Overcoming the Challenges of a Family Business (with Dr. Keanon Alderson)

Listen to the Bigger Than Business Podcast’s interview with Dr. Keanon Alderson on your favorite podcast providers!

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What are the challenges of creating, working for, or taking over a family business? What are the strengths a family business needs to succeed? How can you avoid the pitfalls that cause the high failure rate in succession of a family business?

Listen as our guest, Dr. Keanon Alderson, gives us a picture of how each succeeding generation tends to lead, what tools are necessary to shape a healthy family business – including a family constitution! –  and what resources are available to owners to help them ensure success through generations.

Bio:

Dr. Keanon Alderson, a dynamic speaker and author of two books, has over 25 years of business experience from working in his own family business, to startups, to management in a global 50 company, and owner of a franchise. With an MBA and a Ph.D. in Organization and Management, Keanon is an Associate Editor the Journal of Family Business Management, has written for many other publications, and has also presented his proprietary research at numerous conferences.

Currently, he is a professor at California Baptist University in the Robert K. Jabs School of Business where he teaches courses such as Family Business Management, Principles of Management, and Organizational Behavior. Keanon consults with family-owned firms on succession, corporate and family governance, preventing conflict, and developing an effective board. He also advises financial professionals to understand the complexities of family business owners, what they value, their decision-making process, and how to present information that will get accepted to better serve their clients.

Keanon earned his MBA from the University of Redlands and his Ph.D. from Capella University. He enjoys fixing up old homes, fly fishing, and classic rock. He has been married for over 42 years to the love of his life, Sandy, has two sons and two grandchildren, and currently lives in Green Valley Lake in Southern California.

California Baptist University: Dr. Keanon Alderson

Overcoming the Challenges of a Family Business

By Jeff Holler

Accounting for arguably 60% of the US economy, family businesses enjoy numerous advantages over their publicly-owned counterparts, including:

1. Fast decision making
2. Trust by consumers
3. More loyal customers
4. The transfer of ‘social capital’ as one family owner succeeds another
5. Increased goodwill generated by local philanthropy

It’s no wonder they tend to survive longer than their competitors.

So why do only 30% of family businesses successfully pass the leadership reins to the second generation? And how can they beat the odds that only 10-15% transition to the 3^rd generation and 4% to the 4^th generation?

A professor of Family Business Management, Dr. Keanon Alderson describes succession as the “final test of greatness” for a family business. Whether one passes this test is partially due to the unique challenges such entities face. He would know, having personally experienced many of the factors we discussed during our interview.

“Think about it,” Keanon shares, “a family business has all of the same challenges that a non-family business has. They have to worry about the economy, competition, regulations, laws, taxes, personnel, and HR; but now add in the family dynamic, and that becomes much, much more complex.”

This ‘family dynamic’ encompasses several factors:

1. How we define a ‘family business’
2. Difference in values between 1^st, 2^nd and 3^rd generation owners
3. Breakdown of interpersonal communication and family and marital conflicts
4. Patriarchal traditions

What Exactly Qualifies as a ‘Family Business?’

“There are many varying definitions,” informs Keanon, “but the one that most family business scholars use is from Ernesto Poza at Thunderbird School of Global Management. This means two or more family members who:

1. Share ownership of a firm;
2. Have strategic control or influence over the decision-making;
3. Have a concern for family relationships;
4. Share the dream or the possibility of continuity across generations.”

This last one is what oftentimes eliminates some firms from being considered a family business, and may speak to the difference in values among generations.

The ‘Value Shift’ Among Generations

When as much as 90% of a family’s wealth may be tied up in their business, it’s alarming to realize how difficult it can be to maintain family control. Keanon points out it has to do with the difference in how they manage and view the company:

• The ‘FOUNDER’ generation – usually a risk taker, sole decision maker, a strong personality. As many as 17% of these are the “my way or the highway” types that never establish plans to retire and can become an obstacle to the next generation establishing influence, showing leadership, taking responsibility and finding fulfillment in the family business.
• ‘SIBLING PARTNERSHIP’ generation – joint decision making by consensus, where collaboration and communication breakdowns can be costly.
• ‘COUSIN CONSORTIUM’ generation – may include numerous family members and branches of the family. Decisions are made by democratic process and disagreements abound. There may be significant wealth at stake by now, and individuals may no longer be strongly committed to the business, wanting instead to go off and follow their own passions.

Family Conflict

When seen in this light, Keanon points out, it’s no wonder then that family conflict adds to the complexity of the business.

“For instance, if Mary Barra, the CEO of General Motors, were to get a divorce, that would not affect General Motors at all, the stock wouldn’t go down, no one would hardly even know about it and the employees would not be de-motivated. However, if we were all in a family business together, and our mom and dad got a divorce, and there were numerous generations working there, people would take sides. There would be blaming. There would be conflict. It would quickly be dysfunctional.”

The Increase in Women CEO’s

Having bumped up against the glass ceiling in corporate America, many women have founded their own companies or brought their talents back into an existing family business, says Keanon.

“Over the last couple of decades, it’s almost as if family business owners have discovered that there’s an entirely new gender out there!” This has countered the longstanding tradition of primogeniture, where the first-born male of a family was assumed to be the next successor.

“When we talk about the level of failed successions that there are, it’s no wonder that the role of women has really increased. The population of women CEOs is significantly higher at family firms than non-family firms.”

A Focus on Solutions

It’s one thing to chronicle the challenges family firms face, but what I like most about Keanon Alderson is how he brings practical solutions to the discussion. I really hope you tune in to our full conversation to hear more about his ideas, such as considering the use of:

• Governance tools
• A family constitution & code of conduct
• A diverse board
• Consultants
• Family retreats
• Quarterly family meetings

You will also find that this interview dovetails nicely with my prior conversations with Phil Clemens on Turning Your Family Business into a Business Family and Planning for Successful Succession.