Family-owned businesses continue to increase in importance to the United States economy, and in a dramatic shift, have begun to reverse the trend of large enterprises driving mom-and-pop shops out of existence. While many companies are making slow progress after The Great Recession of 2008, a PricewaterhouseCoopers (PWC) study states that 70% of family owned businesses have a strong track record of growth and resiliency in the last year and 79% expect steady growth across the next 5 years.
Currently, family-owned businesses represent 50% of U.S. gross domestic product (GDP), and 35% of all Fortune 500 companies are family-controlled public or private organizations. Family-owned companies produce 60% of the jobs in the U.S., and they are responsible for nearly 80% of new job creation. Yet according to a PWC survey, a mere 52% of those owners believe that the next generation can keep the business viable due to a lack of aptitude and experience in managing a business. The survey indicates that this is a leading concern for family-owned companies, as they desire to keep control of their businesses in the hands of family members.
Indeed, the Family Business Institute estimates that nearly 70% of those organizations fail to succeed in the second generation, 88% are gone by the third, and 97% are nonviable in generations thereafter.
Establishing proactive succession planning and corporate governance practices are essential to sustaining objective oversight and a balanced leadership team. In addition, an independent, cohesive Board of Directors ensures that the leadership team achieves the organization’s vision. This balance will attract highly qualified external and internal candidates. While formal corporate governance provides structure as balance, retaining the family-feel of the organization is imperative for employees who do not wish to become an anonymous number in a conglomerate. This factor can be critical to cultivating and sustaining loyalty in addition to a healthy corporate culture.
Successful family companies repeatedly demonstrate a willingness to seek out future leaders and invest time and resources into their development, regardless of relationship to the companies’ owners. Potential candidates are groomed and cultivated long-term to ensure readiness for executive decision-making roles, in addition to maintaining corporate culture and values.
Executive leadership decisions can pose a significant number of challenges for any family-run company. Research consistently indicates that organizations can survive and thrive through the generations if they implement corporate governance structures, maintain the family values, recruit and cultivate future leaders, and incorporate discipline in the leadership succession process. The benefits to the company and the economy are immense.