Family businesses and sustainability: Some thoughts from top family business leaders

Main picture: William Lauder, chairman of The Estée Lauder Companies Photo by Dia Dipasupil/Getty Images Entertainment / Getty Images. Top picture: Jorgen Mads Clausen, chairman of Danfoss Photo: Danfoss.  Ofra Strauss, chairperson, The Strauss Group  Photo: Strauss Group

Main picture: William Lauder, chairman of The Estée Lauder Companies Photo by Dia Dipasupil/Getty Images Entertainment / Getty Images. Top picture: Jorgen Mads Clausen, chairman of Danfoss Photo: Danfoss.  Ofra Strauss, chairperson, The Strauss Group  Photo: Strauss Group

As family enterprises gain greater acceptance as a business model inevitably more questions are asked about what are the factors behind their success. Questions like: what is the key to their survival, and how do family businesses continue to innovate as they move further away in generational terms from the founder, or founders? And what about the management of talent, both within the family and outside of it at the senior management level - how do successful family businesses get that right?

Answers to these questions can be varied and nuanced and can depend on the individual business and the particular set of circumstances it finds itself in. Nevertheless, a gathering of some of the world’s most dynamic family businesses at EY’s annual Family Business Summit in Monaco on June 6 and 7th presented a good opportunity to attempt to answer these questions, or at least develop some common themes to better understand what drives family businesses and what’s behind their success.

Values and disruption

More than 50 representatives of family businesses, many of them represented by the family business owners themselves, gathered at the Summit to discuss themes around sustainability, innovation and talent management. Keynote speaker William Lauder, executive chairman of The Estee Lauder Companies, spoke on how a multi-billion dollar, third-generation business like his maintains its dynamism in a hugely competitive sector of beauty products. “We are in the consumer world and any given moment if we stop we are going backwards so we have to constantly compete for consumers’ attention,” William said. “And the consumer is central to everything.”

“I am often asked ‘what keeps you up at night?’ The health, welfare and safety of our employees are the most important thing I worry about every single day.”
— William Lauder

But at the same time as Estee Lauder deals with the forces of disruption in the consumer products sector, the value system of the Lauder family and the business remain an uppermost priority for William. And perhaps this is best illustrated by what he said about one of the company’s key stakeholders: its 46,000 staff. “I am often asked ‘what keeps you up at night?’ The health, welfare and safety of our employees are the most important thing I worry about every single day.” For Estee Lauder and the Lauder family, innovation and sustainability of the business are linked to its strong values as well its sharp eye on consumer trends.

Of course, disruption and uncertainty don't just happen in the world of business, it can be also common in a broader sense - within society itself. The Strauss Group, one of Israel’s biggest food and drink product manufacturers, and owned by the third generation of the Strauss family, has flourished against periods of uncertainty in the wider context of Israel’s evolution as a nation state. Indeed, uncertainty to some extent has underpinned its success.

Ofra Strauss, the chairperson of the board of the Strauss Group, talked about this in the other keynote address at the Summit. She said how the evolution of the family business is closely tied up with the development of Israel as a nation-state. In fact, her grandparents, both refugees from Europe, believed by creating the business, they were also helping to build Israel as a nation. The two were explicitly linked to each other.

Rules and innovation

Innovation can be underpinned by strong values built up over generations as in the case of many family businesses, but it is often helped by rules and practices within the family and the business. Jorgen Mads Clausen, chairman of Danfoss, a second generation Danish engineering group, said stability and growth are fostered by rules around family engagement with the business. He said on a panel on sustainable growth that it is a good idea to have a rule that only one family member takes over the business.

He calls this the King/Queen model - with an obvious reference to a single monarch taking over after the death, or abdication of the proceeding incumbent. The governance structures of Jebsen & Jessen (SEA), a Singapore-based holding group, perhaps is another example of King/Queen model, as its chairman Heinrich Jessen alluded to on a panel. The family business, which has its roots in the 19th century, has a rule that only one descendent from the family can take the “principal shareholder”. And that can only be done upon purchase, not inheritance, of the shares from their predecessor.

This theme of one or a few family members been given priority in the business was also a point made by Rodolfo De Benedetti, chairman of the Italian holding group, CIR. He said on another panel at the Summit that family businesses aren’t democratic, nor are families - and that has to be understood if the business is to be sustainable.

Engagement with the next generation

Family businesses might not be democratic, but eventually, all of them will have to deal with succession and the next generation if they are to survive over multiple generations. To have a clear set of rules around succession and engagement with the next generation no doubt helps any family business. Yet, how families engage with the next generation, and indeed, how the next generation engage with the family business is so important for the health of a family business.

Ofra Strauss said that the onus needs to be on the current generation to engage with the next generation, rather than the other way around. “I would want our business to fit their (next generation) values.” And perhaps an example of those values of the next gen was to be found in Christina Suriadjaja, the winner of the EY Next Gen Club Award and a panellist at the summit. Christina, who is the daughter of a successful family business owner in Indonesia, set up her own burgeoning business called Travelio.com.

Although Christina didn’t say she necessarily wants to join the family business one day, the fact that she has gone out and proven her business acumen by setting up a successful business is perhaps the best way to show the next generation is up to the job.

Engagement with non-family senior management

If clearly defined governance structures along with a two-way engagement with the next generation help when it comes to family owners’ involvement in the business, what about the management of talent from outside of the family? What ideas and structures can help with the engagement of non-family talent? Often the force driving this comes about due to the growth of the business and/or as it moves further away in time from the founder generation. That has been the case with the US business Crane & Co, which prints currencies and has been a family-owned business since 1801.

If your values don’t cost you money periodically, I don’t think they are real
— Nicholas Oughtred

Charles Kittredge, the chairman, said on a panel at the Summit on attracting and retaining top non-family management that the growth and the diversification of the business prompted the need to bring in a non-family CEO. But the process of the engagement of an outsider was done in a very clear and thought out way in order to protect the company’s reputation with its customers, the biggest of which is the US government.

But how do you retain the top talent once you hire them? Guido Vanherpe, CEO and board member of the Belgian-based La Lorraine Bakery Group, which has been owned and run by his family for three generations, believes clear incentives for non-family managers are crucial to retaining staff. He said, firstly, the business doesn’t make a distinction between non-family and family employees. But secondly, senior management is also incentivized by a stock option plan. In fact, he said it works better than the stock options of a listed business.

But what about the perspective from the other side - the non-family senior manager? Ton Von Veen, group chief financial officer of the Netherlands-based supermarket group, Jumbo, said on a panel that it’s so important to agree with the values of the family if the relationship is going to last and be positive for both parties.

Indeed, the concept of the values of a family business was a strong theme throughout the Summit. Whether they were the values linked to stakeholder engagement as William Lauder talked about, or the values of the Strauss Group that are interwoven with the building of a country, having a strong set of values was a common theme in ensuring the survival of the business over multiple generations among all the panellists.

But values also need to be tested from time to time, as Nicholas Oughtred, chairman of the 165-year-old family business, William Jackson Food Group, poignantly pointed out on one of the panels. “If your values don’t cost you money periodically, I don’t think they are real.” For family businesses, if William’s comment is to be agreed, testing the values of the business from time to time is important for long-term success. Most family businesses would probably agree with William.