28 Section 2 Chapter and Lecture Notes
Chapter 5 Essence
Chapter 5 explores the longevity story through the eyes of fourth-, fifth- and sixth–
generation CEOs, presidents, and chairpersons of the board, and concludes that, first of
all, continuity is about keeping the family enterprise competitive and adaptable. In fact, it
Keeping the business growing through a customer-active paradigm and providing
career opportunities for family and nonfamily employees is at the heart of a positive-sum
dynamic and the capacity to have a virtuous cycle working for the firm and the owning
family.
The second set of lessons from centennial family companies relates to the commitment
by shareholders to govern their relationship with the firm on behalf of the larger purpose
of continued ownership and control. Communication, information, and engagement that
Centennial family companies have learned to govern the family-business interaction
and mitigate shareholder disunity through more formal structures and processes such as:
Hiring and retaining professional nonfamily employees in top management.
Finally, Chapter 5 argues, centennial family companies have learned to change in
order to continue to realize, across generations, the value of their traditional or new, but
nevertheless idiosyncratic, competitive advantages. These are advantages that are often
Section 2 Chapter and Lecture Notes 29
Discussion Questions
1. What is the 12 Model for Family Enterprise?
The 12S family enterprise model suggests that it is not enough to think of family
business and family business continuity as a matter of aligning family, ownership and
management. It argues that wealth management, succession, family harmony and
Implications of the 12S Model for Family Firms;
While the 12S Model may appear overly complex for the first generation or
entrepreneurial family business, only two elements, shareholder structure, and
shareholder wealth management and information systems represent what would be
extraneous considerations for young firms. First generation entrepreneurial family
In order to keep shareholders in these later-stage multi-generational family firms
committed for the long run, its share owners must be treated even more transparently
and professionally than shareholders in a management-controlled Fortune 500
company. Why? Because family firms can enjoy a unique resource borne out of its
ownership structure, the advantage of patient family capital and caring, active
30 Section 2 Chapter and Lecture Notes
Family shareholders expecting to fulfill their responsibility of aligning
management interests with shareholder priorities and holding management
accountable must be able to make sense of what the numbers say about the firm and
its competitiveness. Financial literacy is essential for every shareholder, not just those
active in company management. (See chapters 3 and 10 for additional suggestions on
this topic.) Without it, family business shareholders can easily become just as
indifferent or impatient, as high– speed traders on Wall Street.
2. What do centennial family company leaders consider paramount in providing for
long-term continuity?
Centennial family company leaders say that continuity is about keeping the family
enterprise competitive and adaptable, and that the only disagreement worth having in
a family business is a disagreement about strategy. When the disagreements are about
pay, perks, and the presidency, the path of least resistance often leads to win lose
The second set of lessons from centennial family companies relates to the
commitment by shareholders to govern their relationship with the firm on behalf of
the larger purpose of continued ownership and control. Communication, information,
and engagement that promote family unity are as important to the success of these
Section 2 Chapter and Lecture Notes 31
3. What are current generation leaders/CEOs called upon to do in order to
promote continuity?
Incumbent generation leadership is all about providing for governance and the
resolution of the legacy effects. The current generation builds institutions that will
effectively govern the relationship between family, management, and ownership
through a strong board, family meetings, the appointment of professional nonfamily
4. What are next-generation leaders best-suited to do on behalf of long-term
success and continuity?
Next-generation leaders in family firms that are successful in the long term are very
aware that their motto is partnership. They are cognizant of the fact that they serve the
company and the family and may provide the spark for a renewed but collective effort
on behalf of the business and the family. Tim Timken, for example, served as director
of strategic planning for the Timken Company:
32 Section 2 Chapter and Lecture Notes
Relevant Case Resources
The Ferré Media Group (A and B) cases highlight the unique resources or core
competencies that enterprising family members have been able to parlay into competitive
advantages across several generations. It is a centennial family company and a great