Op-ed: Biting the hand that feeds
October 13, 2011—
Greed has long been at the root of successful entrepreneurialism; it might well be at the heart of every great fortune. It can, however pose specific and serious risks to a family business as it passes to the second generation and beyond. If the moneymaking instinct is not properly channeled, it can sow the seeds of destructive intra-familial conflict.
When a single member jealously guards resources, for example, the result is often failure of the family business, with all of its attendant consequences for family relationships. For a family business to mature and pass down successfully to the next generation, its founder must have other considerations than the drive for money and control. Even if his ultimate intention is to hand over the reins to a single offspring, proper consultation with other members of the family and fair distribution of family wealth are crucial to success.
My research into family businesses that fracture or disintegrate due to mismanagement suggests that much of the time, the core problem is greed on the part of the founder — or principle player — once the business has achieved a measure of success. Destructive actions may be prompted, for example, by a belief that his branch of the family is being exploited by another, especially if the latter is led by a passive or less knowledgeable partner who nevertheless inherited an equal position.
The Gucci family business provides a case in point. The man who made the family name an international symbol of luxury and sophistication was Aldo Gucci, but it was his father Guccio who founded the House of Gucci. When Guccio was alive, he played his sons off of one another (believing fraternal competition would be an entrepreneurial stimulant), and when the time came to pass on the family business, he gave two of his three sons, Aldo and Rodolfo, 50% shares, excluding not only the third son but also the hard-working daughter, Grimalda.
The subsequent disintegration of the family is almost Shakespearian in its scope. Greedy and power-hungry, and convinced that Rodolfo’s share was wholly out of proportion with his somnolent contribution to the family business, Aldo began pooling company resources to start a business with his sons, using the Gucci name. Quarrels between Aldo and Rodolfo gripped the family, and were brought to a head when Rodolfo’s son accused his uncle Aldo of tax evasion. Aldo lost his chairmanship and ultimately went to jail, Grimalda sued her brothers, Rodolfo’s son was killed by a hitman hired by his wife, and the Gucci group, besieged by 18 lawsuits, was sold to Louis Vuitton - Moët Hennessy.
Unchecked greed is a dangerous stimulant for family business in the best of times. When the business is handed on to the second generation it can become particularly toxic. Families should consolidate and rely upon their family value system, while working in parallel on a governance plan that balances a business ethos on one side with familial collectivism on the other. Families should scrupulously avoid letting their boards of directors become battlefields, and focus instead on encouraging members of the board to work together effectively for the collective good. Successful family businesses create forums of communication at the family level, taking care to maintain fairness in the process.
Leaders of family businesses, finally, should avoid relying excessively on their own perceptions and counsel, and instead solicit input and feedback from a wide network of involved family members. And they should do all they can to sideline and contain greed, especially in points of transition between generations.
Dr. Josiane Fahed-Sreih is an associate professor at the School of Business on the Byblos campus and the director of LAU’s Institute of Family and Entrepreneurial Business.
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