Kellogg World Alumni Magazine, Spring 2001Kellogg School of Management
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Family valuations
The challenges confronting family business find solutions at Kellogg, thanks to a powerful research center and a leading expert on the world's original business model

by Matt Golosinski

Family Business Tree
�2001 Joan Hall for Kellogg World

You would probably think twice before spending Thanksgiving dinner with your boss, no matter how fond you might be of that person who paged you three times last weekend while you shopped for tile at Home Depot. Yet a significant portion of the world's business community not only breaks bread with their CEO, they may also ask her which color tile looks best in the bathroom.

Welcome to the world of family business, replete with fascinating challenges largely unknown to those treading the halls of public corporations.

"With family businesses, you have manager relationships that last a lifetime," says Professor John Ward, co-director of the Kellogg-based Center for Family Enterprise. Ward is an international authority on family business who has written three textbooks and a dozen substantial booklets on the subject. "I've concluded that the characteristics of the family more profoundly affect the outcome of an enterprise than the classical business issues," he adds.

To illustrate the point, imagine General Electric CEO Jack Welch holding court in the corporate boardroom, fire leaping from his tongue, his eyes flickering with another cost-cutting stratagem. Now imagine Welch is your father and you're one of his senior executives charged with the task of convincing the corporate legend that his latest idea belongs in the ashcan. It's not a picture that inspires yogic tranquility. But this scenario does reveal the complex, and emotional, governance issues that Ward says confront family businesses.

"Governance issues, succession issues, product life cycles." Ward ticks off a list of hurdles that distinguish family business leaders from their public company peers. These challenges make family business a compelling study for Ward and Lloyd Shefsky, clinical professor of managerial economics and decision sciences, and the center's co-director.

In a Kellogg course titled Family Enterprise: Issues & Solutions, Ward and Shefsky introduce students to an arena unfamiliar to many. The course was launched last year as a five-week program and is already so popular that its length and enrollment have doubled. "Family business studies at Kellogg will provide valuable tools to faculty teaching a variety of seemingly unrelated subjects," says Shefsky.

Some may be surprised to learn that family business is not just some mom-and-pop pizzeria tucked into a crumbling row of brownstones back in the old neighborhood. Many family businesses are actually household names. "Levi Strauss is a family business," Ward explains. "So are S.C. Johnson, the New York Times and Ford Motor Co. Family businesses make up a huge percentage of the biggest companies in the world."

In the classroom, the professors not only identify the issues facing family business, they develop theories about how these companies behave. Ward and Shefsky are especially interested in how family character and values -- including ethnic or religious structures -- shape the conduct and strategy of a business. The class draws significantly upon live case studies. Shefsky notes that there's a "desperate lack" of these studies for family business, so the research at Kellogg affords the school a chance to grow its reputation in this area. One case used in the course features a Kellogg alum who is part of a business that transformed itself from a traditional publishing company to one that includes a high-tech component. "This is a great case that lets us explore how businesses are born within businesses," says Ward.

While Ward didn't invent family business -- the institution goes back thousands of years -- he has popularized the subject as an academic area. Two decades ago, Ward, a strategic planner by training, grew fascinated by his initial foray into family business and wanted to learn more. "So I did what any good researcher would do," he recalls. "I went to the library to read what had been written on the subject. What I found was that virtually nothing had been done in this area. That fascinated me even more."

Ward claims that the "major institution" in the world's economy had been ignored by most academics for two key reasons: the intensely private nature of many family businesses, coupled with a bias against these companies among scholars.

"Around 1930, the attitude of business education was to professionalize business," says Ward. "This became a powerful paradigm that not only made the inference that family businesses were poorly run, but that the role of schools was to prepare people for careers in publicly owned, professionally managed businesses."

This situation has changed today, in part due to the efforts of people like Ward and Shefsky, and the Center for Family Enterprise, founded in 1998. The center studies every aspect of family business, including successorship. "One thing that's unique for leaders of family businesses is that typically they're following in the footsteps of a relative, a parent perhaps -- maybe a real hero," says Ward. "There's a legacy effect, but there's also a great challenge of following someone who was a great founder."

In America, legacy is measured with a cultural yardstick that varies from that used elsewhere. If an American family business matures through three generations it's considered "high risk," says Shefsky. In some countries such a company would be considered fledgling. "While teaching in Japan, a man asked me a question about his family business," the professor recalls. "I asked him what generation he represented. The 14th, he told me. I was dumbfounded. I replied 'That's older than my country!'"

In addition to growing the Family Enterprise course, Ward and Shefsky have worked to produce a groundbreaking executive education program. Classes will begin this fall with a Nov. 27-30 course on family governance at the James L. Allen Center. A weekend conference is slated for next May. A major goal for the center involves identifying and developing a network of alums worldwide and establishing a database of family business scholars and professionals. "A big priority for us is building a proprietary Internet communications system for alums to reach each other and to exchange ideas and share questions," says Ward.

Ward's passion for family business stems from his belief that these institutions play an important role the world over. In most societies, he contends, the leaders of these businesses are also the leaders of organizations that provide community stability.

"There's a social dimension to all this," Ward says. "It's not just about the fascination of learning how these organizations overcome their challenges. The deeper question is: Are family businesses good for society? My opinion is that having a rich diversity of ownership systems is good."

©2001 Kellogg School of Management, Northwestern University