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Four Principles for Perpetuity of Family Enterprises

In "Perpetuating the Family Business," John L. Ward introduces the concept of the 4 P's, fundamental principles embraced by the world's most successful business families. These principles, termed "The Four P's," serve as a crucial framework for achieving continuity in family businesses. Addressing the inherent conflict between family needs for strength and the business's requirements for growth, the Four P's provide a foundation to navigate this dilemma. Recognizing the inevitable contradictions between family and business, successful business families leverage the Four P's to mitigate potential friction and ensure the harmonious coexistence of both entities.

The transformative power of 4 P’s include:

Policies Before the Need
Sense of Purpose
Process
Parenting

Policies before the need

PFBI-Policy

The author recommends to establishing proactive policies which enable them to anticipate and minimize future conflicts and uncertainty. This involves creating employment guidelines, and instituting policies for compensation and performance evaluations before the next generation joins the business. Transparent communication of these policies prepares family members, ensuring a smoother integration and advancement process within the business.

Effective family business communication hinges on transparency to build and sustain trust among members and stakeholders. Vital elements include:

Communication Protocols: Defining channels and frequencies for sharing crucial business information among family members, aids in fostering a clear and structured flow of communication.
Family Meetings: Establishing the purpose, structure, and frequency of family meetings, helps promoting collaborative discussions on business matters.
Reporting Mechanisms: Developing policies with clear requirements for regular reports ensures that family members stay informed about key aspects such as business performance, strategy, and significant events.

By implementing these essential guidelines in drafting polices, a family business can create an environment where information flows seamlessly. This not only strengthens unity and alignment but also maintains a solid foundation of trust among its members and stakeholders.

Sense of Purpose

PFBI-Sense-of-purpose

The "Sense of Purpose" represents a pivotal factor, denoted as the second "P," in effectively managing family businesses for long-term success. Defining this purpose involves fundamental inquiries into why the business exists, why effort is invested, and why policies are formulated. This shared purpose becomes a driving force, motivating enduring debates and sacrifices crucial for business success. Each family's purpose varies, from passing on values to future generations and serving the community, to fulfilling a broader humanitarian mission through their products. The Ochs-Sulzberger family of The New York Times Company illustrates a multi-generational commitment to their purpose, viewing ownership as a trust to serve humanity. However, a loss of this purpose can endanger family ownership or prompt a significant shift in the family's role perception. “Smorgon Consolidated Industries”(Australian Family Firm) professionalized their business but faced challenges as it outgrew the family's hands-on management, eventually exiting when the family's joy in the business and the larger purpose diminished. A well-defined purpose aids in navigating contradictions, offering the drive to overcome challenges, and ensuring business continuity across generations.

Process

PFBI-Process

The Third “P” is "Process," encompasses collective discussions and problem-solving crucial for issue resolution. While families can't predict every needed policy, effective process skills equip them to handle unexpected challenges through communication, consensus-building, and collaboration. The Smorgon family highlights the significance of process through a round table approach where each shareholder, regardless of shares owned, holds veto power, fostering discussions and seeking consensus. Similarly, the Salvatore Ferragamo Group emphasizes consensus-building and cohesive decision-making, epitomized by Wanda Ferragamo's emphasis on family teamwork. Process is intrinsic to family businesses prioritizing policy-making, fostering vital skills such as listening, communication, and collaboration during family discussions. The value lies not only in the policy's content but in the shared experience of its development, consensus-building, and articulation of expectations. Regardless of the employment policies' nature, what matters most is a policy shaped by collective family efforts. Collaboratively working on policies strengthens the family's ability to navigate challenges and make joint decisions, fostering overall success and continuity in the family business.

Parenting

PFBI-Parenting

Parenting stands as a pivotal element profoundly impacting the future of a family business, stressing the necessity of preparing the next generation for prosperity. Despite the inherent ties between family and business, the significance of parenting can be overlooked, notably in sibling-owned second-generation enterprises where meeting expectations in the business may overshadow family time. Successful family firms prioritize parenting, acknowledging its direct influence on overall business success. These families invest in educational sessions during family meetings to enhance parenting skills, recognizing that qualities developed through effective parenting—such as communication, consensus-seeking, fairness, and decision-making—align with the crucial Process aspect.

The following case study highlights the multigenerational success story of the Ochs/Sulzberger family. Through financial disciplines, family involvement in the business, cousin’s collaboration, commitment to integrity and firm governance, the family has been able to perpetuate their family enterprise.

Case Study

The Ochs/Sulzberger Family- New York Times Case Study

In the mid-1800s, Julius Ochs immigrated to the U.S., setting the stage for a remarkable family legacy. Adolph Ochs, G-1, started in Chattanooga, Tennessee, rescuing the bankrupt Chattanooga Times. In the 1880s, he ventured to New York, bootstrapping the purchase of what would become The New York Times (NYT).

The key players who played an important role in the continuity of the family enterprise include : Adolph Ochs (G-1), Iphigene (G-2), Arthur Hays Sulzberger (G-2), Arthur Ochs “Punch” Sulzberger (G-3), Arthur Ochs Sulzberger, Jr. (G-4), and recently in 2017, Arthur G. Sulzbeger (G-5).

Critical factors that contributed to their success:

Ochs Trust: Adolph established the Ochs Trust, the largest NYT common stock owner. The 1997 Family Trust reaffirmed the commitment to editorial independence and the public welfare.
Rules of the Road: The Sulzberger’s lived by the "Rules of the Road," prioritizing the NYT over family. This commitment became a moral vision, akin to a family religion.
Financial Discipline: Lack of liquid wealth until 1990 led to disciplined financial choices. Earnings were reinvested in the company, contributing to its sustainability.
Iphigene's Leadership: Iphigene (daughter of Adolph Ochs, who bought the New York Times in 1896 and built it from a struggling paper into a progressive touchstone), a crucial figure, led as the de facto leader until her passing in 1990. In 1986, a unanimous agreement not to sell voting shares outside the family was a testament to her impact.
Family Involvement: Scores of cousins, even in-laws, played roles in company management. The entire family tree and relationship were well documented.
Performance Expectations: All 13 grandchildren of Adolph Ochs wanted to contribute to the business. While family membership helped secure jobs all of them demonstrated good performance to sustain the family business.
Equity Split: In 1957, equity was split into non-voting and voting shares. The family retained Class B voting shares, maintaining control. In 1968, NYT went public, but family control endured through the Family Trust's Class B stock.
Manifesto for the Future: In the early '90s, the 13 cousins collaborated on a "Proposal for the Future," a testament to family unity and foresight. This exercise, guided by Iphigene's example, showcased successful cousin collaboration.

Sources: Ward, J. L. (2004). Perpetuating the Family Business: 50 Lessons Learned From Long Lasting, Successful Families in Business. A Family Business Publication.

Jones, A. S., & Tifft, S. E. (2000). The trust: The private and powerful family behind The New York Times. Little, Brown and Company– LinkedIn Review

Arthur O. Sulzberger, Publisher Who Transformed Times, Dies at 86 - The New York Times (nytimes.com)- Article

How A.G. Sulzberger Is Pushing the New York Times Forward | TIME- Article

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