A psychoanalystlooksat the behaviorpatterns in family firms,

finding dramas that resembleboth soapoperasand Greektragedies.

tie Dynamics
mily Controlled .Hrms:
ood and t-h

MANFRED F. R. KETS de VRIE

at business was built specifically for myfami

who wants to come in, there’s an open
the business is destroyed as a result oft-ha
---SAM STEINBERG

rice upon a time, there was a potter who came increasingly helpful in rna~a~~~~ the
made the most beautiful pottery in the business. Although the potter was reluctant to
world. Everyone who saw his pottery immedi- let go, he began to realize that he really had
ately fell in love with it and wanted to buy it. no choice. His health and endurance were no
As a result, the potter’s shop flourished and be- longer what they used to be. But he wanted
came known far and wide. After some time, de- to keep the business in
mand for his products became so great that he see the family name on
found it impossible to do all the work himself. the business was a wa
The potter started a factory and hired people to together. After all, t
help. As the years went by, he employed more worked so hard was t
and more workers. Eventually, the potter spent all of them.
all day managing the factory. He no longer had When th
time to make pottery. Sometimes he longed for ny to his two
the good old days when things seemed so tery plant and the sales outlets c~~t~~~ed to
much simpler and he did everything himself.
He didn’t really like to be so dependent on oth-
ers, since very few people could live up to his
standards of excellence.
tely, his children were now older When the children’s children became
gun giving him a hand. They be- older, they were also brought mto the busi-
9

Manfred F./X Kets de Vries holds the Raoul
de Vitry d’Avaucourt Chair of Human Re-
source Management at INSEAD, the Euro-
pean Institute of Business Administration in
Fontainebleau, France. He is a graduate of
the University of Amsterdam, where he did a
doctoral examination in economics, and the
Harvard Business School, where he received
the ITP diploma, and both M.B.A. and D.M.A.
degrees.
He is a practicing psychoanalyst and a
member of the Canadian Psychoanalytic Soci-
ety, the International Psychoanalytic Society,
and a corresponding member of the Paris Psy-
choanalytic Society. He is also a founding
member of the steering committee of the Inter-
national Society for the Psychoanalytic Study
of Organizations. He has taught at McGill Uni-
versity, the Ecole des Hautes Etudes Com-
merciales, Montreal, and Harvard Business
School. He has written more than ninety ani-
cles and nine books on topics dealing with the
interface between psychoanalysis, dynamic
psychiatry, and management. His special ar-
eas of interest are leadership, career dynam-
ics, executive stress, family businesses, and
succession problems. His three latest books in-
clude Handbook of Character Studies (Interna-
tional Universities Press, 1991), Organizations
on the Couch (Jossey-Bass, 1991), and Lead-
ers, Fools and Impostors (forthcoming, Jossey-
Bass.) He is presently completing a book with
the tentative title Life and Death on the Execu-
tive Lane, due for publication in 1993.
ness. Unfortunately, with so many family
members around, things started to go down-
hill. The original family cohesiveness began to
unravel. There were periods when those who
could remember times past would think nos-
talgically of the good old days, when the old
man was in control. Everything had seemed
so much simpler then; everyone knew who
was in charge!
The cousins and siblings began to argue
about money, shares, power, and responsibil-
ities: who got what and who made what.
Envy reared its head. Eventually, what had
started as mere bickering degenerated into
bitter feuding. The two brothers and the sister,
their wives, husband, and children spent all
their time and energy fighting. Employees
were forced to choose one of the many fac-
tions. Soon the most capable employees began
to leave. Product quality decreased, and cus-
tomers stopped buying.
In the end, the strife led to bankruptcy for
the company and the loss of the family mem-
bers’ personal fortune. Thus ended the pot-
ter’s dream. The family having gone from rags
to rags in only three generations.
The people in this fairy tale did not live
happily ever after. Clearly, they made a mess
of things-an all too common scenario for
many family businesses. The problem is that
family businesses have a built-in Achilles’
heel. Two systems interact-the family and
the business-and these two systems are not
necessarily compatible. On the contrary, ex-
amples of destructive family feuds are not
hard to find. Consider how vendettas, share-
holder fights, and lawsuits divided the Gucci
family, one of Europe’s great mercantile em-
pires. Or recall the power struggle between
the Steinberg sisters, the inheritors of the large
Canadian shopping center emporium, a fight
that eventually ripped the family firm apart.
Or think about the feud over money, power,
and honor at Gallimard, France’s most presti-
gious publishing house.
Although the statistics vary, it seems that
only three out of ten family firms make it
through the second generation, and only one
in ten through the third. Analysts have
estimated the average life-span of an en-
 EXHIBIT 1
ADVANTAGES AND DISADVANTAGES OF FAMILY CONTROLLED FIRMS

ADVANTAGES ~I~A~VANTA~~S
a Long-term orientation * Less access to capital markets may curt
e Greater independence of action * Confusing organization
- less (or no) pressure from stock market - messy structure
- less (or no) takeover risk - no clear division of tasks
0 Family culture as a source of pride l Nepotism
- stability - tolerance of inept family members as
- strong identification/ commitment/ managers
motivation - inequitable reward systems
- continuity in leadership - greater difficulties in attracting
* Greater resilience in hard times professional management
- willing to plow back profits * Spoiled kid syndrome
0 Less bureaucratic an.d impersonal * Internecine strife
- greater flexibility - family disputes overflow into business
- quicker decision making l Paternalistic/autocratic rule
* Financial benefits - resistance to change
- possibility of great success - secrecy
- attraction of dependent personalities
* Knowing the business
- early training for family members * Financial strain
- family members ng the business
- disequilibrium between contribution and
compensation
* Succession dramas

trepreneurial firm at only twenty-four
the usual length of time the founder is asso-
ciated with it.
Some people may say, who cares? Why
all this concern about family firms? Isn’t all
the “real action” in publicly held corpora-
tions? Those who play down the importance
of family firms are making an enormous mis-
take. According to some estimates, 80 percent
of all businesses are family controlled, in the
widest sense of the term, in that the family
has a significant say in the company’s strate-
gic direction and the appointment of a new
CEO.
Nor does the argument that these figures
are misleading because they mainly apply to
mom-and-pop stores hold water. For exam-
ple, in the U.S. one-third of the Fortune 500
companies are family controlled. Family busi-
years, nesses account for the majority of jobs in most
Western societies. In the U.S., some 40 percent
of the gross national product comes from fam-
ily corporations.
Given the importance of family business-
es to national economies, it is s~r~risi~~ that
so little attention has been given to what af-
fects this type of firm. Managin
raises a host of clue&ions. This a
es two: What contributes to the
these firms experience? Are t
namics characteristic of family
The article is based on my WC& with fam-
ily firms and in-depth interviews with over
300 executives associated witla family firms as
owners, owner-managers, family members,
or managers.
There is clearly “good news” an
newf? when it comes to wos?&
business. Exhibit 1 summarizes the advan-
tages and disadvantages.
THE GOOD NEWS
For family members, one of the obvious ad-
vantages of working for a family firm is the
sense of being in control of their destiny. Run-
ning something in which one has a personal
stake certainly creates a greater feeling of in-
dependence. Moreover, the narcissistic plea-
sures should not be underestimated. There is
something to be said for seeing one’s name on
the building, particularly if it is a well-known
brand name. This can have other beneficial
side effects. As the family member of a media
conglomerate once mentioned, “The name I
have has certainly helped me to get access to
top executives of companies, persons who
under other circumstances would have kept
their doors shut.” Nor should we underesti-
mate the possible financial benefits. There is
always the possibility of becoming rea2ly suc-
cessful. And these benefits represent only the
tip of the iceberg.
The Long-Term Perspective
In general, family firms tend to have a longer
term view of their business. They are not fly-
by-night operations. This means that family
owner-managers may have a different outlook
vis-a-vis their employees, their customers, the
community, and other important stakeholders,
and this may positively affect the quality of
their product. The fact that the owners have
their name on the building makes them more
conscious of their standing in the community
and more jealous of their reputation.
In many instances, the company and its
products affect the identity of family mem-
bers. To be associated with defective or inferi-
or products becomes a reflection on the self.
Thus, the family will find it singularly
unattractive to go for short-term financial
gains if doing so will tarnish the company’s
standing. When a family has been producing
wine for many generations, like the house of
Torres in Spain, or publishing books, like the
62
Bonnier family in Sweden, members want to
be proud of the product.
Moreover, compared with publicly held
corporations, family firms are not the slaves of
Wall Street, haunted by quarterly results. They
are under less pressure; there is less public
scrutiny, and they have greater independence
of action. The fact that family firms do not
have to divulge as much information as pub-
licly held corporations can be a competitive
advantage: It is not as easy for competitors to
know what they are really up to. Those who
have tried to get information about famous
but secretive family corporations, such as Mars
(the confectionery manufacturer), Michelin
(the tire maker), or C & A (the department
store chain) know what this means.
Also, privately held companies worry less
about take-over threats. There is less need to
create elaborate schemes with “poison pills”
and “golden parachutes.” Executives can save
their energy for other causes. Finally, family
firms tend to be more resilient during hard
times, given their greater willingness to plow
profits back into the business.
The Family Culture
This long-term outlook can be reinforced by
greater certainty about what kind of leader-
ship will prevail in the firm. With effective suc-
cession planning (a subject we will discuss lat-
er), everyone knows who is next in line. This
can mean peace of mind and, consequently,
less political behavior in the company.
The family spirit will very much deter-
mine the prevailing attitudes, norms, and val-
ues in the company. The values family mem-
bers express create a common purpose for
employees and help to establish a sense of
identification and commitment. In well-run
family firms, the employees feel like part of the
family. Access to senior management comes
easier. There is often less bureaucracy and thus
quicker, more effective decision making.
The kind of corporate culture that perme-
ates Herman Miller Inc., the furniture manu-
facturer, has become legendary. This company
has repeatedly been listed as one of the best
managed companies in America. The compa-
ny was started in 1923 by D.J. De Pree, who
was succeeded first by his son, Hugh, and then
by Hugh’s son, Max. At Herman Miller Inc. we
find a group of people strongly committed to
the beliefs and ideas of the senior family mem-
bers, particularly Max De Pree. Employees
share the family’s outlook toward customer
service, quality, and productivity. This is a
covenant that works both ways. The family has
a strong belief in the potential of people. This
belief is backed up by a set of rights that deter-
mine the psychological contract between
workers and management. Included in the
“ground rules” for working at Herman Miller
Inc. are the right to be needed, the right to be
involved, the right to understand, the right to
affect one’s own destiny, the right to be ac-
countable, and the right to appeal.
This focus on rights goes beyond mere
talk-it affects everyone’s wallet. The compa-
ny has a long-standing Scanlon Plan entitling
workers to a share of the financial gains re-
sulting from their suggestions for improving
design, customer service, quality, and pro-
ductivity. When Herman Miller Inc. went
public, management established a stock op-
tion plan. Without exception, all regular em-
ployees who have worked in the firm for at
least a year own stock. There are even “silver
parachutes” for all employees in the case of an
unfriendly takeover, not just golden
parachutes for top management.
Herman Miller Inc. also exemplifies a
family firm that is less bureaucratic than an
equivalent publicly held corporation. The
family culture makes the firm much less im-
personal. Encouraging employees to feel like
part of the family facilitates access to senior
management. Even the lowliest production
worker has no difficulty knocking on Max De
Pree’s door. Such an atmosphere expedites
decision making and leads to greater flexibili-
ty of procedure and action.
Knowing the Business
Another important competitive advantage can
be found in the extensive expertise family
members have. After all, they have been in
contact with the business from early child-
hood onward. Breakfasts, dinners, w , fam-
ily gatherings, and su
tunities to learn more
One executive re w as a child he
would take long walks with his father, during
which they would visit stores to look at com-
petitor’s products. Afterwards,
would ask him which products he
and this would lead to lengthy ar~~rne~t~
about each product’s quality, This man felt
that the expertise he gained during those in-
formal outings proved invaluable
This kind of knowledge may
members a head start, compared
tives entering the iness later on. Early
training like this h to explain the some-
times puzzling appointments of very young
family members to senior positions. Actuallyr,
such “age inappropriate” appointments can
have a beneficial effect, in that they may lead
to a rejuvenation of an arteriosclerotic group
of top executives.
THE
Obviously, there cannot be only good news.
On the debit side, the “technical” dif~c~I~~§
that dog family ownership spring ~~ed~ate-
ly to mind. Tax code covering i~he~t~c~, for
example, can create problems that threaten
the continuation of the firm. Another obvious
problem is that family corporations usually
have greater difficulty ob
capital markets. This may i
The organization of family firms fre-
quently strikes the outsider as messy and con-
fusing. Authority and responsibility may not
be clearly defined; jobs may over@; execu-
tives may hold a number of ditferent jobs. The
decision-making hierarchy may be ~~rn~~et~-
ly ignored, existing only to be bypassed.
When one interviews pe
firms, however, one quickly
many of the key problems are of a psycholog-
ical nature. They center on issues such as
fit between the senior executive’s leaders
style and the company’s stage
ment, the overflow of family con
business, coalition politics among the family
members (which detract from the substance
of the business), and, last but certainly not
least, the question of succession.
All these problems can turn into high dra-
ma. At times, life veers between soap opera
and the extremes of Greek tragedy. Cronos,
King Laius, Jocasta, Medea, and Oedipus are
regular guests on the family cast list. As we
see these problems recurring again and again,
they deserve closer examination.
The Question of Nepotism
Family logic often overrules business reason.
In many instances family members are wel-
comed regardless of their ability to contribute
to the business. Senior owner-managers often
show a remarkable capacity for closing their
eyes to the weaknesses of their beloved sons
or daughters.
Working under a person who is clearly
incompetent places a non-family member in a
highly unattractive position. When there is an
imbalance between contribution and credit,
feelings of equity cannot be maintained. An
absence of fair play can undermine one of the
pillars of corporate culture: the need for trust.
Lack of trust will influence the company cli-
mate, affecting job satisfaction, motivation,
and performance.
This situation is particularly ironic if, as is
often the case in many family firms, family
members demand a high level of commit-
ment from the non-relatives. Such demands
are acceptable if management gives non-fam-
ily members due credit for work well done.
However, they may be unacceptable if the ex-
isting incentive system is heavily biased to-
ward non-contributing family members. In
this case, it becomes difficult to attract capable
managers, a development that may endanger
the company’s future. The people who are
willing to stick around may not be the ones
the company needs most.
Consider the example of a well-known
international firm in the clothing business.
The president of this company (encouraged
by his wife) was completely blind to the in-
competence of his only son. Having survived
a severe coronary attack, he placed his son,
64
who had been busy flunking out of every
school he had been sent to, in a senior posi-
tion. The son’s behavior soured the atmo-
sphere. One of his worst habits was to lay the
blame for whatever mistake he had made
(forgetting appointments, not following up
on clients, allocating resources poorly) on oth-
ers; it was never his fault. Eventually, many of
the more competent employees could take it
no longer and left the company. When the
son (against all advice) acquired a firm with
outdated product lines and obsolete machin-
ery, the company went into the red, and this
finally opened the father-president’s eyes. He
realized what had really been going on and
reasserted his control.
The “Spoiled Kid” Syndrome
This story provides a good example of the
“spoiled kid syndrome.” In the typical sce-
nario, the principal protagonist is the hard-
working entrepreneur completely obsessed
by his business. He works day and night,
thinking about nothing else. Obviously, this
lifestyle leaves him very little time to devote
to his family (he is usually a man). Although
he is aware of what he is doing, he cannot
help himself. The demands of the business (or
at least his perception of them) are too over-
whelming. He rationalizes his behavior by
saying that he is doing it in the best interests
of the family. He cherishes the notion that, be-
cause of his efforts, everyone will be better off
later on. He fails to realize, however, that he
may be cannibalizing that very future: There
may be no “later on.” We often see these men
gradually becoming estranged from their
wives and children.
This kind of behavior leads to feelings of
guilt. A common way of dealing with such
feelings is to start bribing the family members,
a kind of pay-off for not being available emo-
tionally or otherwise. The pay-off may start
with a big teddy bear when the children are
young and metamorphose into sports cars,
jewelry, expensive vacations, or condomini-
ums. Unfortunately, these gifts will never re-
place the attention that was missing during
childhood. At the same time, for the giver,
handing out material possessions becomes a
way of making up for hardships that he him-
self experienced. He is giving to his children
what he once longed for himself.
In trying to create a better life for their off-
spring, such people are full of good inten-
tions. Unfortunately, possessions, rather than
a set of well-internalized values, feelings of af-
fection, and mutual respect, become the over-
riding criteria. And this pursuit of material
possessions may eventually turn out to be a
Faustian bargain.
The Steinberg family feud, which cap-
tured headlines in many newspapers, pro-
vides a prime example. The daughters of Sam
Steinberg, who built up a shopping center
empire, battled for control of the business. In
their book, Steinberg: The Break-up of a Family
Empire, journalists Gibbon and Hadekel con-
cluded from their interviews with the princi-
pal players that “the girls were spoiled rot-
ten,” having been lavished with clothes, cars,
and condos in Florida. According to Gibbon
and Hadekel, “When it came to his daughters,
his pockets were deep; there was nothing
they couldn’t have. They would never know
the life Sam Steinberg had lived growing up
in a crowded, unheated flat on The Main.”
We could ask bow much attention Sam
Steinberg and his wife Helen had paid to the
more intangible needs of their daughters.
They seem to have given little value to edu-
catiioaz,business training, and social responsi-
bility. The notion that authority and responsi-
bility should be awarded only in recognition
of proven accomplishments did not apply to
Steinberg’s family members. His daughters
wielded enormous power as the company’s
major shareholders, and their poor under-
standing of the business had catastrophic con-
sequences. Moreover, the rivalry between the
sisters, suppressed while their father was
alive, made the situation far worse and led
eventually to the company break-up.
e War of the Roses
A parent’s emotional unavailability can have
lasting repercussions on children. They may
start to fight for whatever little quality time is
available, and they soon become ex
judges in who has preference in the “love
equation.” These early feelings of envy and
jealousy are not easily resolved and will Iiie-
ly remain troublesome throughout life.
In the process of growing upI siblings of-
ten separate and choose their own courses in
life. With time and geographical distance,
residual childhood irritants and resentments
are less likely to flare up. However, joining
the family firm breaks this pattern. Parents
may use emotional blackmail to induce their
children to go into the business. Cons
ly, in one way or another, famiIy members
may be stuck with one another, They may feel
trapped. And they may end up in a vicious
circle of endlessly repeating conflicts-a con-
tinuation of the old emotional “games”
childhood.
Publicly held organizations
paragons of rational behavior, but
given the greater likelihood of e
ma, are most certainly not. Irrational decision
making can become rampant. Old wounds
may be reopened; others may never have had
an opportunity to heal. Decisions may be
made on an emotional basis only? rather than
according to sound business sense.
Family members may become tiapped in
situations of highly concentrated risk, not just
financial but emotional. When love has been
a scarce commodity and object of corn~e~~o~
during the developmental
set for internecine strife. Fa
disputes tend to become confused.
these disputes have their arigin in early
hood, they can beco e extremely messy an
far more difficult to sentangIe than woul
be the case in public eld corporations.
A good example of numbing frate~~aI
strife is the saga of the Horvitz brothers, heirs
to one of America’s largest fortunes:
million newspaper, cable telievision, a
estate empire. After the father died, the fight
over who would gain control of the business
began in earnest, reaching a new crescendo
when the mother, who had acted as pence-
maker, died soon after, Accusations and
counteraccusations flew. Fist fights were par
for the course. Lawsuits led to years of le
wrangling. As a son of one of the three broth-
ers said, “Decisions were based on how the
Ibrothers] felt when they were twelve.”
Factional infighting can become ex-
tremely complex in family firms that have
survived a number of generations and are run
by large families. Obviously, maintaining a
cohesive family unit becomes more difficult as
the generations spread out. The danger is that
too much time will be spent on conspiratorial
activities and not enough attention paid to
the substance of the business. When envy
overpowers reason, the politics of succession
may become a major pastime.
King Laius Revisited
In addition to the problem of the en-
trepreneurial father’s emotional unavailabili-
ty, we must also consider the effects of his of-
ten domineering behavior. (Again, these
phenomena are more applicable to men than
to women.) It is not easy to live in the shadow
of a captain of industry, and the eldest son of-
ten bears the brunt of entrepreneurial aggres-
sion. Children born later, or children of sec-
ond marriages, tend to have a much easier
time. The entrepreneur perceives them less as
a threat to his power base and more as a sym-
bol of his potency and vitality.
In his autobiography, Father, Son & Co.: My
Life in IBM and Beyond, Thomas Watson, Jr., of
IBM recalls coming home from school in tears
(he was not much of a student) saying that he
couldn’t do-referring to the general expecta-
tion that he, as the oldest son, would take over
the business from his father, Thomas Watson,
Sr. He had always found it difficult to live up to
his father’s expectations. He saw his father as a
giant of a man who made him feel inconse-
quential. He was convinced that he was lack-
ing in some way and always felt a deep uncer-
tainty about his ability to deliver.
Watson Jr. recalled bouts of depression as
a child, often accompanied by asthma attacks.
His childhood experiences worsened when he
noticed how everyone would bow and scrape
and ingratiate themselves in his father’s pres-
ence. He compared his father to a blanket,
smothering everything. He recalled how he
66
and his father had terrible fights, which fre-
quently led to the brink of estrangement. Lat-
er on, as president of IBM, Watson Jr. would
perform a ritual on the anniversary of his fa-
ther’s death; he would take stock of what the
company had accomplished and tell his wife
that he had managed yet another year alone.
Many entrepreneurs seem to have expe-
rienced a symbolic Oedipal victory in gaining
the major portion of their mother’s love and
affection, bypassing their fathers. However,
they will not allow a similar triumph for their
own sons. Instead, some entrepreneurs will
go to great lengths to belittle their sons, con-
tinuously cutting them down to size. Conse-
quently, some sons may give up, do poorly at
school, and behave irresponsibly. They be-
come the antithesis of their fathers, either
temporarily or permanently.
Of course, in describing these psychody-
namic processes it should be stressed that
they do not necessarily happen consciously.
Whether conscious or unconscious, the expe-
rience is emotionally devastating.
The first Henry Ford and his son Edsel
had a particularly destructive relationship,
characterized by an enormous amount of am-
bivalence. Henry Ford was in the habit of
building his son up at times, then going out of
his way to humiliate him. One of Edsel’s ma-
jor frustrations came from his father’s contin-
uous rejection of his well-thought-out plans
to improve products and conditions in the
company. Instead, Henry Ford preferred to
listen to people who were brutalizing the
work environment. Edsel never found the
nerve to stand up to his father, who preferred
to portray his son as weak, incompetent, and
“too fond of cocktails and decadent East Side
living.” The strain of this relationship led to
medical problems for Edsel, and the stress
probably contributed to his stomach ulcer and
premature death. According to the biogra-
pher R. Lacey, in his book Ford: The Men and
the Machine, when Edsel died, his wife, in a fit
of anger, told her father-in-law that he had
killed his own son.
The example of the Fords is not unique,
although most father-son relationships do not
come to this kind of tragic ending. In compar-
ison, father-daughter, mother-daughter, and
mother-son relationships seem to be less
prone to conflict in a business context. How-
ever, given the current scarcity of case exam-
ples of female company presidents, it may be
wise to suspend judgment for the time being.
The Ghost of the Rdrone
Family firms are prone to autocratic rule. As I
have already mentioned, founders tend to be
domineering personalities. After all, without
their dominance and persistence the compa-
ny would never have taken off. Their pres-
ence and their behavior give the company its
particular flavor. In many such companies, a
paternalistic attitude may prevail. But what
started off as well meaning may end up as not
only stifling but also, at times, perverted.
A good example of this is the house of
Krupp, a 4OQ-year-old dynasty that armed
Germany during four major wars. For gener-
ations, members were guided by Alfred
Krupp’s GenevuEreguIcktiv, the company con-
stitution laid down in 1872. This document
detailed the absolute obligations of the Krup-
pianer (Krupp employees). It said, among oth-
er things that the house of Krupp was enti-
tled to receive from its workers full and
undivided energy, punctuality, loyalty, and
love of good order. On the other hand, a
Krupphaner who ran up debt would be sacked;
any man. five minutes late would lose an
hour’s wages; troublemakers would be dis-
missed forever. But the Kruppianer were enti-
tled to health services, an emergency relief
fund, pension schemes, low-cost housing,
fit retail outlets, and homes for the
n terms of its social welfare policy,
was undoubtedly ahead of its time.
s paternalistic attitude became a
grotesque travesty during WW II, when the
company willingly used almost 100,000 pris-
oners of war and concentration camp in-
mates as slave laborers.
The Krupp dynasty may be an extreme
example of paternalistic, autocratic rule. How-
ever, lesser examples are not hard to find.
One can hypothesize that people willing to
work under such conditions may possess
many of the characteristics of the dependent
personality. These companies
“yes-men”-hardly the kind o
move the company forward.
A company haunted by the “ghost of the
padrone” can often be secretive,
and traditional. Consequently, i
too inward looking, ignoring
in the environment. Naturally, such an at%
tude does not foster change and can serious-
ly threaten the firm’s survival.
Milking the Business
When a number of fa~y-member employees
add little or no value, the company risks tirn-
ing into a kind of welfare institutio
famiIy members “something to do”
actually engaging them in any p
work. Most companies cannot affor
too many of these people around. Apart from
the financial strain unproductive hangers-on
can lead to serious morale problems.
In one consumer pro
three of the five family-me
drew large salaries, used
feured cars and planes, an
ny-financed luxury apartments. How
the occasional hours they spent at the office
did more harm than good. They spent most of
their time at the hunting lodge or
course, both of which were financ
company memberships. When the econ
turned sour and the company went into the
red, these individuals refused to accept the
new reality-in spite of warnings by a
pany adviser. In due course, the cam
The Succession ndr
Of the many problems associa amily
firms, the most insi
tion of succession.
blocks to succession planning, one of the most
profound is the difficulty many people have in
accepting their own mortality. It is not easy to
confront the ultimate narcissistic injury: the
disintegration of the body. Some presidents of
family firms (particularly fo~~der~o~e~~) act
 EXHIBIT 2
BARRIERS
TO SUCCESSIONPLANNING IN FAMILY FIRMS
FOUNDER/OWNER
l Death anxiety
l Company as symbol
-Loss of identity
-Concern about legacy
l Dilemma of choice
-Fiction of equality
l Generational envy
-Loss of power
as if death were something that happens to ev-
eryone except themselves. Talking about their
death is taboo. Raising the topic is viewed as a
hostile act, and may be interpreted as a wish to
have the person in question dead. Although
children, in moments of anger, may have
wished their parents dead (which in turn may
have resulted in strong feelings of guilt), as
adults they often choose to suppress or even
repress such thoughts altogether.
This conspiracy of silence can be aug-
mented by the fear of abandonment. The chil-
dren may wonder whether they will be able
to cope without their parent being around. If
there are several children, they may worry
about who is going to be the pvimus inter pares.
Some may be afraid-and often for good rea-
sons-that there will be open conflict when
the parents are no longer there to act as ar-
biters. All these issues may mean that they
prefer to let matters slip rather than face suc-
cession problems head-on.
The firm’s symbolic value may also ag-
gravate succession problems. For many
founder-managers, the enterprise becomes
part of their core identity. They largely de-
pend on the company as a measure of their
self-esteem and may be intensely anxious
about whether their successors will respect
their legacy or destroy what they built up so
carefully. Shakespeare’s tragedy King Lear
vividly dramatizes this sort of crisis.
Choosing a successor from among one’s
children can be extremely difficult. It shatters
68
FAMILY
l Death as taboo
-Discussion is a hostile act
-Fear of loss/abandonment
l Fear of sibling rivalry
l Change of spouse’s position
the fiction that all the children are equal. Sin-
gling someone out may lead to discord. Many
owner-managers, faced with the necessity of
making a choice, prefer to let the matter be,
and procrastinate.
It is very difficult for some people to let
go of the power that comes with the job.
They may have become addicted to all the
tangible and intangible benefits attached to it.
Think only of Serge Dassault of Dassault En-
terprises, the French airplane builder, who
was 61 before he took over the chairmanship
from his father. Thomas Watson, Sr., of IBM
handed over control to his son only when he
was 82 years old. Armand Hammer of Occi-
dental Petroleum is another notorious exam-
ple of a person who seemed to have experi-
enced great difficulty in grooming a crown
prince.
In the process of letting go, the operation
of generational envy (i.e., the envy parents
feel toward the emerging abilities of their
children) should not be underestimated.
Many owner-presidents display high artistry
in finding reasons for crushing or humiliating
their children. At the heart of this process -
as mentioned earlier in the context of Oedipal
rivalry - is their concern about their waning
physical powers.
In some instances, it is not only the CEOs
who have problems in letting go, but also
their spouses. The latter may have grown ac-
customed to the perks and vicarious recogni-
tion that come with the job. (Exhibit 2 pre-
sents a summary of the barriers to succession
planning.)
Facilitating Forces
Fortunately, several powerful forces operate
against these barriers. Tax legislation is one
example. Unless the estate is to be burdened
by high inheritance taxes - which may en-
danger the continuation of the company - it
is better to take some preventive steps and
transfer ownership to the next generation in
plenty of time.
Another effective (but hardly attractive)
force is the aging process itself and the health
problems that accompany it. A cynic could
claim that nothing helps clear a stalemate
about succession as effectively as a mild coro-
nary attack. When one is lying in the hospital,
it becomes more difficult to deny the possibil-
ity of death.. In such situations, spouses, con-
fidants, or board members can often give the
extra push needed to help the person over-
come his or her reluctance to let go.
A more positive force is the founder’s wish
to see the business continue. In theory this
seems obvious. To act on the desire, however,
is a different matter. It takes a certain amount
of maturity and wisdom to make it happen.
One needs to have acquired a sense of genera-
tivity. Instead of being envious of the younger
generation, the founder needs the capacity to
take vicarious pleasure from seeing young
men or women do things on their own.
The family has a considerable number of op-
tions available when deciding on succession.
Each option, however, has complications.
d the rule of the primogeniture be ap-
plied? What if the oldest child is not the most
capable one, or is not really interested in the
business? If some form of nepotism is going to
be inevitable in family firms, one should at
least make the effort to pick the best family
member available.
Will daughters be eligible? Choosing a
daughter can make the situation quite messy.
The sons-in-law may want to get in on the act.
If both daughters and sons-in-law work in the
firm, real problems arise in the case of divorce.
And then re is the problem of names. A
married ughter will probabl
changed her name, which can
symbolic, emotional value man
tach to names and the company identity.
(Consequently, daughters and sons-in-law
are often unwelcome in family firms.)
There are other more imaginative, but not
always practical, sohtions to dealing with
problem of succession. One can, for exam
cite instances of shared management, or some
form of management rotation. t-h%3
strategy comes the threat of 0 onal
paralysis. On the other hand, if it works we&
the complementarity of individual ski
yield enormous benefits. To make this
a lot of trust is needed among the different
family members.
There are interim solutions, of course. A
typical one is to put a trusted employee in the
saddle for a specific period of time. This
son may be appointed as trustee of the fa
heirloom until a family member is groom
take over. Of course, a more dramatic $o~~ti~~
is to bring in professional management. At
times, only a neutral non-family
balance the interests of the different factions
within the family unit.
Given the potential for f
over into the company, another popular an
fective solution is to divide the
tactic puts each child in charge of a
department. A more Draconian appmxh.
the business into separate companies and
one to each family member. The a
frequently much higher if this option is chosen.
Moreover, it is often the ideal solution for keep-
ing potentially quarrelsome family me ers
apart. Other possibilities are selling the busi-
ness, going pubIic, or choosing ~q~da~o~.
Of course, the fiinal issue is who shoul
make the choice of successor. Should it be t
outgoing president? 2 family council? t
board of directors? all the parties csmbined?
Should one give the children the op ity
to choose among themselves? There er-
feet solution. IIowever, because very power-
ful psychological processes can affect the out-
going president’s judgment, it is important
that he or she not be the only decision maker.
Managing for Survival
The family council can play a crucial role in
preventing the company from becoming one
of the casualties of the family drama. The
council must define the rules of the game for
the whole family.
As a caveat, it should be said that although
such councils are the right forum for discussing
certain key issues, decisions eventually have to
be made. In business life more than in many
other situations, speed is a competitive advan-
tage. Unfortunately, coalition politics, speed,
and effective decision making do not usually
go together. Although a certain amount of
politicizing is an inevitable part of organiza-
tional life, it should be kept to a minimum. Un-
less there is one domineering family member
(because of personality or seniority) or a dom-
inant coalition with complementarity of inter-
ests, there is a danger that family councils will
begin to resemble elective politics, leading to
situations where compromise candidates, not
leaders, gain the upper hand.
In an effective family council, the first
task is to decide what members want to ac-
complish. What is the overall family vision?
Are they going for continuity of the family
regime? Do they want to go public? Do they
want to sell the business? Do they want to di-
vide the business? Decisions have to be made
about all these issues.
The council can articulate certain rules as
well. For example, how should non-active
family members be dealt with? How can peo-
ple get out and cash in their shares? Is there
going to be some kind of shotgun clause as a
way of getting a fair price in case of serious
disagreements?
How are family members going to be se-
lected for promotion? Who is going to decide
who is most suitable to occupy senior posi-
tions? As we have seen, parents can be re-
markably myopic when it comes to their off-
spring. It is extremely important that the
council establish specific criteria in order to se-
lect the company’s future leadership.
70
A carefully thought-through management
development program can smooth succession
planning. This kind of program takes account
of two elements: what the company will re-
quire in the future, and what the members of
the next generation expect for themselves. In
that context, the council can find answers to
key questions. How long, for example, should
it take for a family member to assume a senior
position? What experiences should he or she
have before assuming that role? What will the
compensation be like? Should future officers
acquire some outside experience before com-
mitting themselves to the family firm? Doing
so will be invaluable for self-esteem; it will
prove to the individual and his associates that
he is capable of making it on his own, not just
because of family connections.
The family firm can pick up a number of
important lessons from practices in public
companies.
In order to prevent organizational my-
opia, it is a sine qua Neal that outsiders should
be welcomed and trusted. Without the help of
outsiders, the manpower supply soon be-
comes awfully slim. Consequently, the hu-
man resources management systems in the
family firm should be compatible with those
of public companies. For reasons of equity,
and in order to avoid destructive envy, it is ex-
tremely important to design incentive sys-
tems for non-family members.
Other standard company practices should
be observed. Strategic planning should be-
come a matter of course. Roles and responsi-
bilities should be clearly defined. Having well-
defined boundaries and clear division of labor
will go a long way toward preventing conflict.
Family management should strive to
build a corporate culture that is relatively
open and minimally politicized. It should be a
culture in which people are not afraid to
speak their minds and where, through dele-
gation, they have a certain amount of control
over their lives. True management profes-
sionalism can only occur when people have
the feeling that non-family members are also
eligible for senior management positions.
In order to keep the company on course,
an independent-minded board of directors
will be needed. The importance of profes-
sional advisers should also be emphasized.
They can take on the role of border guards,
helping to keep family dramas playing on
stages outside the company. And family firms
usually have enough high drama to keep an
audience on the edge of their seats.
As those who have experience with family
firms know all too well, maintaining a separa-
tion between business and personal lives can be
anuP struggle. Qne certainly does not risk
being bored. When things go well, they can go
very well, although the opposite is also true.
For the psychologically minded, family
SELECTED BIBLIOGRAP
For an exploration of the psychological aspects
of founders of family enterprises, see the chap-
ters on entrepreneurship in my books Power and
the Corporate Mind (co-authored with Abraham
Zaleznik; Houghton Mifflin, 1975; Bonus Books,
1985), Organizational Paradoxes:Clinical Approach-
es to Management (Tavistock, 1880) and Prisoners
of Leadership (Wiley, 1989).
The way a leader’s personality can affect his
organization’s corporate culture, strategy, and
structure is described in my book Unstable at the
Top (co-authored with Danny Miller; New
American Library, 1988), and my article “Lead-
ers who Self-Destruct: The Causes and Cures,”
Organizational Dynamics, Spring 1989, pp. 4-15.
Also highly recommended is the article by Edgar
Schein, “The Role of the Founder in Creating
Organizational Cultures,” Organizational Dy-
namics, Summer 1983, pp. 13-28, and the chapter
by Alain Noel, “Magnificent Obsession: The Im-
pact of Unconscious Processes on Strategy For-
mation,” in a book which I edited entitled Orga-
nizations on the Couch (Jossey-Bass,1991).
Insight into the psychodynamics of family
firms offer a tremendous variety of issues. The
excitement lies in detecting patterns. In that re-
spect, we might well recall the words of Tolstoy~
who wrote in his novel, Anna Karenijza, ”
happy families resemble ane anothes; every un-
happy family is unhappy in its own wa~.~
firms is provided by Harry Levinson in his arti-
cle “Conflicts that Plague Family Busmesses,”
Harvard Business Review, March-Acre 1991.
Some observations about the psychodynamics
of succession are discussed in my article “The
Dark Side of CEO Succession,” Harvard Business
Review, January-February 1988, and
Levinson’s article “Don’t Choose Your
Successor,” Harvard BusinessReview, November-
December 1974.
An overview of the ups and downs of fam-
ily firms can be found in such books and articles
as Larry Dance’s Beyorzd Survival: A Business
Owner‘s Guide for Success (University Press,
Cleveland, 1982); E. Kepner‘s “The Fa
the Firm: A Coevolutionary Perspective,” Orgy-
nizational Dynamics, Summer 1983, pp 57-71;
Paul Rosenblatt, et, al. The Family in Business
(Jossey-Bass, 1985), W. Gibb Dyer’s CulEtr~aE
Change in Family Firms (Jossey-Bass, 1986), and
John Wards Keeping the Family Businessstealthy
(Jossey-Bass, 1987.) Another excellent source of
information about the vicissitudes of family
businesses is the journal Family BusinessReview.