Miguel Ángel Gallo, Daniela Montemerlo, Josep Tàpies, Kristin Cappuyns, Salvatore Tomaselli, Sabine Klein
Original document:
From the Founder to Multigenerational Family Business: The Family
Year: 2006
Maintaining the delicate balance among members of a family business isn't always easy; people have different personalities and goals that can complicate their interactions. However, maintaining a high level of family functioning is crucial for a business's long-term survival. Though founders may be fully committed to the business, passing that commitment on to subsequent generations can prove challenging - even impossible. Yet, many family businesses manage to thrive for three generations or more. In "From the Founder to Multigenerational Family Business: The Family's Crucial Role as an Owner for Longevity," authors Miguel A. Gallo, Sabine Klein, Daniela Montemerlo, Josep Tàpies, Salvatore Tomaselli, and Kristin Cappuyns analyze their secrets for success.
Though a business's founders may start with strong "potential motivation" to improve their own and their families' lives, turning such motivation into "current motivation" is difficult, for two main reasons. First, when founders prepare to leave the business, they may resist transferring the business to the next generation or changing strategy or organization. Second, subsequent generations may choose not to be involved, and founders may opt to sell the business to ensure family members' financial security. Yet, many multigenerational family businesses (MGFBs) thrive - and "the key lies in the qualities of the people who form the ownership group."
Any exploration of human qualities and behavior requires delving into the fields of philosophy and psychology. One important theory of human behavior is agency theory, which proposes that man is "a rational actor, motivated only by extrinsic rewards." Some researchers, however, have suggested that this theory is flawed and that man's behavior, according to stewardship theory, "is ordered such that pro-organizational, collectivistic behaviors have higher utility than individualistic, self-serving behaviors." The stewardship theory looks at the motivational drivers "intrinsic" to the human being and helps us understand human characteristics and the idea that "rationality" guides human decision processes and behaviors in a organizational context.
The present work builds on this line of reasoning and proposes a "realistic model of man" which is founded on an anthropological conception inspired by Aristotelian and Tomistic (Tomas Aquino) philosophy. This "realistic model of man" has formed the basis of entire research project and in contrast to both previous theories, in this model the emphasis is placed on the different ways in which human beings are motivated, the basis for the skills they learn, the essential quality of being a free agent, and knowledge and will as the two facets of their freedom, which are basic characteristics of both families and businesses.
Moreover, through the exercise of rationality, people are able to identify "the good" in accordance with their own nature. By expressing their wishes and practicing virtues, they dominate their desires and exercise their liberty to improve themselves or their situation.
People are complex creatures with unique sets of characteristics. So what drives people to act? People are motivated by different types of needs, including material needs ("the possession of things," in its most general definition); cognitive needs ("needs related to our ability to do things, to achieve what we want"); and affective needs ("linked to the achievement of suitable relationships with other people"). Each type of need leads to different types of motives: extrinsic, intrinsic, and transcendent, respectively. These motives compel people to take action.
These philosophical and psychological musings help us to understand the individuals behind any family business. Keeping all of this in mind, we can look at the secrets of successful MGFBs and the families who run them.
The CAVA model
Four major categories of principles, structures, and rules are evident in an evolving family business that combine to form the CAVA model. The name of the model comes from the description of the four groups of principles, the different structures and the rules that combine to form the model: C = Committed, A= Active, V= Virtuous, A= Advanced Business Families. That is, the family business as a community of people; committed business families; power as a service; and estate transfer as a responsibility. Successful development of these areas bodes well for the longevity of the business, and exploring these categories in greater depth gives a better-rounded picture of what being a committed business family (CBF) entails.
First, the fact that the family business is a community of people suggests that financial success isn't the only requirement for survival. A family business "includes owners, managers and people who work within it, and these people must be organized in accordance with the proper formal structures of responsibilities and management systems." Families must set up membership rules, commit themselves to the development of members' professional skills, compensate their members fairly according to a transparent and logical structure, and "meet the 'social mortgage' attached to any kind of ownership."
Second, for family members to be united and committed to the business, there must be a structure in the form of "a combination of values, principle systems and rules." In fact, the values that lie at the heart of these structures are to some degree an attempt by the owner family to formalize some of its beliefs with a view to establishing a long-lasting family business.
Moreover, it is important to stress that each of the three structures of freedom, participation and entrepreneurship make it necessary to provide family members with a clear framework for action, so that each and every one of them knows the requirements for participation and how they can be a part of the process. Members participate effectively, make decisions fairly, and support the family's entrepreneurial spirit.
Third, the idea of power as a service means that the decision makers in a family business must "demonstrate high-quality motivational balance, since their decisions must take account of transcendent motives and not just intrinsic and extrinsic arguments." There are two types of power: potestas, which is "the power to decide that is afforded by law," and auctoritas, which is "the power to decide that is afforded by the possession of the required professional competence." The different powers exercised by owners and shareholders must be balanced an important challenge that's vital to the formation of a CBF.
Finally, the idea of estate transfer as a responsibility means that plans must be made for the transfer of "ethical, human, intellectual, financial and other resources." The future of the business must be of utmost importance when making transference decisions, and "the common good takes precedence over the personal good." Tyranny must be avoided by selecting "good and decent beneficiaries who intend to organize governance in a collegiate way."
Committing to a family business brings a great deal of responsibility, and when people make this commitment, they may feel a certain degree of ownership over that business even when they are not, in fact, the owners - a phenomenon called "psychological ownership." This can negatively affect the unity of the group. However, in multi-generational family companies, this feeling can also be positive: feeling ownership "generates commitment, a desire to make an effort to give something back to the family and the business, because so much of what an individual possess has been received from them."
This kind of intense commitment and involvement is what business families must strive for in order to survive through multiple generations. Instead, given the ever changing cycles of people's life's, as well as the changing circumstances in the family business, no perfect solution can ever be found. Companies are constantly evolving and family members must continually renew their commitment to the business. By understanding what drives people's behavior, and by analyzing the characteristics of successful multigenerational family businesses, business families can begin to strengthen and become, one day, committed business families with a business that will stay viable even when they themselves are gone.