Success is all in the Family
“Business schools tend to avoid talking about family-run businesses, or they screen out the family influence in family firms,” says Frank Hoy, Paul R. Beswick Professor of Innovation and Entrepreneurship at the WPI Foisie Business School. “They try to focus on rational decision making, and they don’t view family businesses as rational enterprises.”
Hoy is a pioneer in the relatively young field of scholarship on family-owned businesses. Through several books, including Entrepreneurial Family Firms (2010) and Small Business Management (2012), dozens of articles, and collaborations with colleagues around the world, Hoy has explored how family businesses sustain themselves and thrive, and how they manage the transition from one generation to the next. He says this research is more than academic.
“Some of the world’s most successful companies are family-owned,” Hoy says. “Among them are 30 percent of the Fortune 500 firms, including Fidelity, Marriott, and Wal-Mart. Business giants like Ford and IBM trace their roots back to family enterprises. As business scholars, we should be asking what these companies are doing that helps them prosper.”
In 2011, WPI was offered an extraordinary opportunity to begin asking that question on a global scale. Thanks, in large part, to Hoy’s reputation, the university was invited to become one of 10 North American universities to join the Successful Transgenerational Entrepreneurship Practices (STEP) project headquartered at Babson College. Through STEP, research teams from Europe, Asia, Latin America, and North America are creating a shared database that currently includes more than 95 case studies of multigenerational family-owned businesses worldwide.
In addition to Hoy, the STEP team at WPI includes fellow Foise School of Business faculty members Chickery “Chick” Kasouf, associate professor of marketing, and Adrienne Hall Phillips, assistant professor of marketing; Hansong Pu, a visiting lecturer who also directs an entrepreneurship and business center at China’s Hangzhou University; and Kimberly Eddleston, associate professor of entrepreneurship and innovation in Northeastern University’s College of Business Administration.
Case Studies in Success
The team has completed its first two case studies, both of which focus on companies with longstanding ties to WPI. Morgan Construction, a maker of rolling mills and other machinery for the steel industry, was founded in the 1880s by Charles Hill Morgan, the first superintendent of WPI’s Washburn Shops. It was run by five generations of Morgans before the company agreed to be sold to Siemens VAI in 2008.
Spirol, which makes engineered fasteners, has ties to three families, including the Prym family, which started the oldest family-owned business in Germany. Located in Northeast Connecticut, Spirol has been led throughout its 60-year history by members of the Koehl family, including Hans Koehl, a 1956 WPI graduate, the recently retired CEO, and his son Jeffrey, the current CEO.
To prepare the case studies, WPI researchers spent several months conducting structured interviews with key corporate personnel, including family and non-family members, using a lengthy questionnaire prepared for the STEP project. The result of this exhaustive process was a detailed analysis of each firm’s history, status, vision, governance, marketing practices, and more.
Chick Kasouf and Adrienne Hall-Philips, faculty members in the WPI Foisie School of Business, have helped complete case studies of two multigenerational manufacturing companies with close ties to WPI. They say what they have learned will inform their work with students and their research on marketing.
While the case histories, which are currently being reviewed by the Morgan and Koehl families, will remain confidential, Hoy says they will be available to members of the STEP consortium for research purposes. The database gives researchers access to information about more than 95 companies, which can be used to answer a wide range of questions about why some businesses survive from one generation to the next and succeed in the global marketplace.
“One thing we’re finding is that good practices in family companies translate to non-family businesses as well,” Hoy says. Although the research is still in its early stages, he says there is “solid evidence” that shows family businesses are more likely to prosper because they have the ability to make longer term decisions to achieve their goals.
Herman Koehl, center, founded Spirol in partnership with Walter von Canta, left, and Hans Prym.
While each company and its leaders are different, Hoy says evidence is mounting that an organization’s culture is an important factor in its success. “By putting its name on the business, a family conveys a sense of integrity and trust to employees, customers, and creditors,” he notes. “It is a way of saying they are going to deliver on their promises.”
Kasouf says participating in STEP has enabled him to expand his research on small businesses to include perspectives from transgenerational family-owned firms. While he cautions that it can be difficult to find common ground among such a diverse group of organizations, he’s observed that researchers can also learn a great deal from the mistakes that multigenerational companies make. “I’ve seen small companies fail to thrive because the second and third generations threw out the business model and treated the place as an annuity and not an investment,” he says.
Family dynamics like these distinguish multi-generational family-run companies, Phillips says. “The complexities and pressures involved are different for family businesses,” she notes. “There are issues of separating family ties with business decisions and absorbing personal risk. The dynamics affect viability over the long run.”
Family businesses are also characterized by complicated governance structures, says Kasouf, who notes that family members from multiple generations often hold equal shares, and have equal votes, making it tricky to determine who will have the final say. And when some family members work for the company and others don’t, they may face what Hoy calls “the predator versus parasite controversy.”
“People outside of the business see their relatives getting salaries and nice benefits and say, ‘they’re sacking our inheritance,’” he says. “Company insiders feel entitled to the rewards they’re reaping and may feel that family members who are not contributing to the business are sucking blood out of them.”
Overcoming obstacles like these can make achieving intergenerational success a challenge. Kasouf recalls one Connecticut business that resorted to therapy to figure out how to transition the business. “They wanted to be sure everyone could deal with what was going on before moving forward,” he says.
The researchers say they also look forward to using the STEP database to make cross-cultural comparisons and examine best practices across international boundaries. “Drawing distinctions between family businesses located in different regions of the world should be enlightening,” Phillips says.
The team, which anticipates completing one or two new case studies a year, is also looking forward to tackling a new challenge together.
“We already have our eye on an interesting company,” Hoy says. “Zildjian Cymbals in Norwell, Mass., is the oldest family-owned business in the United States. It is beginning its 15th generation of management and is being led by two women, who are its first female CEOs. Just imagine what lessons we can learn from a company with such a long and rich history.”
Hans Koehl, right, and his son Jeffrey represent the most recent generations to oversee Spirol in Danielson, Conn.
A richer view of business
One goal of WPI’s participation in the STEP project is to strengthen the university’s undergraduate and graduate programs in business by incorporating a greater focus on family enterprises, Hoy says. “Business schools have not done a proper job to this point of preparing students for their inevitable fate, whether that is starting a family business, working for a family business as a family or non-family member, or conducting business overseas, where family business are quite common. This research will help people understand that the most successful businesses are family-based — including in the engineering and technology realm.”
Among the most valuable aspects of the STEP research, Hoy, Kasouf, and Phillips note, is the perspective it will offer on cultural differences in business practices and family dynamics. “Through its global projects program and globally diverse student body, WPI already gives students a tremendous introduction to the global society in which they will live, work, and hopefully prosper,” Phillips says. “This global database will help us give students an even richer view of the world of business.”