Introduction--The Myth

In her incisive portrait of William Clay Ford, III, the fourth generation of the Ford family to head their eponymous industrial behemoth, Martha Sherrill captures a Kodak moment between Mr. Ford and the immediate past CEO of the company, Alex Trotman. Mr. Trotman, a non-family manager who apparently believed that founding families had no business leading global industrial companies their forbears founded, did not share the Ford family's view that a qualified family member was worthy to be his successor. After noting that William Clay Ford was the clear choice of the 13 members of the fourth generation of Fords to head the company, Ms. Sherrill writes:

Few myths about family business are so powerful as the idea that successorship to the top job at a family firm is a sinecure inherited by divine right. Perhaps this myth is rooted in our nation's deeply held view that the winner's crown ought to belong to Horatio Alger or Bill Gates, someone who earned it by dint of hard work, either physical or intellectual. But whatever the source of this commonplace view, few casual observers of family business would challenge the notion that successors have it easy, while the rest of us have to work for what we attain. "In the antiseptic ethos of the industrial era, stigma surround[s] family business, as if the involvement of family was somehow unbusinesslike" (Petzinger, 1999).

Values driven families who control business enterprises build on their family's core values and relationship strengths to nurture future generations of leaders. These family-controlled businesses are "built to last."

The thesis of this paper is that Alex Trotman got it wrong - very wrong - in the same way that former President of the New York Times Company, Lance Primis, got it wrong when he challenged the Ochs/Sulzberger family's control of The New York Times Company (Tifft and Jones, 1999); in the same way that people who do not really understand extended families misunderstand how the enterprises such families control actually operate. The published record indicates that both Trotman and Primis thought that scions of business-owning families are simply fortunate folk, with little other than lineage to recommend them for leadership of an enterprise. They seem to have forgotten that a real distinction can be drawn between business-owning families, i.e., businesses where stockholders share a common name, but not necessarily any cohesive family behavior or values (Dreux and Goodman, 1997), and enduring family-controlled enterprises, whether publicly traded or privately held, which succeed because they are "Built to Last." (Collins and Porras, 1997) Trotman and Primis failed to understand three basic realities: (1) Some family-controlled business enterprises are indeed values-driven endeavors; (2) the core values upon which strategic and tactical decisions in such companies are founded are often rooted in the history and experience of the founding family; and (3) there are successors such as William Clay Ford, III, and Arthur Ochs Sulzburger, Jr., whose lives and business leadership can both be illuminated by these values. Thus, to the Fords of Ford and the Ochs/Sulzbergers of the New York Times, the company is more than a financial balance sheet. It is a heritage: "Something other than property passed down from a preceding generation" (Random House Websters 1997).

Values-driven companies controlled by families relying on their core values and their relationship skills can and often do compete successfully all over the world.

The particular focus of this paper is not to argue against the myth that values-driven companies controlled by families cannot compete successfully in markets from local to global. Indeed, in the view of Thomas Petzinger, "Family business has become a model for all business...[because] business today, more than at anytime in a century or longer, is built on relationships- the very stuff of which families too are made" (p.218). Rather, the purpose here is to move beyond the myths and widely held public misunderstandings about and stigmatization of "family business" to describe some of the most effective ways in which the heritage of values-driven families and the enterprises they control are transmitted across generations (Davidow and Narva, 2000).

While "family businesses" are "easily the commonest kind of corporate structure on the planet, and...show no signs of disappearing," (The Economist, 2000) there is widespread disagreement about what constitutes a family business (Handler, 1992). While responding to the definitional debate is beyond the scope of this article, one cardinal point must be made. Most of the debate among academicians is written on business structure generally and more particularly on the overlap of management, ownership, and governance with something called "family." Little of what scholarly literature there is on the subject of family business focuses on the family. Yet "whether the company is Wal-Mart, Gucci, Cargill, Hyundai or most of Germany's mittelstand and Latin America's grupos, a family firm is different in important ways from a firm in which a family plays no significant part" (p.63). Most commentators focus on family dysfunction as it is enacted on the stage of the family firm. There are but few examples of writing about enterprises controlled by families that endure, and indeed thrive, up to 200 years and longer. (www.henokiens.com). Articles focusing on the power of the family system and how it buttresses not only the ownership control group, but also the enterprise itself are uncommon. The primary aim of this article, therefore, is to identify several concrete ways in which the heritage of a family can be communicated from elders to younger generations in a family and from the family that controls an enterprise to the governance bodies and management teams of those enterprises, all for the purpose of enhancing the long-term competitive durability and performance of such enterprises.

The concrete ways family-controlled enterprises communicate their heritage from one generation to another and use this heritage to competitive advantage are poorly understood and often ignored by the general and business media, who could and should do more to tell the stories of family business success.

Before turning to the substance of this article, I feel compelled to comment upon the dysfunctional role the business media plays with regard to understanding family business, focusing as it does almost entirely on perpetuating myth and commonplace misunderstanding. Exceptions to this rule, such as Thomas Petzinger, formerly of The Wall Street Journal, are few and far between. Much like the vastly overwrought television commentary on the recent presidential election in Florida, the media prefers to limit its coverage of family firms to what may be termed "family business train wrecks." Whether the oft-cited CBS "Sixty Minutes" piece on the self-immolation of the Bingham family newspaper business in Kentucky that aired several years ago, or its fictional counterpart Ð the Ewing family of Texas--or the foibles of the rich, famous, and litigious owners of businesses like those controlled by the Koch family, most periodicals and virtually all electronic media do not "cover" family business. They caricature it.

It is very difficult for owners and managers of family-controlled enterprises to find any validation for their work in the media. NASDAQ growth companies get lionized as regularly as successful decades-old family-controlled enterprises get ignored. Plummeting share prices of new technology companies are excused by reference to the legendary recovery powers of their technologically savvy founders, while families who have steered their enterprises through numerous business cycles over decades are deemed worthy of coverage only by society columnists. Given the enormous importance of family business as an engine of economic growth and preservation of community values, one can, therefore, only condemn this shortsightedness of the media generally and the business media in particular.

Vehicles for the Transmission of Family Values

Families who tell and share stories are more likely to carry on their family's heritage and traditions successfully.

"Stories Make A Family" (Stone, 1988). Of the many modes of communicating heritage within families, none is more important than the oldest way, storytelling. Tradition has been defined as "the passing down of elements of a culture from generation to generation, especially by oral tradition" (Random House Webster's, 1997). In a brief, elegiac article in the New York Times Magazine, Elizabeth Stone wrote, "The particular spirit of a family is newly imagined every generation, with old family stories disappearing or coming to mean something different, and new ones being coined" (Stone 1991, p.30). First and foremost, families who control enterprises must remember to tell the stories. However elegant their business strategies, however functional their organizational development may become, however talented their management corps may be, it is, as Elizabeth Stone said, stories that make a family. Without gatherings of the clan and family dinners, there are no venues for telling the stories. Without the stories, children's identities form without the building blocks of memory, "the elements of culture," handed down from generation to generation. However, when family members remember to tell the stories and revel in the pleasure of doing so, the process of transmitting the core values rooted in family history to the next generation of future owners/directors/managers of the family-controlled enterprise begins. Without this beginning, other, more formal vessels to transmit these values can lose their watertight integrity.

Good intentions and a desire to transmit a family's values are not sufficient. The truth is in the telling. The richness is in the details.

Oral Histories. Some families go so far as structuring their storytelling and reminiscing in a very formal manner by creating an oral family history. Their recorded audio (or video) observations may breathe life into the older generation's shortcomings as storytellers, and infuse the listening generation's memory with powerful recollections. In addition to recording stories for posterity, such oral histories can serve to build a record of a family's formal and informal conversations about its traditions. There are even consultants experienced in creating oral histories of extended families, who can help families preserve their legacies. (Epstein and Mendelsohn 1978) In summary, for all families, but in particular for families who control enterprises, what is talked about is what matters.

Ethical wills create a voice from and a record of the older generation, which preserves the core values and ethics of the family who control the business.

Ethical Wills. In the Jewish community for nearly a millennium, some families have written documents known as ethical wills to transmit their core values from generation to generation. An insightful guide to ethical wills, with selections from both modern and ancient times, including ethical wills of several modern family businesses, can be found in So That Your Values Live On ~ Ethical Wills & How To Prepare Them, edited and annotated by Riemer and Stampfer (1991). In the family business context, such documents can serve as statements by the present generation of family business owners (as well as successive generations) which capture, inter alia, the heritage of values, goals, and priorities that have influenced their decision making in the express hope that future generations of the family who control the business enterprise will abide by the family's legacy and vision. Such documents provide a more personal commentary and elaboration by a particular owner of a family-controlled enterprise than the corporate statement of core values. And they may provide the additional power of being written with the clear intent of expressing highly personal views of a family's heritage with the express purpose of influencing future generations. While there is a splendid example from a non-business family of ethical wills in four consecutive generations in the volume by Reimer and Stampfer (p.217), set forth below is one brief example written by Samuel Lipsitz, a New England businessman, in the early 1950's that is of particular relevance to family-controlled enterprises.

While Mr. Lipsitz's full ethical will also contains specific admonitions and ethical imperatives unrelated to the family business, it is the document as a whole, its tone and its intent, that is most important. He does not rank order among his urgings, remembrance for himself, his spouse, his business practices--good and bad--community, or religion. Rather, his ethical will is a document that bespeaks the whole person, a person whose business life was an expression of his core values. One might surmise that like Fel-Pro, Inc. (discussed below), the policies and structure of the enterprise he controlled may have also been expressions of the core values he carried forward from his own father. Surely there is at least some materially better likelihood that this surmise is true because of the existence and force of this ethical will.

Family Business Documents

Storytelling, oral histories, and ethical wills are each vehicles by which the wisdom of a family is communicated within that family from one generation to another. The wisdom, this heritage of values expressed in the lives of generations of a family, is the wellspring of core values for families generally, but in particular for some families who control enterprises, not only operating companies, but also investment vehicles and family foundations. While many families are simply business-owning families as defined above, other families who control businesses are as concerned with preserving and renewing their heritage in the business venue as with enhancement and protection of the tangible assets the family controls. For these families and the family-controlled enterprises which often bear their name, a fundamental objective is to infuse these enterprises with their families' core values.

In their classic text, Built to Last: Successful Habits of Visionary Companies, two Stanford Business School professors, James Collins and Jerry Porras, compare and contrast 18 of America's large corporations who dominate their industries with their largest (and less successful) competitors. In the process of a six-year-long empirical study that compared truly great companies that became industry leaders and their less successful competitors (such as Marriott with Howard Johnson, Motorola with Zenith, Hewlett-Packard with Texas Instruments), the authors concluded that the primary distinguishing characteristic of the truly great companies (which their competitors lack) is that these truly successful firms "...preserve a cherished core ideology while simultaneously stimulating progress and change in everything that is not part of their core ideology. Put another way, they distinguish their timeless core values and enduring core purpose (which should never change) from their operating practices and business strategies (which should be changing constantly in response to a changing world)" (p.17).

It is critical that successor generations of families who control business enterprises not only comprehend, believe in, and remain passionate about the legacy of prior generations, but also that they write down the legacy. Successors may well experience the necessary personal relationships to develop, nurture, and advance the legacy of a founding generation sufficiently to ensure its continuity pursuant to the founder's vision. But for successors who never had the benefit of a personal relationship with their company's founders/visionaries, continuity of the vision and the legacy of the family-controlled enterprise is best understood as a process informed by constituent documents, and other behavior expressions (discussed later in this chapter). For a family-controlled enterprise to endure as a great company, I believe that each generation of family [as well as each non-family trustee, manager, and director] must embrace and renew this vision and legacy, hopefully informed and guided by the constituent documents. Each generation of the family, and particularly the members of the family selected and qualified as senior executives, directors or trustees must embrace and renew the family legacy, hopefully informed and guided by the constituent documents, such as a statement of core values.

Core values of a family-controlled enterprise endure, even when strategies and tactics change to meet market needs.

Statement of Core Values

A formal statement of core values, when completed and approved by the board of directors of a family-controlled enterprise, constitutes the primary source document of a family's business legacy. (This statement can be buttressed by an ethical will and/or an oral history, as described earlier.) One of the finest examples of a statement of core values I have encountered expresses the values of the founding family and the nearly 30,000 employees of Pick 'n Pay Stores, an international retailer headquartered in South Africa. Given that these core values have guided what is widely regarded as South Africa's most admired company for three decades of not only job creation, but also enduring corporate commitment to social justice during the difficult days of the Apartheid Era, these words carry particular import for families whose own values guide their enterprises through perhaps less difficult straits. "Few other companies can claim to have done as much for their people as Pick 'n Pay has. Today more than 60% of its managers and supervisors are black, because what other companies are trying to achieve in less than a decade through affirmative action, Pick 'n Pay has been practicing for almost thirty years. Long before it was either fashionable or necessary, Ackerman simply believed in promoting people on merit" (Bell, 1999).

Pick'n Pay holds the following "Abiding Values:"
All our actions and decisions must be tested against our abiding values.
Our values are our beliefs which provide the moral foundations for our
existence as a business, as well as the engine which drives it forward.
We must continuously strive for all Pick 'n Pay people to know,
understand and believe in our values.

Pick 'n Pay's values are:
Being passionate about our customers and fighting for their rights.
Caring for, and respecting each other.
Fostering personal growth and opportunity.
Nurturing leadership and vision, and rewarding innovation.
Living by honesty and integrity.
Supporting and participating in our communities.
Being accountable and taking individual responsibility for our actions.

Finally, Pick 'n Pay sets forth the following core principles:
Maintaining our abiding values though business practice may change.
Fostering respect for individuals because this is morally right and not a strategic advantage.

Acknowledging the difference between timeless principles and daily business practices.
Sticking to our core values even if this appears to put us at a competitive disadvantage
(Pick 'n Pay stores, Ltd., 1999).

Recalling that Pick'n Pay was founded during the Apartheid regime by Raymond Ackerman, a man born in South Africa seventy years ago, one must ask what is the source of these abiding values and principles. Surely it was not the political culture of South Africa--Apartheid--when he came to maturity and entered the business world. Rather, as one reads the abundant literature detailing the career of this extraordinary South African, one can only conclude that it is his family of origin, his culture and religious heritage, his marriage to Wendy Ackerman, herself a senior human resources manager and member of the board of directors of Pick'n Pay, which are the wellsprings of these values and principles. It is in no way surprising, therefore, to note that the constitution of the Ackerman Family Council contains a section entitled, "The Legacy," which sets forth in full the abiding values of this man, his family and his company.

The process of discussing and then writing down the family's core values makes them more real, more powerful, and more likely to be realized.

Family Constitutions

Abundant literature exists advising families who control businesses to create governance structures for their families which parallel the structures that control their business enterprises, e.g., family assemblies or family councils as parallel counterparts to a corporation's board of directors. Often, but not as often as suggested, such family structures are useful. But when the formality of such structure is advisable, it may often be rendered much more effective by the process of creating a formal written document--herein denominated a family constitution--which as the constituent document establishing family governance serves to connect the family's core values and commitments to future family control of the enterprise to the enterprise's own core values and governance structure. Consider the following language from the preamble of the Ackerman family's constitution establishing its family council:

PREAMBLE

We, the Ackerman Family, resolve to work together to ensure the continued profitability and vitality of the Ackerman Family Interests. We, the members of the Ackerman Family, while recognizing each other's individuality and respecting any differences in opinion which may arise, do personally commit ourselves to work together in the interests in such a manner that will promote total harmony. We recognize that family harmony is essential for continuation and growth of the Ackerman Family Interests.

We believe it is important for the family to serve the business. We recognize our Family Interests as valuable assets that have provided us with our lifestyle and the resources to enjoy many opportunities. The family business provides qualified members of the family with meaningful career opportunities and rewarding employment for family and non-family members. Our family business embodies the values that have been passed down to us through the generations and is an important part of our family's heritage, and we strive to abide by high moral standards in all that we do.

We seek to continue as a family controlled business, to pass ownership of the Ackerman Family Interests to the future generations, and to provide employment for qualified family members in Family Enterprises. We recognize that given the size, complexity and competitive nature of our family business, it is necessary to involve non-family members in management. (Ackerman Family, 2000)

Tax planners often advocate placing family businesses in trust. But profound cultural changes emerge from transferring control of a business from an entrepreneur to a fiduciary. Trust instruments must therefore include clear statements of core values in order to offset such unanticipated cultural change.

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