Tools for Strategy Development in Family Firms

Reading Time: 46 min 


Like what you’re reading?
Join our community

5 free articles per month, $6.95/article thereafter, free newsletter.

$89 $45/Year

Unlimited digital content, quarterly magazine, free newsletter, entire archive.

Sign me up

Family businesses are particularly vulnerable when coping with the speed of economic, industry, and competitive change. While the members of a founding family can draw on their powerful feelings of loyalty and love to sustain the business in its early years, the same family ties can inhibit change when later generations inherit the business. The family business system, once a source of innovation and creativity, can sustain a profound conservatism. This conservatism is not a sign of pathology but instead is the direct consequence of the family’s source of strength. Its virtue can become its weakness. Three issues relevant to all family businesses are particularly important:

1. Strategic imperatives and family life cycle events are often out of phase.

Stages in the family life cycle such as the founder’s death or children entering the business often provoke changes in the business.1 However, these life cycle events may unfold too slowly. Just when the family expects to transfer the legacy of the business to the next generation, the business’s capacity to create and sustain the family’s wealth may be undermined. External pressures and business responsiveness often do not correspond with unfolding family cycles. As competition rages and the need for decisive action is paramount, planning for or making a leadership or ownership change can destabilize both players and the firm, exacerbating an already anxiety-filled process. Without an agreed-on and well-understood plan that encompasses both the family’s wishes and the flexibility to make appropriate business decisions, continuity just won’t happen.

Consider Henry Ford. By creating an integrated production process, he was able to sell the Model T to farmers for less than $1,000. He realized that by producing only one car model, he could keep prices low and pay good wages to workers. However, when General Motors introduced customer choice by offering several models, Ford, by then in his sixties, refused to change his strategy. His oldest son, Edsel, could not convince him that the company faced danger. Only after Ford’s death was his grandson, Henry Ford II, able to revive and redevelop the company.2

There are many current examples of businesses founded around World War II that were based on a good idea, were targeted at a niche market, and required little capital. They are now struggling against larger, well-financed competitors whose use of technology allows them to compete in the smaller markets that were once the domain of private family businesses. When business-educated and experienced sons or daughters introduce alternate approaches, they are often dismissed as ungrateful children. Rules of family hierarchy come to dominate business strategy.

2. The tie to the founder.

Family business executives and family members themselves are tied psychologically to the founder’s ideas and intentions. The business is more than just a business that can be directed rationally; it is also an institution representing the founder’s legacy. Thus there is a great deal of anxiety when and if family members consider violating the founder’s core business idea.

For example, before Walt Disney died, he hand-picked a triumvirate to succeed him, composed of his son-in-law and two trusted colleagues. When facing business decisions, they were unable to think for themselves. Instead they asked, “What would Walt have done?” Under their leadership, the company (a publicly traded, family-dominated business) lost millions of dollars in value. (In 1983 alone, a good year for the stock market, Walt’s nephew Roy Disney’s holdings dropped from $80 million to approximately $50 million.)3 In 1984, Roy Disney, once dismissed by the family as the “idiot nephew,” was more distant from Walt’s shadow and brought in two outsiders, Michael Eisner and Frank Wells. The three took the Walt Disney Company into industries like retailing, while also sustaining and affirming the original business — production of animated films.4 Still, Roy felt both burdened by and tied to his family legacy (his father Roy had been the financial brains behind Walt’s creative energy). Selling his stock in 1983 would have felt like a family betrayal; instead, he was determined to fix the company that was his heritage and reclaim the honor of his father’s (rather than his uncle’s) accomplishment.

Indeed, some founders create an ownership structure that makes strategic change difficult. The founding father of an entertainment conglomerate, one of our clients, set each of his four sons up in a different market but then distributed ownership so that each brother owns equal shares of his brothers’ businesses. This structure imposes several limitations on the strategic flexibility of the firm. First, it is difficult for any brother to develop and implement a new business idea without gaining the agreement of all his brothers. Second, it is extremely difficult to sell any business since each brother is occupied with running his business and is therefore attached to it, regardless of its performance. Similarly, acquiring operating businesses is complicated because any addition to their holdings requires redrawing the balance of power among the brothers. Third, the entire structure of ownership reproduces and represents the father’s vision of the business, in which he is at the center, while his sons are in a constellation around him. The father lives on in the business, even though he has been long dead. The oldest brother, the family leader, feels that it is now impossible for him and his brothers to undo what their father did, retaining the position of “I won’t bother you, if you don’t bother me.” He knows he can serve his own and his brothers’ children best by separating the businesses, although in doing so, he would violate his father’s spirit and intentions. Consequently, he feels trapped; “like a man on death row,” he told us.

Similarly, what is often psychologically integrated in the founder can become split among the next generation, with one becoming the risk taker, another the conservator, one the unrelenting worker, another the slacker, and so on. In more than one case, client siblings have maintained the founder’s office as a mausoleum or memorial. The strategic examination of the business becomes impossible, and sadly, the founder dies twice, the second time with the demise of the business.

3. Trust and leadership in the second and later generations.

Second- and later generation family members, particularly when they are not business employees, frequently want to diversify their holdings to protect their wealth. They are wary of providing capital to the business because, in contrast to the singular founder, with shared ownership, no family member can make decisions unilaterally. They also find it hard to trust and authorize a sibling or cousin in the same way that they imagine trusting their own father or mother. The successful founder becomes a mythical figure, a person who could link the fortunes of the business and the family together, while the sibling is a familiar rival with very evident weaknesses and strengths. Ties to cousins can be even more tenuous. To preserve wealth, each sibling or cousin is stimulated to look out for his or her own fortunes, doing so with more or less care for the business, depending on the relationship to the business. For example, when Dodo Hamilton, a third-generation member of the Dorrance family and an heiress to the Campbell Soup fortune, considered selling her stock, she noted, “After a lot of really heart-wrenching crying, I came to the conclusion, this would be the best for my family. I had to look after my family and not the family as a whole.5 Under these conditions, a firm may be deprived of needed capital and clarity of leadership just when it needs to reassess its direction.

Criteria for Effective Planning

The dynamically conservative character of family business, in which change seems to occur but is, in fact, narrowly constrained by the weight of the past, suggests that we need to develop distinctive tools for and approaches to the task of strategic development. Moreover, we cannot only employ the best technical planning methodologies for improving the firm leaders’ understanding; we also have to address the emotions they feel when they provide leadership. We believe that any strategic planning approaches suited to family businesses should meet these criteria:

  1. Link feelings to choices. As we have seen, second-and later generation family business leaders cannot think of strategy without experiencing strong feelings that shape their thinking and define the range of choices they will consider. If they feel guilty about breaking up or rearranging the family’s interests in the business, if they are afraid of violating the founder’s marketplace approach, if they are eager to upend the “oppressive” culture sustained by the founder, they will unconsciously constrain the choices that they consider.
  2. Link business strategy to ownership structure. Second- and later generation family business members face the centripetal forces created by their separate lives. The business may represent all the holdings of some family members but only a portion of others. Some family members may be adept at assessing the level of business risk and their own risk preference vis-à-vis rates of return, while others are less so. Some family members may wish to diversify holdings by taking money from the business as dividends; others may prefer to concentrate on the business and leave their money in. Some family members may be interested in liquidity, while others want to pass on their often illiquid stock to their children. Members cannot securely pursue a strategy unless it considers these ownership issues along with the appropriate capital structures and financial plans.
  3. Embed strategy development into the key relationships in the business. In firms not centered around a family, shareholders or board members can displace leaders who have failed or can bring in outsiders to assume new leadership positions. In family businesses, intractable family relationships, whether inside the firm’s line organization or on the board, shape how people think about the firm’s needs and prospects. Family members, as owners, are not easily displaced if also leading the firm.
  4. Help family members and leaders accelerate the pace of strategy review. Family firms cannot link their planning processes to life cycle changes. The pace of the marketplace creates an imperative for strategic speed.6 In all types of corporations, strategic development is supplanting long-range planning. In family firms, whether planning is ad hoc, well structured, or nonexistent, any planning method will view strategic development as ongoing rather than generational.

As these criteria infer, in planning its future, a family business must accept and integrate normal family processes into business planning. Rather than fight members’ underlying emotions, the design of planning processes needs to make them part and parcel of the techniques used.

Simulation Tools

As consultants, we have found that simulation tools help family members link thought to feeling, strategy to relationships, and past to future. Simulation tools such as role playing, computer models, and scenarios help family members transcend abstract or segmented thinking. Thus, for example, in research on role playing’s value in predicting the outcome of conflicts (such as marketing negotiations), Armstrong found that people could more accurately predict a negotiation’s outcome by first role playing.7 (Certainly, we can consider negotiating a succession transition among family members at least as potentially conflictual as a marketing negotiation.)

Why does role playing work in this way? As a simulation tool, it helps participants become conscious of their mental models, their “deeply held internal images of how the world works.”8 Mental models, Senge notes, “determine not only how we make sense of the world, but how we take action.”9 As Gilmore and Shea add, role playing enables people to learn from their experiences. Such learning, because it derives from both rational and emotional experiences, deepens participants’ understanding of their situation.10

A simulation tool can help participants overcome their current mental models in two ways. First, when participants are interactive (either in real time or asynchronously through paper or computer interaction), the simulation tools force a potentially richer view of the needs, plans, and intentions of other stakeholders. Second, such tools help players think several moves ahead by playing out the situation in role playing or by writing down the potential second-and third-order consequences of an action in a scenario. These effects produce insights or surprises —the person remarks, “I never thought of that” — and these, in turn, reshape the mental model that the person uses to guide action. These tools are especially powerful when, as can happen in family businesses, conflicts lead people to rely on habitual, unreflective behaviors. Sessions with family businesses that use simulation tools are intentionally designed to enable reflection, which is made easier in the context of an experience, not an abstraction.

When participating in carefully designed role playing, for example, a daughter leading a fantasized strategy discussion would help family members experience the whole situation. As she begins to think rationally about strategic options, she would also confront the obvious, important questions about her authority and her approach to other family members and non-family executives, whose feelings might be hurt. Simulation tools have particular power because the people using them are “real” members of the family business. While they are “actors” in a psychologically distancing “play,” they are enacting roles and relationships that they know deeply and intimately. In this way, the simulation tool helps family members occupy a space between reality and fantasy. The link to reality makes the simulation meaningful, and the link to fantasy makes the simulation safe; after all, it is not “really” real.

By simulation, again, we are referring to such tools or techniques as role playing, scenarios, and fictional documents, such as financial reports, which are integrated into the overall design of a consultation. A consultant needs to develop that skill of integration, which is not easily done. Simulation is not simply the use of case material, which, of course, has its own distinct value. By working on cases, people can develop a rich understanding of certain principles and concepts, but because cases fail to engage them in action, they do not discover their own unverbalized beliefs that can inhibit them from applying what they learn.

Simulation tools, by contrast, help people discover their relationship to concepts and how they feel.11 People make a leap of trust in which they agree, for a certain time period, to suspend inhibition and take up tasks that, under ordinary circumstances, they might consider silly or of uncomfortably uncertain outcome. Use of simulation tools implies a certain relationship and contract with a consultant in which such trust is aimed at supporting development. Cases position a consultant as an expert providing answers. Effective simulation positions a consultant as learning partner, coach, or teacher asking questions.

Next we describe two disguised examples in which we applied a range of simulation tools and techniques to help family members assess their future. We used artifactual memos and articles and role playing to embed the customary financial and strategy studies in family members’ experiences — to take planning from the abstract to the “virtually real.” In our simulations, we do not try to reconstruct a situation in its full complexity. We take a minimalist approach, focusing on critical specifications. We do not want to divert attention from learning by providing details that distract from the overall objective, which is to support decision makers in reasoned, thoughtful choices.

Sidebar 1 »

Succession Issues at Trout Products Corporation

The Trout family owned two wholesale businesses, each operating in a different geographical market. Bill Trout, the father, wholly owned the older of the two businesses. While he controlled ownership of the second business, his son and daughter and COO Frank McGinn, a nonfamily member, shared minority interests. The family faced important succession issues. The two children, each in their twenties, had worked in the business for at least five years and were eager to step into major roles. At the time of our consultation, they held lower-level managerial jobs. Both wondered about the influence and power that McGinn would wield over the long term. What, in fact, was his role, interest, and future?

In turn, McGinn, age forty-two, had had industry experience before joining the firm eight years earlier, had a good working relationship with the CEO, but was nonetheless uncertain about his future in the business. He wondered about his developmental path, his interaction with the CEO’s offspring, and his status as a minority shareholder once Trout left the business. As a further complication, he knew that the CEO was more interested in the older business even though it did not show as much promise as the new one.

Trout, the second-generation successor to his father, the founder, could not detach himself easily from the hope that the core business could once again prove to be the engine of the family’s wealth. His children asked us if we could help the family and McGinn sort out these issues.

In the first phase of our consultancy, we helped the four stakeholders clarify their issues; in the second, we developed strategic growth and financial targets for the business; and in the third, we addressed the leadership issue. This sequencing helped the participants contain their anxiety about leadership by first identifying what success they might share together. All four participants had high growth expectations for the business. They wanted the already large firm to double operating income in less than ten years. After assessing the viability of achieving this growth in their current business (both the core and the newer businesses), given their capital structure, we helped them think about how they could grow either internally or through acquisition. It became clear that if they wished to meet their objectives, they would have to develop more sophisticated relationships with one another and with others as well. In particular, the COO and the son and daughter needed to understand better how they could and should work together to grow the newer business. They could not rely on Trout to mediate all differences and integrate their separate efforts.

Sidebar 2 »

In the last phase, we wanted the family members and McGinn to understand and experience the character of the working relationships they would need in the future. We believed that they had come to appreciate, in an objective sense, that they had to be more interdependent. However, they were not sure how to do that, and each was reluctant to unilaterally become more dependent on the others, to take the leap of faith. We wanted to move from the abstract to the concrete.

To do this, we constructed a simulation consisting of three fictitious documents. One was a White House press release announcing Trout’s appointment to a presidential commission (see sidebar 1). The second was a letter from an important supplier who was worrying about the firm’s commitment to its products and their relationship in light of Trout’s imminent absence (see sidebar 2). The third was a letter from the company’s primary lender, noting that due to the unexpected change in leadership, the bank was reevaluating the terms of its line of credit, including a possible interest rate increase, spousal endorsements, and further security (see sidebar 3).

To present the simulation, we first asked the father not to attend our day-long meeting. He agreed and also helped us by giving us bank letterhead (he was on the bank’s board of directors) and information to make the experience more real for his children and the COO.

At the start of the meeting, we immediately distributed the press release. Although obviously fake, it shocked them nonetheless. McGinn’s face turned white; all three were literally speechless. After a pause, we handed out the two letters. They realized that the documents were not real, but the emotional impact of the press release immediately deepened their sense of the stakes involved in planning for the firm’s future. They could not look on their strategic work as an exercise, which is what they had been calling it. The White House announcement put in writing the complicated hopes and fears each had about him-and herself and the CEO, striking a chord of reality that each entertained privately.

We continued the simulation for most of the day; it included role playing, in which they met with the supplier and the banker, both played by a member of our staff. In preparing for the meeting with the supplier — a meeting in which the three had never participated together because the COO managed important supplier relationships with clear authorization from the CEO — they realized that they had to define their respective roles. Who would take the lead? How would the others support the leader? What rationale could they use for their decisions?

Sidebar 3 »

The meeting with the supplier did not go well. McGinn, expecting to be comfortable due to his longstanding relationship with the supplier, saw little need to prepare the others and believed he could carry the meeting on his own. He had not recognized that a central feature of the mutuality between the supplier and the company was the supplier’s access to Trout, who had invisibly lent his authority to the COO. In his absence, the CEO’s authority rested with his surrogates, his children, who were not able to answer the supplier’s important investment questions. The failed discussion, in which McGinn looked overbearing and presumptuous and the son and daughter looked incompetent, left all three expressing the need to find relief for their headaches.

They regrouped for the second role playing, dividing up their presentation to the bank to distinguish between their management roles and their ownership stakes, collecting relevant information to answer questions knowledgeably, and building confidence in each other. The company had borrowed heavily to finance inventory, especially as it had only recently grown the second business. The bank’s stake had increased substantially, and the CEO, who was on the bank’s board, had held the banking relationship exclusively. While the responses in the simulation might not have worked in the true banking relationship, the preparation and requests for help among the three allayed the children’s fear that they could never master their father’s ability to manage the bank and the business’s financials.

The day was a turning point; it transformed a somewhat abstract review of strategy and succession to a deeply personal one. Trout’s children and the COO saw that not only did they need each other, they could find a way to depend on each other that could work. Trout, who had ambivalent feelings about their success together, nonetheless realized that to preserve and enhance the business, he had to encourage the three to work together. Each confronted the eventual certainty of the CEO’s retirement. If they were to reach their shared targets, they had to reconsider their roles, while creating more sophisticated interpersonal relationships.

The meeting carried over into their real work. Serendipitously, an important industry group soon asked the CEO to assume its presidency, which meant that he would spend less time with the business. As a result of our consultancy, the members made three important decisions. Trout became chairman, McGinn became the president, responsible for the operation of both companies, and the son and daughter stepped into more senior management positions that promised to stretch and develop their talents. Each assumed a new role, thereby increasing everyone’s sense of commitment to new working relationships.

The analytic steps we used in the case helped the four owner/employees understand and ground, in the reality of the numbers, their shared objectives. But, in our assessment, their capacity to collaborate was rooted in the simulation, which included the absence of Trout and his consequent loss of centrality. Simultaneously, the fictitious letters and role playing linked the other three members’ choices to their deepest feelings about themselves and the business.

Sellout of Colonial Designs?

The Dewey family and its successful consumer products business provide similar insights into the links between rational planning and people’s feelings. Tom Dewey was the CEO of Colonial Designs, a family-owned company that manufactures and distributes distinctive tableware and flatware. In his thirty-eight years as head of the business, he extended its product line and restructured its manufacturing, but his real achievement was developing a world-class distribution system, sustainably better than any competitor’s. The highly profitable company has annual revenues of more than $1 billion. In addition to its distribution, the company is particularly adept at developing new styles and designs as customers’ concepts of formal and informal dinnerware change over time. It has excellent relationships with its suppliers and knows how to keep its stakeholders happy.

At age fifty-eight, Dewey worried about whether and how the family should continue to hold and invest its wealth in the family business. Two brothers and one cousin (representing the third generation and controlling interest) sat on the board; none of the next generation was ready to take the CEO role and might never be. Dewey knew that he was the key person linking the family to the business in ways that benefited both. He feared, therefore, that the family’s quite substantial wealth might dissipate after his retirement.

In reviewing Dewey’s initial request for consulting, we realized that we could not treat this assignment as simply technical. Aside from Dewey, the family members were not proficient in business matters. Moreover, in talking to Dewey and interviewing other members, we realized how much feeling and memory they brought to their role as the business’s owners. They spoke about Dewey’s grandfather, the founder, with deep affection. As a child, he had come alone to the United States and, through diligence and perspicacity (and through many now mythical business mistakes), built the foundation of the current family business. Being an entrepreneur, he had seen the business as a gift to his children and grandchildren and had rejected many opportunities to bring in partners. Dewey knew that the family could not easily relinquish the business, partially or wholly, but neither was he convinced that this was the family’s best strategy. He needed good advice and counsel, as well as the collaboration of family members, in coming to a decision.

In the first phase of our work, we independently analyzed the business, looking at its competitive position, industry trends, and shifts in product lines and marketing channels. Our own analysis corroborated the extensive financial and management information that the company had provided. In particular, we were interested in how the company did its planning and how it related its capital structure and the need for capital in the near and midterm to the owners’ needs and interests. The company benchmarked a group of public firms against which it set return-on-equity targets (among other performance measures) and managed the business successfully to these targets. The family, not unhappy with the business’s performance, clearly had many opportunities. For example, the family, as shareholders, could sell shares publicly or privately, further diversify the company’s product lines, increase leverage and take additional cash out of the business, or sell the whole business. The challenge that the family faced was not to simply find the right strategy but, rather, to deepen its capacity to choose among highly attractive alternatives. The business’s success in its current strategy rested on Dewey, who could not live forever. Some change, however unwelcome, was inevitable.

We wanted to understand family members’ feelings, attitudes, and expectations for the business. We asked about their image of the company’s growth and how they characterized their relationship to it. Did they see it as one potential investment among many that they owned? One that produced both income and capital appreciation? What was their psychological relationship to the business? Was it intertwined with their identity as individuals and a family, or did they see it simply as a business with products, markets, and a potential growth path?

We found that, in fact, members were pleased with the business and its enormous success, they were satisfied with the predictable dividends they received (dividend policy was geared to promoting business growth and producing current income for the owners), and they experienced the business as a part of their family life and individual identities. However, we also discovered that they took its success too much for granted, and that they depended deeply on Dewey for mapping its future while also resenting his centrality. As a group, they were not prepared for Dewey’s eventual retirement.

Dewey, we believed, protected them from the business’s uncertainties and potential. Moreover, their passivity and dependency were matched by Dewey’s own uncertainty. He was thinking about retiring but was unsure of his role in the interim. He admittedly lacked the passion that a younger or newer executive might bring to shaping the company’s future. He had already grown the business from $10 million to its current size. On the other hand, he felt deeply responsible for the business, its stakeholders, and its future. We faced two tasks: (1) helping Dewey regain vitality and excitement in growing the business, even if temporarily or as a teacher, and (2) helping the family be more active in directing the firm to support their development and the business’s.

We set up meetings with family shareholders, including both the third and fourth generations (the third generation also constituted the family’s members on the company’s inside board). The curriculum for the meetings included both technical presentations and group process work. As our objective was to help Dewey and the family develop their capacity to choose among a range of futures, we developed several scenarios. In seeking a framework for the scenarios, we mapped the family’s portfolio of investment choices.

The family members had two ways to plan for growth of its wealth (see Figure 1). In the extremes (lower left and upper right on the figure), family members could focus on individually building a portfolio of investments unrelated to the business, e.g., other companies’ stock, land, municipal bonds, and so on, or they could focus on collectively creating wealth through the business. Along either dimension, they faced the choice of how much to diversify their portfolios to raise return rates or lower risk. In the first, taking into account their individual risk preferences, they would use a wider range of investment vehicles to build wealth. This, of course, might require reallocating cash or investment from the core family business. In the second, they would protect and grow their wealth by retaining it collectively, creating a portfolio of products or services inside the company, again taking into account their risk preferences. In turn, their choice would be affected by their concept of the company’s future. Can it continue to yield sufficient total returns on this investment? Does it, should it, and can it diversify its lines of business? What strategy should it pursue to remain profitable and return income and capital appreciation to its owners?

Sidebar 4 »

These choices would have profound implications for the business and the family. For example, if family members were uncertain about the firm’s future prospects and felt that no family member was ready to lead it, they could (1) sell the business, (2) slowly decapitalize it by taking on debt, or (3) sell equity, bring in other owners, and invest the proceeds in other instruments. By contrast, if they felt that the business was ready for another growth spurt and that the family could manage and control its development, they could decide to leave their money in the business.

Sidebar 5 »

Next, we developed scenarios to focus on the investment choices —“stay the course” meant diversifying neither individual portfolios nor the company’s lines of business; “highly leveraged sale” meant selling to a buyer willing to take on debt to buy the family out; and “partial public offering,” in which a minority interest in the business would be sold publicly.

The material we developed for the “highly leveraged sale” scenario was an article about the sale published in the local press, a letter from an investment adviser, and two letters from Dewey (see sidebars 4 through 7). Again, we intended these components to illuminate the choices and consequences of a sale, to make complicated feelings about a sale more accessible, and to present real criteria that the owners could use for assessment. The documents were not meant to be complete and would not replace the real work that investment bankers, for example, might do if engaged to sell the company.

Sidebar 6 »

Dewey developed his own ideas about the scenarios and the choices involved by first working with his key advisers (lawyers, outside accountants, and top executives), who brought their expertise and perspectives. These longtime advisers had not worked together as a group, but their mandate was to provide coordinated counsel to Dewey, who trusted them. He needed time and space to learn about and assess his feelings and commitments before he asked the family to do so. Bringing family shareholders into the conversation too soon could limit Dewey’s freedom to think and then support their decision process. This sequence proved effective. Dewey thought about his own core values, unhurried by family members’ anxiety, and the family confronted difficult choices while knowing that Dewey would continue to support and guide them.

Among the criteria that Dewey developed for evaluating the scenarios were weightings for financial returns and for support of family cohesion and the family’s values. The highly leveraged sale scenario had powerful emotional impacts on Dewey, the advisers, and, later, the family. In this scenario, the company’s current earnings and its capital structure supported a high sales price. In addition, its effective management team, the state of the industry, the company’s market position, and (in our construction) the relatively low cost of borrowed funds in Germany, Japan, and other countries made the company very attractive to foreign buyers. One company attorney grabbed his calculator and found that, on average, each family shareholder could get $75 million if the company were sold for the numbers we had created. Family members, at first shocked, scrutinized the scenario and its associated numbers, asking us how they were generated, what they meant, and how confident we were about their veracity. While, in the past, they had let Dewey take care of them, they were now educating themselves about the business and its prospects. Although our calibrations of the company’s value were for coaching only, they effectively stimulated an interest in learning aspects of accounting and finance that the shareholders had not shown before.

Sidebar 7 »

By confronting and working with these numbers, Dewey and the family discovered three things. First, they realized that they could never sell to a foreign company. They believed deeply that their company had grown because the United States was bountiful and had provided family members with full lives. They did not want to create income for people who might not share that love and commitment. Second, as they grappled with the purchase price, they learned that the business was an integral element of their identity as a family. The company’s success and the values of good customer service and employee relationships were vehicles for their contribution to society. If they sold the company, they feared that they would lose their social and cultural moorings. They would be wealthy but would lack purpose. Third, they realized that, paradoxically, to retain the business, they had to take Dewey’s retirement seriously. They knew that the company had talented senior executives and a good strategy, but, for the first time, they saw that they had to directly confront difficult succession issues. They could no longer depend on Dewey; they had to plan for his eventual departure.

In his discussions with advisers, Dewey tentatively concluded that the family should retain the majority of the company but should offer a minority interest to outsiders, thereby providing liquidity for current holders, developing outside review and support for leadership succession, and stimulating family cohesion.

At the family meetings, all family members learned something. In particular, Dewey, through consistent contact with the next generation, gained an appreciation for their potential that he had not had. After writing them off, he was now forced to reconsider and told them so. The family gained a richer appreciation of the value of the business in financial terms but also recognized the intangibles. More importantly, as a group, they were able to ask the questions needed to decide on the company’s future. Their fears that creating a unified shareholder group to express their concerns or differing family interests would lack cohesion were unrealized. At the annual meeting, the shareholders adopted a formal resolution to remain a private, family-owned business into the next generation. Dewey was so reinvigorated that he has brought new energy to the strategic challenges facing the business and to the leadership transition process.


We highlight a theory and practice of consulting to family businesses based on an appreciation of their multidimensional character. Family members can plan effectively for their business’s future if they have the tools and developmental experiences to link their thinking to their feelings, their strategic plans to their relationships, and their issues of strategy and stewardship to ownership. Simulation tools enable people to suspend reality while, at the same time, engaging playfully in it. This “transitional space” helps participants overcome the inhibitions and anxieties that, in high stakes and emotionally charged situations, often interfere with clear thinking and productive learning.

To be effective, such simulations should emerge from an ongoing consulation in which participants grow to trust not only the consultant but also each other. There needs to be enough suspension of reality to “take the heat off” of learning through experience (in which mistakes can be made) and enough connection to reality that some sense of the stakes remains.

While we have focused on applying these methods to family businesses, more and more we see the weight of the emotional and cognitive demands of strategic decision making experienced by leaders in all types of businesses. As companies increasingly reconsider their basic strategies — “what business are we in and how do we add value” — they uncover fundamental issues of identity. Family businesses, rather than being exceptions, are now models.



1. E.J. Poza, Smart Growth: Critical Choices for Business Continuity and Prosperity (San Francisco: Jossey-Bass, 1989); and

J.L. Ward, Keeping the Family Business Healthy: How to Plan for Continuity, Growth, Profitability, and Family Leadership (San Francisco: Jossey-Bass, 1988).

2. P. Collier and D. Horowitz, The Fords: An American Epic (New York: Summit Books, 1987).

3. J. Taylor, Storming the Magic Kingdom: Wall Street, the Raiders, and the Battle for Disney (New York: Ballantine Books, 1987).

4. Ibid.

5. T. Bivens et al., “The Dorrance Family Battles Itself,” Philadelphia Inquirer, 17 March 1991.

6. K. Eisenhardt, “Speed and Strategic Choice: How Managers Accelerate Decision Making,” California Management Review, volume 32, Spring 1990, pp. 39–54.

7. J.S. Armstrong, “Forecasting Methods for Conflict Situations,” in G. Wright and P. Ayton, eds., Judgmental Forecasting (New York: John Wiley, 1987).

8. P.M. Senge, The Fifth Discipline (New York: Doubleday/Currency, 1990), pp. 174–175.

9. Ibid.

10. T.N. Gilmore and G. Shea, “Organizational Learning and the Leadership of Time Travel,” Journal of Management Development, volume 16, number 4, 1997, pp. 84–93.

11. T.N. Gilmore and E. Schall, “Staying Alive to Learning: Integrating Enactments with Case Teaching to Develop Leaders,” Journal of Policy Analysis and Management, volume 15, number 3, 1996, pp. 444–456.


Individual and organizational names used in describing the cases and business situations in this article are fictitious. The names and selected other identifying attributes of these persons and organizations have been changed to prevent their specific identification. Any resemblance to any existing person or business of the same name is coincidental.

Reprint #:


More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.