The long-awaited final season of HBO's award-winning TV series, Succession, screens this month, and while the Roy family may be fictional, board-level dramas in real-life family-owned companies have hit the headlines in recent years.
With many of the world’s largest, and most successful, companies being run by families, their stability and focus on long-term performance is often in contrast with many public-owned firms. Yet, whether a company is public or family-owned is an often-overlooked factor when it comes to strategic decision-making. Working with both business models, we have explored and compared the benefits of both public and family-owned companies, and observed the critical lessons they can teach each other.
Family-owned firms can provide public companies with ideas for governing in ways that go beyond a focus on short-term value for shareholders. They also tend to be more enthusiastic about recruiting diverse outside talent. Whereas family structures foster trust, which helps communication and makes it easier to develop a shared purpose and long-term vision.
Three things public companies can learn from family-owned firms
1. Prepare the company to pass on to future generations
Even after several generations of ownership, family-owned firms typically remain closely associated with the family name and history and retain something of a founder’s mentality. This encourages a focus on the firm’s values, purpose, and long-term performance over short-term profits. Current leaders often see themselves as stewards who have a duty to future generations.
Many family-owned companies have codified this idea with guiding principles that bind future generations to protect sustainability, stability, and family ownership. In some companies these can become binding rules. For example, one founder of a successful enterprise wrote a letter to his children saying: "You do not own the company. The company belongs to its employees, its customers, and its shareholders... in that order." The children signed away their right to sell their shares outside the family for 50 years.
Family leaders also are more conscious of the need to plan leadership succession, often with a view 20 or 30 years into the future. That encourages them to look out for talent among the younger generations and prepare them for future roles. Almost all family offices — dedicated structures aimed at managing the family’s interest — have highly developed and well-resourced programs to identify and develop future leaders within the family.
2. Forge deeper, less-transactional relationships
Family ties affect relationships between the company and employees and between employees themselves. These relationships are more emotional and as a result, the company’s value proposition to employees can include a more supportive culture with a greater focus on values.
Managers’ feelings of attachment to a company are “much stronger when they work for a family enterprise,” according to a 2022 study by the French Institute of Family-Owned Businesses. Among such managers, 97% say they identify to a great extent with “the spirit” that is specific to a family company. They say this attachment is supported by communication about strong values, such as mutual trust (86%) and relationships with colleagues (77%).
The original mission and values can generate strong engagement among employees and be one of a family-owned company’s greatest assets
3. Develop purpose beyond shareholder value
Many public companies focus overwhelmingly on shareholder demands and prioritize short-term financial performance. In contrast, family owners are more likely to have a “higher” purpose. Danone founder Antoine Riboud was one of the first CEOs to publicly address the need for more responsible governance when he stated in 1972 that “the responsibility of a corporation does not stop at the gates of factories and offices.”
Current leaders often have emotional ties to a founder and their vision, encouraging them to maintain a stable, long-term strategy rather than to imprint their own vision on the firm. The original mission and values can generate strong engagement among employees and be one of a family-owned company’s greatest assets.
Three things family-owned firms can learn from public companies
1. Introduce professional governance and management systems
Family companies typically start with the founder in the role of CEO, chair, or both. The board or executive committee — if they formally exist — tend to follow their lead, and decisions can be a formality. But when the second generation takes over, there may be multiple voices and visions competing at the top, and the informal management mechanisms can start to break down. The results can range from family squabbles resembling an episode of Succession to poor governance, bad management decisions, and even fraud and malpractice. Moreover, subsequent generations will not necessarily have the same talent and enthusiasm as the first, and family-owned companies can be more indulgent toward poor performers.
Even if not listed or regulated, a company could improve discipline and transparency by aiming to comply with national corporate governance codes. Public companies have structures such as board committees and secretariat functions. Roles, accountabilities, mandates, and reporting structures are well-defined. Risk and key processes are managed through clear procedures, as are succession plans and senior appointments. Together, these structures enhance short-term performance and risk management. In addition, adding high-caliber independent non-executive directors (INEDs) to a family-dominated board can yield fresh perspectives and constructive challenges to the company’s direction.
2. Focus on market value
Public companies typically report results two or four times a year, giving shareholders the opportunity to evaluate how effective their strategies are. Family-owned businesses similarly can benefit from close engagement with their shareholders.
By the third generation, a family’s shareholdings are often distributed across numerous family members, making control of the company less transparent and agreement harder. Professional management can help unite disparate shareholders around a strategy. Beyond annual meetings, they can be kept up to date on the company’s direction and performance through communications with an investor relations department and other forms of engagement.
Adding high-caliber independent non-executive directors (INEDs) to a family-dominated board can yield fresh perspectives
3. Consider a broader talent pool
Traditionally the leadership of family firms has been passed on to the eldest child or another senior family member, who might today be called a “nepo baby.” But this person might not be the best candidate for the job, and they might not even be interested in it. Many offspring have succeeded their parents as CEO and then failed in the role, in some cases leading an elderly parent to make a return. Or siblings can become bitter rivals for the role — a scenario similar to that of Succession.
Instead, it could be better to consider broader family or even to make external appointments for some senior roles if the right talent is not available within the family. Some founders of prominent family companies have decided their children were not ready to take over and appointed outside successors. Public companies routinely look inside and outside the firm for talent, developing their own managers while also considering diverse external candidates for both current vacancies and future succession.
Businesses should choose judiciously
A successful company should not risk losing whatever has made it so. For example, in a family firm, trust among senior leaders can reinforce strategic direction and give leaders the confidence to bring in talented outsiders. But if trust within the family breaks down, it might destroy any natural advantage in communication among leaders, and perhaps lead them to regard talented outsiders as destabilizing influences. That kind of situation might be remedied by the more formal structures of a public company. And while a public company might do well to develop a purpose and vision beyond short-term profits, it should not sacrifice the professionalism that comes with regulations and reporting structures. Features from either model should be borrowed with care.