The damage done to the Market Basket supermarket chain, which nearly collapsed amid family acrimony this summer, doesn’t mean that’s the future many family-owned companies will face, an expert on corporate governance says.
Jane Hilburt-Davis said the Demoulas family, which owns the chain, came close to proving the conventional wisdom that just 3 percent of family-owned firms will survive only three generations.
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But while family-owned firms face more conflict than other companies because “so many people wear so many hats” in both family settings and company offices, there are ways to avoid a rift.
And Hilburt-Davis, who has written two books on family-owned businesses and owns Key Resources, a Boston company that provides consulting to family-owned companies, said the situation is getting better. She said the “30-13-3” rule – referring to the percentage of companies that survive each generational change in control – isn’t even true anymore because those figures include companies that are sold or reincorporate to make different products or provide new services.
That doesn’t necessarily suggest that the company failed, she said.
Family-owned companies are doing better, she said, because more entrepreneurs are willing to set up a corporate board that includes, or is even dominated by, independent directors whose allegiance is to the firm and is uncomplicated by family connections.
Even those that defer establishing a board of directors will usually lean on informal advisers who can see a big picture that is unblurred by family issues.
Hilburt-Davis, who will be a key speaker at a meeting on corporate governance put on by the Maine-based Institute for Family-Owned Business later this month, said no matter how smoothly a family-owned company runs, it is likely to hit a wall.
Often, that’s when the issue of succession comes up and the company founder will need to decide who will take over when he or she steps aside.
It’s a situation filled with the likelihood of bruised feelings, Hilburt-Davis said, and those feelings can often affect company operations.
Many companies, she said, have set up family councils – yearly retreats that give family members who aren’t working for the company information on how it’s doing and what’s expected in coming years. Succession issues are often discussed in those settings, allowing a consensus to emerge on who can best take the reins.
Having a family get-together to focus on the company has helped Hussey Seating of North Berwick, a company that makes arena and gymnasium seating, survive through six generations, said Tim Hussey, the company’s president and chief executive officer.
A meeting with all 33 family members who are connected to the company, Hussey said, helps those who don’t work in the business feel they’re on close-to-equal footing as those who do.
“It’s a process that works to align family members on an agenda,” he said. “It’s a process and a part of our family culture. We’ve worked hard to have common goals and aspirations and to keep communicating.”
Equally important, Hussey said, has been a seven-member board of directors with four independent board members, with no family ties to the other three.
“That’s taken the family drama out of it. If there are family differences, there’s a neutral board there that’s charged by the family to do the right thing,” he said. “Having an independent board is a savior. Many times, it saves the family from itself. You keep the emotional decision-making out of it.”
Hussey Seating also represents what Hilburt-Davis said about companies that change directions and remain successful. The family company began as a plow manufacturer in 1835, later changing to a steel fabricator and then shifted to bleacher manufacturing in 1931.
To remain family-owned through those shifts helped create a strong bond between the company and the family, Hussey said.
“The motivation for us is stewardshop and a continuous legacy,” he said. “It’s a long-term view of how we keep this going and then give the next generation a shot at it.”
John Isaacson, chairman of the Institute for Family-Owned Business, said CEOs of family businesses need to pay attention to family relationships as well as the corporate balance sheet.
“In the end, it’s important that the business succeeds and moves from generation to generation, but just as important, or maybe more important, is that the family stays happy,” Isaacson said.
He said the test of the strength of a family-owned business usually comes when control passes from one generation to the next. Everyone needs to know who will take over running a business and why, along with an explanation of the roles of those who work in the business and those who don’t, but own a share of it.
“The more that can be communicated, the easier it is to make that transition, but a lot of peple won’t talk about it or can’t talk about it,” Isaacson said. “Many times, the business gets sold because of that.”
Hilburt-Davis said that ultimately, the Market Basket saga showed the deep divisions that can form in a family-owned company.
But it also showed one of the strengths of a company run by a family when the workers banded together to demand the return of the president they trusted and not the CEOs brought in from outside.
“In family-owned businesses, there’s a lot more loyalty,” she said. In the case of Market Basket, with 25,000 employees, “the quantity of the loyalty was unbelievable, but the quality of the loyalty was not.”
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