Family business: 10 commandments for long-term survival

The odds are stacked against family businesses. Here’s how to ensure yours will last for generations.

Take the example set by Vito Corleone in The Godfather, and appoint a consigliere.

Think about this. Right now about 40 per cent of all family businesses are facing succession issues, half of all family businesses will fail going through that process and — in a new trend — family businesses are increasingly run by siblings.

On top of that, while there is some truth in family businesses only lasting three generations, some have lasted more than 1500 years.

But, in good or bad news, depending on your family, as guru John Grant says, “the most critical issues facing business-owning families are family-based issues more than they are business-based issues”.

So here are my Ten Commandments of family businesses.

Don’t get your meat where you get your bread: With a $170 billion market cap, Volkswagen is a reasonably sized family company but the battles between majority shareholders, the Porsche and Piech families, make the automotive giant look like the Beverley Hillbillies. Basically, the two families are both direct descendants of founder Ferry Porsche but the Porsche side stayed at the sports car company and the Piechs went to VW. Things got really bad when Ferdinand Piech had an affair and two children with Marlene Porsche, wife of Gerd Porsche. Earlier this year Piech got the flick as chairman of VW and Wolfgang Porsche and his family look like the winners. This time.

Strategic investments: If someone comes to you seeking to make a strategic investment, substitute the word stupid for strategic and you will be fine. David Crane, the boss of NRG Energy, doesn’t run a family company but he’s right about this.

Appoint a consigliere: When Vito Corleone hit the big time, the first thing he did was to hire Genco Abbandando to help run the family business. Almost every successful family operation has a “consigliere” — an outsider who shuns publicity — to keep things on the straight and narrow. Sydney lawyer John Churchill plays that role in some of Australia’s biggest family outfits.

Pay your taxes: Paying tax always sucks — especially when you are starting out. Neither political party “gets” small business. Both make laws that suit big companies and penalise the rest of us. But that’s no reason to deprive the fiscal fiend of his tribute. The bottom line is, if you don’t pay, he’ll find you and put you out of business before you can think about handing over to the next generation.

Make some of your non-family people senior executives and give them some skin in the game: Your relatives aren’t always the sharpest tools in the box. Have an independent board of directors. Be in hotels, booze, food ingredients, sweets, Japan, Italy or Germany if you want your company to be around for the next 1000 years.

Commit to being a family-owned business for generations to come: Longevity rules.

Have lots of adult conversations: The most important conversations are the ones you don’t have. Communication is one of the biggest problems in families and family companies. It’s hard to have adult conversations about the really important but sensitive issues, so most things go unsaid.

The customer is God: In most western countries the customer is meant to be king or queen and at the centre of all we do. However, in Japan, the country with the longest lasting family businesses, the mantra is Okyakusama wa kamisama. The customer is God.

Have a happy family: Dysfunctional families equal dysfunctional businesses. As we saw, the odds are against family businesses. You need to take a long-term view, take succession seriously, and call all-in family meetings.