Seeking family business resilience? Embrace brutal facts, resist ‘defaulting to helplessness’ and don’t jump on bandwagons.
The French philosopher Montesquieu said: “I have always observed that to succeed in the world one should appear like a fool but be wise.”
The modern day “fool” plans for worst-case scenarios. Why? Because as Covid-19 has shown us, they happen. There are threats in any business. In family-owned enterprises, they may be more nuanced. That doesn’t mean business as usual.
What’s at stake? Canada’s family-owned enterprises generate about 49% of private sector GDP. Weakening this business model is a threat to our economy.
The most common threats are maintaining effective leadership over generations. In some cases, family leaders avoid succession planning. In others, the rising generation may lack the expertise to enter the family business. Some family members are simply not interested in onboarding.
These are risks to continuity. Are they worth deeply pondering? Joe Astrachan, a governance expert who serves on the boards of nine family-owned companies, cautions that mistakenly believing that because something hasn’t happened in the recent past, it never will.
“You must never confuse faith that you will prevail in the end with the discipline to confront the most brutal facts of your current reality, whatever they might be,” he says.
Facts aren’t always comfortable. Astrachan notes that we tend to avoid thinking of things that are negative, otherwise known as “optimism bias supported by confirmation bias” in which we only attend to information that supports our point of view.
“We tend to follow the crowd,” he says. “We need look no further than our obsession with best practices to find evidence of this. This is called the ‘bandwagon effect.’”
The point is this: Even wildly successful family businesses can come unglued if they don’t consider the bigger picture and learn from others.
Steinberg’s was a large family-owned supermarket chain that operated in Quebec and Ontario. Trouble began after the death of Sam Steinberg in 1978. His laissez-faire dealings with the union and lack of a continuity plan for the company began its decline and resulted in a loss of direction.
Things worsened when a power struggle emerged between his daughter Mitzi, her husband Mel Dobrin, daughter Marilyn Steinberg Cobrin and daughter Evelyn Steinberg. Each held equal controlling shares in the company through trusts, but these shares and those of their mother Helen, were stipulated to be voted together as one, to keep control of the company in the family.
Infighting, power struggles, rising costs and increased competition took its toll. In 1992, three years after being sold to private interests, and after 75 years in business Steinberg’s went bankrupt. It could have been avoided.
Think the unthinkable
Why do so many of us avoid the unthinkable? Part of the answer lies in the imperfect way humans make decisions. Astrachan believes we’re sometimes too quick to “default to helplessness” in the face of a challenging situation we’ve not yet seen. This is one reason why many enduring businesses can continue to thrive where others do not.
Upon interviewing members of the Hoare & Co. banking family, a business founded in 1672, Astrachan remembers being told: “We’ve lived through world wars, famines and pandemics, we will live through this too.”
That doesn’t mean internecine quarrels can’t or won’t happen. Proprietorship disputes once tested the mettle of the Irving family. There is scant insight into New Brunswick’s foremost entrepreneurial clan’s struggles but there’s this: There was the patriarch K.C. Irving, his three sons, ex-spouses and a legal battle in Bermuda over the family trust. It had the bitterness a judge there said only family fights can produce.
One of Canada’s most dynastic companies, the Irving empire was split up into groups essentially run separately by different family branches. As employers of one in 12 people in New Brunswick, the importance of the Irving Group cannot be overstated. The impact on the local community was significant.
Change tomorrow for the better
Disruption is inevitable. As the post-pandemic recovery takes root, families of wealth, banks, advisors and policymakers should be vigilant. They must recognize the benefits of fostering a resilient family enterprise ecosystem.
We must attend to information that both contradicts and supports our point of views. This can only happen by helping educate entrepreneurial families, and by recognizing their unique expertise. Being resilient requires responsible stewardship in fostering “learning families” who can overcome adversity.
By supporting Family Enterprise Foundation’s comprehensive learning portfolio, influential business families can play a pivotal role in educational and economic stewardship, and as meaningful best-practice role models to their fellow Canadian business families. Read Family Enterprise Foundation's story here.