our study follows the logic of systemic action research (Burns, 2007; Moser & Ornauer, 1978). As such, the project continues the tradition of previous WIFU projects in that research questions are addressed in close partnership with the family businesses involved. This approach has now proved its effectiveness for over 20 years. We aim to work with business families on our research without referring to the formalistic principles of a supposedly neutral scientific perspective looking in from the outside. Only when a sense of trust has built up over time between all those involved—researchers and family representatives alike—is a “family-like” framework created in which sensitive family issues can be discussed in a way that would never be possible using a questionnaire. Our aim is to overcome the academic– practitioner gap, increasing relevance while maintaining rigour (see, e.g. Birnik & Bilsberry, 2008). We were fully aware that the object of our research would change over time. Our aim was and is to develop joint contexts of understanding, not an objective quasiphotographic cross-section that depicts all businesses under exactly the same conditions. The design of the project and research was explorative in character, with the aim of developing a systems theory of family businesses and business families. A further goal was to facilitate learning processes, not just among the researchers but, in particular, among those being researched. For this purpose, we chose a combination of guideline-supported, semi-narrative interviews and

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workshops. The interviews were conducted prior to the workshops at which the respective company was presented, and involved two stakeholders responsible for family strategy, focussing on the strategies that the business family had developed over time. The joint workshops held with the whole group each lasted 1.5 days and provided a major focal point. At these events, each representative presented their company to the others, outlining their specific family strategies and subsequently engaging in discussion. While the presentation was usually given by the person responsible for family management (e.g. the chairperson of the family council), sometimes there were two speakers. This created a distinctive learning environment for all those involved: while the company representatives were mainly focussed on an exchange with their peers, the researchers gained deep insights into the wide range of practices applied in the management and organisation of a business family. These insights and ideas were then passed back to the company representatives: (a) Critical discussion of the presentations took place immediately after the presentations in “Reflecting Teams” involving the researchers and two to three entrepreneurs from the group. Taken from systemic consultancy practice (Andersen, 1991; Hargens & von Schlippe, 2002), this method focusses discussion on a small study group that conducts its debate according to certain rules and is observed by the others in the process. This creates second-order constructions in the manner of reconstructive social research (Bohnsack, 2000), allowing everyone involved to reflect critically yet without pressure on the solutions reached (Alvesson & Sköldberg, 2018). In this way, the project was conceived as a joint learning journey: there were no research objects, only subjects. As is the case with action research, the process we used was not limited to participatory observation. As second-order observers, the team of researchers examined the distinctions according to which the business families operated. An added benefit of this approach lies in the fact that supposedly self-evident facts of which the protagonists themselves (i.e. the business families) are not particularly aware are illuminated in such a way as to be seen as products of decisions that could also have led to a different outcome. Many family strategies have emerged over a long period of time rather than being the result of deliberate decisions; this might include rules governing the transfer of company shares, participation of family members in corporate development or principles regarding the appropriation of earnings. The businesses involved, thus, not only supplied research material, but the reflection space also gave them the option to consider and question their own practices. (b) The interviews and group sessions were subjected to microanalysis at WIFU and then discussed with a view to theory construction and development. Our conclusions are summarised in the middle section of this book: the two chapters on the Witten theories of the “impossible constellation” and the “duplicated family” present the theoretical results of the study, while the subsequent chapters on the core issues of family strategy constitute the empirical outcome. The results of the study emerged gradually and were presented to the

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participating businesses at several stages during the course of the project. In a number of instances, experience gained from other projects and consultancy work was also fed into the analysis. (c) A number of meetings during the workshops were reserved for feedback on the progress we were making in our study. The outcomes of WIFU team discussions were presented during part of a session and discussed with all those involved. These sessions each focussed on one of the various specific thematic complexes (“paradoxes”, “controversial issues”, “family compliance”, etc.). On the one hand, the aim was to hold up a mirror to the businesses involved, as if to say, “This is how we saw you in the light of our theories!” At the same time, it provided an opportunity to reflect critically on the results and discuss them: “Yes, we do or no, we don’t recognize ourselves in the mirror that you provided!” Sampling—i.e. the compilation of the units to be investigated—is a key element of a qualitative study (Lamnek, 2005). It was important that we found an appropriate number of family businesses that exhibited a degree of complexity in terms of business and family size that would require systematic family management. We also wanted the businesses to have been maintained over at least four generations as we were interested in identifying what past experience had informed current family strategies. A further aim was to ensure that different mental models (see Chap. 7 for details) were represented, i.e. companies that were run according to patriarchal logic or inheritance by a single successor, as well as those guided by the logic of the operationally active business family or where the family regarded themselves as active owners or an “investment family”. This focus limited the number of eligible research partners. In order to compile our sample, we contacted a number of potential companies. We were particularly concerned not to limit ourselves to companies with whom WIFU had been collaboratively associated for some time; the aim was to reach out beyond this group as well. The participating companies comprise a group of long-established and, to some extent, very heterogeneous family businesses. Since the prerequisite for participation in the project was for the owner family to be in at least its fourth generation, the sample consisted primarily of companies that originally date back to the nineteenth century. The most recently founded company was established in the 1930s (though there had been a number of smaller predecessor companies in this case), while the oldest was founded towards the end of the seventeenth century. As a result, our group of participants included representatives of the fourth generation as well as combinations in which the 13th generation was involved or exercised entrepreneurial responsibility. The companies differed considerably in terms of the numbers of shareholders. In one case, the shareholder group consisted of 4 members of the shareholder family, while several participants belonged to shareholder groups numbering 50 to 100 members or even 150 to 350 members. In one case, the shareholder group comprised nearly 700 descendants of the original company founder. In terms of the mental models mentioned (see Chap. 7), the sample contained all four basic typologies: the models “Patriarchal Logic” and “Investor Family” were represented

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Table 1.1 Overview of the sample of 11 companies that participated Turnover Generation Shareholders Employees

>10 billion 5 3–4 1