Tag: Family Business Center

Olin’s central course on family business is “Ownership Insights: Strategic Leadership of the Family- and Employee-Owned Firm.” In this course, Spencer Burke, Eugene F. Williams Jr. Executive in Residence, and I (Peter Boumgarden) have spent the last few weeks identifying the choices owners face in their business and their respective impact on firm performance. 

One framework for ownership decisions centers around Josh Baron’s helpful conceptualization of the five choices that owners can make in their business. It is nicely captured in his book, Harvard Business Review Family Business Handbook, which we both recommend. Josh argues that owners have the power to:

• Design the type of ownership you want (Design)
• Plan for the transition to the next generation (Transfer)
• Use effective communication to build trusted relationships (Communication)
• Structure governance to make great decisions together (Decide)
• Create an ownership strategy to define success (Value)

In this blog post, I want to show how this framework translates into teaching our students to understand the consequences of ownership decisions in the family firm.

Ownership choices and value constellations

One of the things I most appreciate about Josh’s tool is the clarity by which he brings out the potential choices in play for owners of organizations.

Amongst all of these five choices (design, transfer, communicate, decide, value), what I get most excited about with private enterprise is the possibility of intentionally defining value—or success—in different ways than those in other ownership forms. Our course, in particular, seeks to extend this work by formally filling out all the influences on ownership choices, from changing demographics and its impact on the family tree and succession to differences in cultural psychology across regions and how it shapes what is considered fair in different spaces. You can see the full framework below.

One of the critiques of family business as an ownership form is found in research by Nicholas Bloom, Raffaella Sadun, and John Van Reenen. Using the World Management Survey (WMS) as a tool, the researchers argue that family businesses with family CEOs are less well run than many other ownership forms in the market (dispersed shareholders, private equity controlled, etc.). A great deal of the power of this work is that companies that are independently scored high on these 19 dimensions empirically perform better on many measures of company financial performance than companies who score lower.While I like this research a great deal, if you dig into the “World Management Survey” items (here is a survey from retail, for example), it also becomes clear that these are not value-free items. Let’s look at three examples in particular to illustrate the point, with the item identified first, and the description of the top score identified after:

• CONSEQUENCE MANAGEMENT – Top Score: A failure to achieve agreed targets drives retraining in identified areas of weakness or moving individuals to where their skills are appropriate.
• TARGET INTERCONNECTEDNESS – Top Score: Corporate goals focus on shareholder value; they increase in specificity as they cascade through business units ultimately defining individual performance expectations.
• RETAINING TALENT – Top Score: We do whatever it takes to retain our top talent.

Many of us can see why companies like this might perform well and perhaps be the kinds of companies we might want to invest in or work for. But, for the sake of argument, let’s consider another company wedded to a different set of values along these exact dimensions.

• CONSEQUENCE MANAGEMENT – “At Company X, we set clear goals for our people but build in a care for people when they don’t perform at expectation, knowing that circumstances sometimes sit outside one’s control.” 
• TARGET INTERCONNECTEDNESS – “As owners of Company X, we desire strong shareholder performance, as that is in our financial interest. That said, we want to ensure that multiple stakeholders of the business, from you as employees to the communities we sit within, matter a great deal. As such, if we add value for those other groups and this sometimes occurs at the expense of shareholder value, we will still consider that a good year.”
• RETAINING TALENT -”We want you to perform well here. That said, we know that this might not be the fit for your forever. As such, if this company is not the best place for you, we want you to know that we care about you enough to want to find the best fit for you moving forward, even if that place is not here.”

I bring up these points of comparison not to suggest that the latter is a better way of performing, but rather to show how you could see an owner setting up their business like this and thus defining value in a very different way. In many ways, our economy functions in healthy ways when it is represented by companies reflecting a wider plurality of value positions, and not all of the same ownership model (private, public, PE owned, family owned, employee owned, etc.)

The lived philosophy in family and private enterprise

We have seen many of these differences reflected in the comments from class speakers, someof whom have already shown up and others to come in the next few weeks:

• Matt Villa (2nd Gen), Villa Lighting
• Ross Millman (4th Gen), Millman Lumber
• Elizabeth Niedringhaus (2nd Gen), SSE
• John Jennings, St. Louis Trust and Family Office
• Mike Lefton (2nd Gen), Metal Exchange Corp
• Ryan Plotkin (2nd Gen), M-D Building
• Kristi Humes (2nd Gen), Tacony Corp
• Eric Gilbert (2nd Gen), Anova Furnishings
• Ted Briscoe (Multi-Gen), Sydenstricker Nobbe Partners
• David Weiss (1st Gen), Podiatry Growth Partners 

This summer, I was on a long run with a good friend, Chris Bolyard. Located in the Maplewood neighborhood of St. Louis, Chris’ butcher shop, Bolyard’s Meat and Provisions, is one of Food and Wine’s Best Butcher Shops in America. On the run, Chris and I got to talk about whether he would ever open multiple shops or grow his enterprise outside of St. Louis. We had a few mutual friends who had done similar things with their restaurants, so you could see what might be appealing. While Chris didn’t outright say he wouldn’t do those things, it became clear that this was not a fundamental priority for his business. He saw the strain this would have on his family, his lifestyle, and perhaps even his ability to keep the same quality standards across the operations.

Chris’ north star is on product quality and serving his neighborhood customers over and above rapid growth and expansion. To take it a step further, even if he did move to multiple locations, it is clear that Chris does not aspire to be Tyson Foods. So, would it be fair to compare Tyson Food to Bolyard’s Meat and Provisions? No, for in many ways, these two are running in fundamentally different races.

Ownership strategy to define and drive value

The trap that a family business center like ours needs to avoid is believing that our mission is to tell our audience a set of sugary truths we think they want to hear. This belief might lead us to make claims that are empirically hard to justify (“Family ownership of any form is the best ownership form in the world, in all times and all places”) . As a research based institution, this is not a path we should or will follow. 

At the same time, the challenge for many business schools in the world is we too often have bought into an overly narrow, quantitative, and academic view of value (“shareholder value”, “ROIC,” “IRR,” “professionalism”) and have a hard time seeing what other constellations of value choices can be just as compelling. At the Koch Center, we hope to explore some of these distinct concepts of value and the strategic implications of organizing around such structured purposes.

There are significant challenges for most family businesses: the incentives of family shareholders, the challenges of maintaining family harmony through different business ups and downs, a family which grows faster than a business, fairness in succession of ownership, control, and management, amongst others—many of which we address in the course and the programming of the Center. With that said, what is compelling about the closely held business, whether family, employee or privately owned, is the opportunity to define a distinct set of values, and then organize a strategy and structures around such ends. Doing this well is hard work. At the Koch Center, we hope to contribute to this important task through a mix of academic clarity and educational expertise for those within and outside the halls of Washington University.

Peter Boumgarden, Koch Center’s director and Olin’s Koch Professor of Practice of Family Enterprise, wrote this for the Olin Blog.

When it comes to our mission of supporting family business leaders as they pursue new ways to thrive in the emerging economy, we can learn a great deal by looking at WashU Olin’s model of being data-driven and values-based. But living this theory in practice means flexing a muscle that is often under-developed in many organizations, family businesses notwithstanding.

So what does it mean to have an eye toward relevant data while simultaneously being shaped by a guiding set of values? At the Koch Center, one way that we do this is in our unique approach to combining data and design in our engagement with the broader business community.

Inaugural data+design dession: Balancing continuity and change

On October 29, the Koch Center hosted the first of our new “data+design” series. Each of these sessions is organized around a particular strategic challenge for organizations. Our first event focused on how family and private enterprise balance a commitment to continuity with the past alongside the need to change to match any number of emerging realities.

Approximately 50 leaders from around the region participated in a session designed to leverage some of the university’s best offerings, particularly a rigorous approach to data built upon a strong research foundation. Unique to this model, we asked each participating leader to fill out an assessment that mapped their organization across several distinct dimensions before our time together. This battery of assessments included a modified version of the “World Management Survey,” a measure of business uncertainty, and an evaluation of how much they have changed over the past year and must change over the year ahead.

While it can be helpful to get objective numbers on these items, the data+design format enabled us to provide each attendee with a customized report that contrasted their self-assessment with all other attendees. Indeed, much of the value can come through this comparison. It is one thing to know you self-assessed at a “3.5” out of “5” when it comes to your company’s talent strategy, but a whole different level of insight if you know others in your organization scored this same item lower, and the average across a set of peer institutions was closer to 4.

With comparative data in hand, the group came together on October 29 and heard me present a set of research-backed framings on what kind of balance is especially high-performing. One study in particular from McKinsey & Company indicated that firms that maintain a relatively robust refresh rate in their product/service portfolio outperform those who do not change enough and those who change too frequently. This refresh rate of approximately 10-30% change over a decade they called “rivers” in contrast to the static “ponds” (less than 10% refresh) or overly dynamic “rapids” (over 30% change). Simultaneously presented with data about where their organization stands alongside a guiding framework to guide our discussion, and we were off to the races.

Extending rigorous measures with design and values

But back to Olin’s guiding framing, even rigorous data without a precise understanding of values runs into limits. After all, it is one thing to know your organization’s metrics compared to your peers, but the leader still has to make clear tradeoffs on what they are optimizing toward and why.

For example, core value commitments will inevitably shape whether one prioritizes progress on this dimension and how one goes about operationalizing this commitment. For example, how do leaders balance accountability with grace? What kind of patience is required as people move to aspirational performance standards? Critical considerations for building this into practice are not always easily captured in the data alone.

And so, the discussion pushed forward with designing potential futures with data in one hand and a set of guiding values in mind. The “design” part of “data+design” came in by our use of forcing mechanisms to have those present consider more than one potential future for these design challenges. “Want to professionalize your approach to growth and innovation? Let’s see if you can identify four different routes in this direction.”

In this approach, we used a modified version of the “Crazy 8’s” design prompt to push people to generate four different alternative futures. In doing so, we encouraged leaders to expand the number of strategic options too many of us consider—which Dan and Chip Heath have found is unfortunately often only one.

Generating progress through the power of data and design

Generating creative routes forward for family businesses will require creativity. In so much as this ownership form is commonplace across the country and globe, approaching questions of strategy and structure with fresh eyes holds the potential for a transformative effect for the families who lead the operations and the broader global economy.

As a university, one of our goals is to support this creativity by bringing elucidating frameworks and the precision of empirical work while at the same point leveraging the teaching function to push our thinking in ways we would not have considered previously. For us, this work requires leveraging the power of data while also operating up to the generative power of design fueled by close attention to both leader and firm values.

We look forward to walking this journey together.

Peter Boumgarden, Koch Center’s director and Olin’s Koch Professor of Practice of Family Enterprise, wrote this for the Olin Blog.

Actionable thought leadership and research into the dynamics of the family enterprise. Forums to come together as family enterprise leaders to shape strategy through a mix of data and opportunities to design. Takeaways from events we stage at the Koch Center for Family Business. These are some of the features in store for readers as we introduce our new monthly newsletter, “The Family Enterprise.”

Today, I want to take a moment to share our plans for the newsletter and, I hope, entice you to subscribe to receive regular updates on what we know—and what we are learning—about the family enterprise. Our newsletter will also include insights from the field as we listen to leaders who are living this reality, snapshots of family organizations in the news, and upcoming ways to engage with the Koch Center, virtually or in person.

As a research center based within one of the world’s preeminent universities, we believe accurate insight and actionable frameworks can add significant value for family enterprise leaders. You will see this vision manifest in our upcoming event, “Data+Design: Striking the Balance Between Continuity and Change,” coming October 29. I hope you will consider joining us.

Unlike a traditional symposium, which is often high on inspiration but lower on concrete takeaways, this session will dynamically help you look inward while simultaneously leaving you with research-informed insights to guide your day-to-day strategic decisions. With this event and others to follow, we aim to generate a cascading impact on private and family enterprises within the region and, by extension, the broader national and international economy.

Starting with some sobering research insights

In our debut newsletter, however, I’d like to share my thoughts on how a university can uniquely add value within this space.

For those of you who don’t know me, you will quickly learn that I seek to be an academic entrepreneur—one whose primary value lies in bridging the academy and the “real world.” But today, I am going to put my academic hat on and start with the raw data.

One of the better, albeit somewhat depressing pieces of research done on family organizations comes from Nicholas Bloom, Raffaella Sadun and John Van Reenen. Unlike some of the research that addresses performance through self-reporting (“how professional do you think your firm is?”), these authors trained individuals to objectively assess companies across sectors specific to their general professionalism.

Pulling from a sample of 8,000-plus manufacturing firms and just under 700 retailers around the globe, the researchers wanted to know how family-owned and family-led organizations perform compared to the publically traded firm or groups run by private equity, for example.

As they summarize in a Harvard Business Review piece entitled “Family Firms Need Professional Management,” one of their key insights is that family-owned and family-led organizations sit near the bottom of that list.

What do we do with that?

Now, other than the fact that you might work in or lead an organization like this, why should you care about this data point? As I have discovered since assuming leadership for the Koch Center in early 2021, one compelling reason is that family business is everywhere. While the data is tricky to nail down given different definitions of family ownership, some have suggested that as many as 90% of all businesses in the US are family-controlled (Colli, 2003).

Looking beyond the small business that accounts for some of this finding, consider that founding families also have substantial stakes in about a third of the largest US companies (Shieifer and Vishny, 1986). This means family business includes everything from Walmart and Ford Motor Company to your mom-and-pop operation.

Understanding how to expand the professionalism of these operations is one piece of our goal to drive economic efficiency and extend impact throughout the broader economy.

Now, let’s consider how a research university such as ours might contribute uniquely in this space by returning to the conclusions from Bloom and colleagues. The first bit of good news is that data is not destiny. Just because the category of family-owned firms scored lower on professionalism does not mean that it must be the case moving forward for any particular firm. After all, even within this data, there is a good bit of variance. Put another way, of all family-owned firms in the data, some still scored near the top of the scale and thus on par or above with their public counterparts.

Other patterns within the research provide lessons for families who own organizations. For example, the team found that professionally-managed family-owned firms tended to perform better, on average, than family or founder-led firms.

Another perspective, a brighter picture?

Beyond looking at the professionalism index alone, other research is more optimistic on the ability of family organizations to deliver strong financial performance. Consider the 2016 study, “Fine-tuning family businesses for a new era,” from global consultancy McKinsey & Company:

Overall, family businesses deliver returns on assets that are comparable to or even higher than those of state-owned or widely held companies. But what’s noteworthy about their performance is asset productivity and brand value: their asset turnover, or ratio of revenues to invested capital, is roughly twice that of other companies, and they account for 80 percent of the brand value of the world’s most valuable labels.

Take this all together and you start to realize that how you lead a family organization makes a significant difference in how the organization performs.

In our view, this is where a university can uniquely add value. If the vision of Olin Business School is to “provide world-changing business education, research and impact,” we must participate in this by sharing material that stretches your thinking. We must create opportunities for you to craft strategies that leverage the unique structure by being family-owned.

After all, this is how you create value for owners, employees and the communities you serve. Whether you are a mom-and-pop restaurant or an iconic, global family organization—Ford, Walmart, LVMH, Cargill—for the Koch Center to have a genuine impact on practice, we have to shape you, the practitioner.

Leveraging scholarship to create service

For family organizations to thrive, we believe this is best done not merely by matching the professionalism of public firms or private, equity-controlled counterparts. Instead, we are interested in using scholarship to identify unique forms of performance not easily achievable by publicly traded firms or those with a shorter-term capital mindset. After all, taking the playbook from one type of organization and narrowly applying it to all firms would be a mistake.

Consider, for example, work by Roger Martin from the University of Toronto, writing in HBR, “It’s Time to Replace the Public Corporation.” Here, he explores ways in which private ownership enables a proper focus on the long-term. One might look no further than Warren Buffet to see an investor who realizes the potential power of family culture and legacy and how operating with an extended time horizon might be a source of unique competitive advantage.

In other words, while any episode of HBO’s “Succession” will highlight how a clash between family and business purpose can undermine the value creation of family organizations, we also believe that a creative alignment of these goals might drive a different way of operating in the marketplace. You’ll hear echoes of some of this potential in what Olin alumni and MTM CEO Alaina Macia shares in our September’s “View from the field.”

That is why we are here. This is what you are likely to see from us moving forward. We know a university is not the only player that can add value within this space. This understanding guides the mix of academics and practitioners we intend to bring to your inbox and to our events.

That said, we do think we can be unique in providing some objectivity and rigor when exploring essential questions that deserve actionable insights. Through a mix of research, thought leadership and events that allow you to explore and design strategy in real-time, we hope to aid the development of a sector that drives much of our economy.

To the extent we can assist this development—through models to drive professionalism, methods to think about capital with a longer time horizon, or approaches to balancing family and business purpose—we will consider our work a success.

We look forward to engaging in this ongoing conversation in the months ahead.

In its sixth year, the WashU Olin Family Business Symposium provided a deeper look into how the culture of family business drives performance and outcomes—and how that culture can be preserved throughout generations.

The symposium, entitled “The Importance of Culture in a Family Business,” was hosted by the Koch Center for Family Business and was held virtually across four mornings in February.

As session one panelist Mark Leeker, managing director of Harbour Group, put it, “It always comes down to the people and the ability to have a culture that is recognized and known, so that as you go through changes, you can always fall back on what it is that you do and what’s your central core.” 

Building a team at Tata Consultancy Services

On Tuesday, February 2, Subramanian Ramadorai, former MD and CEO of Tata Consultancy Services, spoke to Spencer Burke, Olin’s Eugene F. Williams, Jr. executive in residence. TCS is one of the world’s largest IT, consulting, and business solutions organizations. Ramadorai is largely responsible for its growth over the past four decades.

The keynote presentation was followed by a panel discussion with Leeker and Olin’s Seth Carnahan, associate professor of strategy, moderated by Koch Center Director Peter Boumgarden.

Eight generations and counting

The second week of the symposium, on February 10, featured Lisanne Cape Dorion, board director, and Scott Northcutt, senior vice president of human resources, of Bacardi, Ltd. Dorion and Northcutt shared some of the strategies that Bacardi, a 150-year old family-owned beverage company with over 1,000 family members across eight generations, uses to encourage innovation while preserving the company’s long-held values. 

Following the Bacardi presentation, Gina Hoagland, chairman & principal of Collaborative Strategies, Inc. moderated a panel discussion with Joshua Hager, president and COO of Hager Companies, Kevin Maher, Jr., vice president and general manager of St. Charles Automotive, and Chris Seyer, CEO of Sayer Industries, Inc. 

Investments and banking

George H. Walker, chairman and CEO of investment management firm Neuberger Berman, spoke on the structure of the employee-owned firm and how the ownership approach can inform the company’s long-term planning and innovation. With offices in 24 countries, Neuberger Berman has been named by Pensions & Investments as a Best Place to Work in Money Management, finishing first or second each of the last five years. Many of Walker’s experiences of workplace culture in a financial institution were echoed in the panel discussion with David Eichhorn, CEO and head of investment strategies at NISA Investment Advisors, and Michael Dierberg, chairman of the board at First Bank.

Sports, family, and the community

The final morning of the symposium, on February 25, was the most popular and likely of most interest to St. Louisans: a panel discussion between Carolyn Kindle Betz, CEO of St. Louis CITY SC, William DeWitt III, president of the St. Louis Cardinals, and Tom Stillman, chairman and governor of the St. Louis Blues. Kindle Betz, DeWitt, and Stillman spoke on balancing the need for both continuity and change in sports organizations as old as the Cardinals (140 years) and as new as the St. Louis CITY SC (announced in 2019 and expected to begin play in 2023).

Videos for all four events can be found below. Find more information about the Koch Center for Family Business and videos and audio recordings from past events here. 

Hillary Anger Elfenbein, area chair of the faculty for organizational behavior and the John K. Wallace, Jr. and Ellen A. Wallace Distinguished Professor and Professor of Organizational Behavior, and Dean Mark P. Taylor shared this update to the WashU Olin community.

We are writing to let you know that Peter Boumgarden is now the Koch Family Professor of Practice for the Koch Center for Family Business. Peter’s new appointment was announced at today’s annual Olin Family Business Symposium.

In addition to his professor of practice role, Peter will serve as director of the Koch Center. He will continue to teach within and work closely with our organizational behavior area.

Bart Hamilton, Robert Brookings Smith Distinguished Professor of Economics, Management & Entrepreneurship, will continue with the Koch Center as research director. Peter will also retain his role as academic director of the Center for Experiential Learning.

Congratulations to Peter on this new role.