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Succession Planning: Why Character Formation Matters

For several generations, conventional management wisdom has supported the notion that publicly traded corporations with clear separation of ownership and control are a superior organizational form compared to the family-owned business. Recent studies are calling that wisdom into question.
Recent studies are calling that wisdom into question. The studies show that not only are there no clear cultural advantages associated with non-family businesses; but rather, the studies show there are several cultural advantages associated with the family-owned businesses that can be preserved through storytelling. The role of continuity of the founder’s values in the company’s culture is one of the most critical factors in predicting the success or failure of a family business.

The distinct background and character of entrepreneurs and family-owned businesses that creates and promotes a culture rich in core values, performance-enhancing behaviors conducive to learning, and encouraging flexibility led to strong multigenerational companies. Because the founder’s culture are nurtured by succeeding generations of family, culture in family-owned firms is difficult to replicate and so may be a source of strategic advantage. But how do founders successfully pass on to future generations the culture that is so important to their business success?

The Role of Storytelling The answer to this question can be summed up in one simple word: stories. Telling and codifying stories can distinguish a family business and promote its longevity. Family business stories can share the folklore of the company’s founding. They can explore the rationale for critical decisions that shaped the company’s development. They can recount the achievements, and failures, of past business cycles. They can recount meaningful or silly events that led to employee bonding.

“The culture of the family firm plays an important role in determining the success of the business beyond the first generation.”

W. Gibb Dyer Jr., Culture and Continuity in Family Firms
The more stories are shared in an organization, the more the benefits are felt. Take a succession, for example. As a company’s leadership is being handed from one generation to the next, the stakes are raised for the company to articulate its culture. The communication of culture, mission, and values is what helps companies maintain cohesion for successive generations. In Made to Stick: Why Some Ideas Survive and Others Die, brothers Chip and Dan Heath write, “One key to success is the use of stories, especially those that are emotional or inspirational. Hearing and internalizing stories from a company’s past can fundamentally change the way next-generation members will act when confronted with difficult situations.”

Storytelling also benefits the company’s employees. Stories add color to the principles, values, and ethos espoused by the company’s leaders and the assumptions underlying these principles. They help employees identify with the values and culture. A company’s clients are another key audience for its stories. Clients prefer to buy from companies that share their values. But if the company doesn’t express what its values are, how are the clients to know whether they are shared? For this reason, companies are increasingly presenting “Our History and Values” as a central part of their mission and marketing. Showing that a certain store has been in the same location for numerous generations is a powerful sales tool.

However, it is not enough to just list this information; tying the history and values to stories, such as a personal anecdote from the company founder or CEO makes the connection with clients that much deeper. In the 1988 article in Family Business Review, W. Gibb Dyer Jr. wrote: “The culture of the family firm plays an important role in determining the success of the business beyond the first generation.” Dyer stated that culture is a series of interconnected traits starting with basic assumptions that are instilled in the company by the founder. These assumptions establish a foundation for the company’s values (much like a family), which are defined as the guiding values and principles for all situations employees face. These values lead to a history that serve as proof of the assumptions and values.
Recording Your Stories Many family business owners ask, “Where do we start? How do we encourage stories?” The key is to find the right people and ask the right questions. Seek the older generations as they hold a wealth of knowledge. Ask about the company’s founding, its background and challenges, successes and failures (especially early in the company’s history). Find out what values were established early on, and how those values have changed over the years. Probe into how the company’s culture has developed. Start small, perhaps with a few questions at a family meeting, and build up to in-depth “storytelling sessions” over time. No matter what method you choose, start sharing your stories today. Don’t wait until it is too late. The reality is that while companies and their cultures can live on, founders and family members will not.
Questions to Consider At Boxwood, we are here to help you learn more and do more, to grow your family business and improve its culture. Some questions we invite you to consider are:
  • How is that culture best transmitted through the generations?
  • How does time, through the passage of generations, affect the culture’s strength?
  • Do family firms with stronger cultures follow more distinct strategies?
  • How is culture translated into strategy and business performance?
  • How can leadership best optimize the seemingly inherent advantages of culture in a family firm?

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