The Lego-fication of the American family firm

The late evolutionary biologist Stephen Jay Gould came up with the theory of punctuated equilibrium, which says that species remain pretty much unchanged for long period of time, but then evolve in short, sharp blasts when their environment alters. Is something similar happening to family firms?

PwC have just released their latest American family business survey, called Professionalise to Optimise, which paints a picture of family companies that are stepping away from their businesses. 

Among the statistics in the report is that 60% of the American businesses surveyed had family members who hold shares, but do not work for their family firm. Just 27% of family businesses surveyed said they had a “robust and documented” succession plan in place for senior roles. (Twenty-nine per cent admitted to having none at all.)

Even that 27% hides a surprise: only half of those who said they had a good succession plan said it was “fairly likely” or “very likely” that family members would take over senior management roles and that they would, instead, go to non-family professionals.

There is, it appears, a loss of confidence in the next generation: 40% of owners said that they expected they would stay on longer than they really wanted, because their children were not prepared or able to take over.

That might be pessimism, or it might be realism about what is needed to run a medium-to-large business these days. For the first time in the 13 years PwC has been running this report, under half – 48% – of owners said they expect the next generation to run the business. (Which given the scarcity of succession planning seems optimistic.)

What does it all mean? Perhaps the answer comes in another stat from the report. Seventy-three percent of the family business leaders said that they believe the culture and values in family businesses tend to be stronger than those in other types of companies. Just two years ago 90% believed that, so there has been a sharp drop.

Added together, the picture is of family firms which are losing confidence in the classic multi-generational family business model. They are increasingly unsure that their model is superior, and are less determined that their children should take it over.

The American family company of the future, if you extrapolate from this report, is a stewardship firm, where the family are guardians of the company’s culture but stay away from the day-to-day running of the business.

There are many well-known examples of non-family CEOs who have performed brilliantly at big family-controlled firms, and the best-known is probably Jørgen Vig Knudstorp, who turned around Lego. Other high-profile examples include Fabrizio Freda at Estee Lauder and Arne Sorenson at Marriott.

As globalisation, technology and other changes to the business environment take effect, it wouldn’t be surprising if more firms evolve and take the Lego approach to building their businesses.