Family Businesses: In the World but not of It

November 10, 2004 | 19 comments
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What is the well-dressed office worker reading on the evening train this season? The Economist.
The Economist? Yes. An article on family businesses.

The article reported that in Europe and the Anglosphere over 90% of businesses are family owned. Even large public corporations can have strong family ties: Coca-Cola, Nordstrom’s, WalMart, and Disney all come to mind. But the typical family business is a small to mid-sized operation.

Most of the families want to keep their business in the family. A J.P. Morgan survey of second generation family firms found that 52% planned to be family-owned and operated into the next generation. A further 26% expected to at least maintain family ownership. But experts say that only a third of these businesses survive the change in generations. Perhaps as few as 5% of these firms are going concerns in the third generation. Those that do survive have usually created a clear process for governance in which boards containing some outsiders meet frequently and in which the family members themselves meet several times a year to reach a rough consensus on the firm’s direction.

Some time ago in an idle hour I picked up a fifty-cent book from a library sale. I don’t remember why. Maybe the title gripped me. It must have been the title, because the book was a social scientist’s anthropological account of a Mexican business clan and the rest of the writing was no better than one would expect. I devoured the thing, though. Hidden in all the jargon was something inexplicable, a desire, a dream, a vision, or in C.S. Lewis terms, a surprise of joy. I might call it the Spirit. In any case, there was something fine in this family. They squabbled often and went bankrupt more than once. They also put together some real and valuable businesses, provided work for any family members who were able, and knew intimately the story of their family and the situation of its current members. They gave up some extremely valuable buyouts and opportunities to go public in order to keep their businesses in the family. I admired them. I wished that I could meet them on some field where my salute would do them honor.

Back home a family further down the highway owns a business. They rent out light and heavy machinery. My brother works for them over the summers and on the weekends. So do others in the ward. So do their sons and daughters and sons-in-law. They are in many ways the emotional core of the ward, along with the extended family that does heating and air-conditioning. I admire those two families too.

Some of our Mormon family businesses are more prominent. The Marriots are in their second generation. The Huntsmans are still in their first. I believe Mitt Romney’s venture capital business is actually the modern iteration of a family concern. Further back in time we had the Browning family. I don’t think any Saints see these real-life families as a model of anything in particular though, nor do the Saints see a family business of any size as an ideal.

I wonder why not. Family business seems to help fill in the gap between virtue and the workplace. Not that the workplace is devoid of virtues nor that the pursuit of profit is wrong. This is going to sound like an anti-capitalist screed but it’s not. It’s just that the corporate employees of non-family firms, like lawyers, are agents, and have the difficult task of reconciling their desire to do good with their duties to their principals. This problem is even worse in large public firms where the principals are faceless stockholders whose only known characteristic is that they like profits. (The frequent attempts to explain why this or that socially conscious policy makes for good business are usually, in my opinion, just as frequently figleafs for managers blowing off their stockholders in pursuit of their own ends).

In the family concern, on the other hand, the owners and the operators are conjoined enough that they can seek for the good of the whole person, not just the bottom line. More importantly, the thin business relationships are threaded into thicker personal relationships, potentially strengthening both. Profits aren’t just profits, they’re the fruit of joint family work.

Having an enterprise gives a kind of coherence to the family structure too. It takes all the potential in families for cooperation and service and demands its actuality. (Which is why, incidentally, I think Mormon novelists are missing a beat if they focus on standard-grade families where the dad works at one thing, the mom at something else or at the home, the kids have parttime jobs while they save for college and their own careers somewhere else, etc. Putting all the family into a business gives a lot more possible structure and physical consequences to their interactions. Plus, you still get issues of authority and inspiration and the individual versus the group and family troubles and all that but far enough removed from a Church setting that they’re a little less touchy to handle.)

Owned and operated family businesses, it seems to me, can also avoid the worst problems of inherited wealth. Inherited wealth is a stewarship, sure, but it tends to get frivoled away because the stewardship is to no one in particular. In a family business one’s stewardship has a face. It is to the other members of the family who depend on the enterprise, to the future members who will inherit it, and it is to the previous generation who expect it to be kept up.

I am glad that we Mormons turn the hearts of the children to their fathers through genealogy work and storytelling. I’m glad we institutionalize that turning through temple work and family organizations. Family websites and family reunion groups also keep the flame alive. I just wish—I have wished for a long time—that the workplace and career could involve family too. What joy is there in growing up and moving away? Let us stay and enterprise together.

I’m glad my brothers have chosen to be engineers in my father’s footsteps. I look forward next year to moving home to Albuquerque. My father has finally converted part of the pasture to fruit trees like we’ve talked about. We’ll find a place close by, my wife and I, and go over in the evenings to prune and pick and can and work together.

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19 Responses to Family Businesses: In the World but not of It

  1. Times and Seasons » Mormons and the professions on January 14, 2005 at 8:28 pm

    [...] hts From A Professional Sabbath Breaker, and A Mormon Among the Yuppies; Adam Greenwood on Family Businesses: In the World but not of It; and Greg Call on Can a Good Mormon be a Meritoc [...]

  2. Nicole on November 10, 2004 at 5:12 am

    I completely agree that working together on common projects is a great way to promote family unity and togetherness.

    But I’ve always wondered about people who run family businesses and groom their children to follow in their footsteps. What are the chances that a particular child would really choose to do exactly what its parents are doing? Is it fair to a child to teach it from a young age that it has a responsibility to someday take over the business that mom and dad have sacrificed so much to build? Maybe the child would rather be a doctor or a lawyer or a car mechanic. I’ve felt this pressure to a small degree from someone in my own extended family and I found it astonishing that this person would seriously suggest that I ought to drop out of graduate school to come back to the town where I grew up and run a small retail business. He got angry when I told him that running a small business wasn’t my thing (I’m really not good at selling things or getting other people to do things) and accused me of being just like another family member who “doesn’t want to be involved.�

    Interestingly, I recall reading an article in the last couple of years (I tried to find a link, but failed) about first generation Korean immigrants in the San Francisco Bay Area who start businesses to support their families, but hope to make enough to send their children to college to get professional degrees so that they won’t have to do the arduous work involved in running a small business – they want them to be doctors, lawyers, and accountants – and would be very disappointed if they ended up having to take over the business.

    I suppose the important thing to keep in mind is that the business is for the family and not vice versa.

  3. Russell Arben Fox on November 10, 2004 at 8:41 am

    “This is going to sound like an anti-capitalist screed but its not.”

    What’s wrong with anti-capitalist screeds? I’ve been writing them all week.

    As is so often the case Adam, our basic sympathies (if not our resulting politics) are in alignment. Your post inspires me, and reminds me: I’ve long intended to write something about my father and his continuing attempt to ground the family businesses (which employ five of my six brothers and one of my brothers-in-law) on the principles of stewardship and the United Order. There have been both successes and failures along the way, which deserve some lengthy exploration. But first, one comment.

    Probably the central tension between “family” and “business” is the pervasive entrepreneurial ethos, the idea that going it business is about making something for yourself that wasn’t there before, exploiting a niche market, discovering an angle and benefitting from it. Not that all business isn’t about profit; of course it is. But not all profits are obtained through materially similar processes: some involve reaching out and experimenting with and conquering new financial territories, whereas others involve preserving and refining existing needs and resources. The latter are more subject to a common discipline and mutual goals, I think, simply because the work itself is more constrained. Hence the most successful family enterprises, in my experience, are farms and other more “grounded” endeavors: restaurants, hotels, repair shops, machinery work, etc. Part of the problem with the Fox family business is that it’s really just about money management, about buying and selling things (or convincing banks to do so); it is fluid enough there always seems to be some new option to explore, which leads to chafing and resentment at my father’s attempt to keep things on a collective basis.

    In other words, assuming one finds some value and truth in what Adam says (as I do), that consistutes an additional reason to prefer economic arrangements which are more static, more centered on local priorities and forms of life, and less subject to being absorbed by high-risk, high-profit financial wrangling.

  4. Rusty on November 10, 2004 at 11:55 am

    Russell,

    Having been privy to more than one discussion regarding your family’s business, I presume one of the “failures” you speak of might be the inevitable chafing from those who marry into the family business. It’s one thing to work for your dad along with your brothers, but it’s another to be the female who marries into that situation (along with it’s familial baggage). Nevertheless, most of what I hear seems to be positive. I’m waiting in anticipation for your post on the subject.

  5. Ryan Bell on November 10, 2004 at 12:15 pm

    Russell, from this and other posts and comments, I infer that your dad is an interesting fellow. Please do post on him and his family-business and other experiences.

  6. Davis Bell on November 10, 2004 at 1:03 pm

    Adam,

    Great post. One of my fonder wishes is to own and operate a business with my father and at least some of my brothers. I’m not sure if that will happen, but I’d like it to (if for no other reason than to offer my lawyer-brother an escape from the dreariness of being a contract monkey). However, I’ve wondered what problems and contentions would arise between us; I don’t think we’d have any that would be too serious, but it would be arrogant to disallow that as a possibility. I haven’t been around too many family businesses, but the ones I have been allowed me to see the ups and the downs. Some families are brought together, and some become forever divided. Interesting, alluring, and scary stuff.

  7. J. Stapley on November 10, 2004 at 1:46 pm

    This is an excellent post – thank you Adam. There were many aspects of Adam’s and Russell’s comments that are profound.

    My parents are the only of their siblings to have left Utah. My sibling and I have followed in the great Mormon diaspora, with, just until recently, all of us in separate states. As for me, I have vacillated between the multinational and the start-up and have wound up inextricably bound to private enterprise.

    The church’s position is that when tough times occur, one is to look to family for help before they go to the Ward or government. I think that the geographical separation and consequent separation of lives acts as an impediment to this process. The familial stewardship seems to break down.

    The idea of family businesses providing for and sustaining not only families but communities is powerful and meshes well with our perspectives on the celestial economy (at least I think it does). Even Adam Smith was weary of publicly held corporations for fear that individuals agents would not act in the self interest of the whole.

    However, things can go very wrong in the Family business. My great grandfather left the family ranch on the Arizona strip en lieu of duking it out with his siblings over stewardship rights.

    As for me, I aspire to the family business, but looking at my sibling’s education: Doctors of Medicine, Law, Political Science and myself Food Chemistry, our best hope is a call in show on NPR.

  8. Russell Arben Fox on November 10, 2004 at 2:09 pm

    “Having been privy to more than one discussion regarding your family’s business, I presume one of the ‘failures’ you speak of might be the inevitable chafing from those who marry into the family business.”

    Rusty, I should have known that Jesse and Amy would have blabbed to you over the years. Ah well, Mom sometimes wonders just how much everyone in Spokane knows about the “Fox Family United Order,” its rise and (relative) fall, and what they think of the whole thing. It’s probably been a regular topic of conversation in some homes over the years.

    Yes, absolutely, one of the greatest source of internal tension in such family businesses has to be the introduction of newcomers to the family. I think my earlier point holds though: people who marry into a farming family probably know pretty clearly what they’re marrying into, whereas people who marry into, say, a family law firm are likely to be faced with a situation where there are all sorts of financially renumerative outs and escape options, and they’re going to wonder why those options aren’t being pursued. So the forms of work matter; it’s just that certain forms of work may make the obstacles or boundaries encouraging “participation” seem more intrusive, irrelevant, or disposable than they might otherwise.

    Marriage is a bond which is distinctive from other bonds; one would hope all the bonds within a family unit would be complementary, and sometimes it works out that way–but not without a lot of bending and compromising. And sometimes it doesn’t: one bond has to be sacrificed in order to save another. It’s been rough on my parents, but I’m sure they’d rather have Halliburton bankrupt the family and pauperize us all then see the family business ever undermine one of their kids’ marriages.

  9. RS on November 10, 2004 at 2:31 pm

    Is/Was Frontier Pies part of the “Fox Family United Order”?

  10. Russell Arben Fox on November 10, 2004 at 2:42 pm

    No RS, my dad bought several of those franchises in the 1980s, then got out of the restaurant business by the mid-1990s. The family business didn’t take flight until 1996 or so. So if you eat at Frontier Pies, your check is no longer going to support our personal vision of Zion. Sorry.

  11. JWL on November 10, 2004 at 3:12 pm

    There is a huge literature (none of which I have right at hand) about the problem of succession in family businesses. The statistics are that the most family businesses do not survive into the second generation and almost none into the third. Even without intra-family and inter-generational conflict, at least in the US, society and the economy are just too mobile to facilitate a business continuing in the same place within one family over time.

    However, there is another method whereby owners of family businesses can assure the continuation of their businesses with some of the moral spirit that they value which would be lost if the business was sold to a public company or other purely profit-driven buyer. That is to sell the business to its employees (which could include family members). US law provides a number of tax incentives to company owners who sell their businesses to employee stock ownership plans (ESOPs). Employees are more likely to carry forward the spirit of an enterprise. Also, some of us believe that employee-owned companies are more consistent with the economic principles taught in the D&C.

    For more info, see the book “Managing by the Numbers” by Chris Meek, Warner Woodworth and Gibb Dyer of BYU’s Marriott School and the website of the National Center for Employee Ownership (www.nceo.org).

  12. Rusty on November 10, 2004 at 3:18 pm

    Russell,
    I guess my tone seemed as a critique on your family, which it definitely was not (there are few families that I have more respect for than yours). I was just pointing out what I saw as a potential problem with family businesses in general. Jesse/Amy and my wife and I have had many discussions regarding the business, but rarely has it ever been negative. In fact, my wife is often jealous of the security.

    To echo the rest, please post something on this subject and/or your father. I’d love to hear more than just Jesse’s voice.

  13. Adam Greenwood on November 10, 2004 at 5:28 pm

    The “dreariness of being a contract monkey.”

    Well, someone discovered the hidden subtext! I wondered how long that would take.

  14. Adam Greenwood on November 10, 2004 at 5:34 pm

    I would love to read multiple posts about your family’s experience, as much as your judgment lets you. My dreams and hopes here are pretty vague and would very much benefit from a concrete example. I believe that the Saints generally have even vaguer hopes and dreams for the United Order; a concrete example of someone trying for a version of it today would be quite the thing.

    I understand that most family businesses don’t work. I guess I just think that a noble failure is better than never trying. Like the United Order. The real problem is that trying to build something with the family isn’t even on the radar screen. Sometimes the answer will be, No, we should not start/continue the family business, but the question has to asked.

  15. Ben Huff on November 10, 2004 at 7:15 pm

    What are the chances that a particular child would really choose to do exactly what its parents are doing? Is it fair to a child to teach it from a young age that it has a responsibility to someday take over the business that mom and dad have sacrificed so much to build? Maybe the child would rather be a doctor or a lawyer or a car mechanic.

    Who cares whether you are a doctor or a lawyer or a car mechanic? The idea that these choices should disregard and trump all other relationships is preposterous and destructive, however pervasive it may be. I’m not saying children should be shackled to the family business, nor that some careers are not more fulfilling and choiceworthy than others. Still, our highest goals should have to do with people, not fancy professional labels, and we should encourage our children (and teach them by example) to think about their futures with people as a key part of the picture.

  16. Adam Greenwood on November 10, 2004 at 7:28 pm

    Wholehearted agreement, Ben Huff.
    Making or sticking with the family business isn’t the trump-all of job planning, sure. But maybe choosing the One Best Career should sometimes give way to other concerns.

  17. Andrea Wright on November 11, 2004 at 8:39 pm

    Interesting post. My Grandpa started a business 40 years ago and grew it into a good little establishment. Over the years a couple of sons or grandsons worked their during the summer to earn a little money. He had 8 children, 7 of them boys. My Grandpa just sold the majority of the business to his one son-in-law. Now his youngest son is also working there as well as my husband. My husband has found it so motivating to know that everything he accomplishes not only benefits our little family, but my grandparents and others we love as well. Plus, his boss is someone he trusts and respects, a luxury he has not always enjoyed. Even though the other sons chose different career paths, several of them have had the opportunity to contribute with their legal, business and finance expertise. I understand a family business has it’s risks, but our experience with it has been wonderful.

  18. Adam Greenwood on November 12, 2004 at 11:19 am

    Thanks, Andrea. Your story makes the point far better than all my second-hand examples and hypotheticals.

  19. gst on January 14, 2005 at 5:03 pm

    On graduating college as an engineer my dad went to work for his dad’s architechtural firm. He had some good experiences there. After a few months, he got into the books and realized that his dad had been operating at a loss because of a payroll bloated with family members and friends he didn’t want to fire. My dad immediately quit and took a job with Bechtel.

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