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Tuesday, July 8, 2014

Rethinking the way we approach the family business


Most readers of this blog will know something about family business. Some readers will know that family businesses have an enormous impact on the economy, estimated to generate 55 percent of the GDP, account for approximately 60 percent of total employment, 75 percent of all new jobs, and 65 percent of wages paid in the United States alone. Worldwide,  families in business together exercise similar influence.

Most readers will also be familiar with the challenges family businesses face – whether through statistics that are cited for the proposition that 90 percent of businesses fail to successfully transition to the third generation, the aphorism of “shirtsleeves to shirtsleeves in three generations,” or, more personally, through stress and conflict in their own family business.

Having worked with – and studied – families in business for nearly 30 years, and recognizing that families continue to experience conflict and that these dismal statistics don’t seem to be changing, I decided to take Albert Einstein’s admonition to heart (“We can’t solve problems by using the same kind of thinking we used when we created them”) and, so, began to approach my work with families differently.

I begin with two propositions. First, enormous progress has been made in understanding how we think and act. Nobel Prize winning psychologist Daniel Kahneman has observed that “by and large…the idea that our minds are susceptible to systematic error is now generally accepted.”

Dan Ariely, another prominent psychologist and best-selling author writes that “[a]lthough a feeling of awe at the capability of humans is clearly justified, there is a large difference between a deep sense of admiration and the assumption that our reasoning abilities are perfect.”

My second proposition is that traditional advisors to family businesses, comfortably operating in their silos of legal, tax or financial expertise, have paid little or no attention to the insights from their professional counterparts in the fields of science. As a result, typical plans that ignore the science of how and why people behave as they do, instead focusing on money (e.g. financial plans, retirement plans, estate plans, etc.) are unlikely to work except by fate or fluke.

My goal in starting this blog is to help change the planning paradigm for family businesses. It is a continuation and advancement of my earlier works on the subject, including, most recently, Family Business and Positive Psychology: New Planning Strategies for the 21st Century (American Bar Association 2013). I plan to give particular attention to the field of positive psychology – the scientific study of choices we make and the “conditions and processes that contribute to the flourishing or optimal functioning of people, groups and institutions.”

The developing insights from fields of science have already begun to gain traction by the most respected businesses and business publications. For example, The cover story of the January-February 2012 issue of the Harvard Business Review is captioned (under a big iconic yellow smiley face) “The Value of Happiness: How Employee Well-Being Drives Profits.”) and Judith Glaser and Richard Glaser’s June, 2014 article in the Harvard Business Review, titled, The Neurochemistry of Positive Conversations, that explores the “chemistry of conversations” and why it’s so critical for all of us to be more mindful about how we interact with colleagues, family and friends.

The opportunities for family businesses to benefit from scientific insights, particularly from the field of positive psychology, is virtually without limit. For example, family members might learn to spend less time arguing and more time working collaboratively on their business by applying insights from researchers at Yale, who studying non-verbal communication, found that leaders who use more positive tones of voice enhance both people’s ability to resolve conflict and profitability, or why companies like Google and Zappos, recognizing that happy employees work longer, faster and with fewer sick days than unhappy employees, create “happiness czars” whose responsibilities are to establish and maintain a positive workplace culture.

I look forward to sharing insights such as these in this blog and helping those working in -or working with – family businesses benefit from science.

Scott E. Friedman is the Managing Partner of Lippes Mathias Wexler Friedman LLP in Buffalo, New York. He has spent nearly three decades studying family businesses and working with families to improve their processes and enhance their operations. He is the author of seven books including, The Successful Family Business, and his latest, Family Business and Positive Psychology: New Planning Strategies for the 21st Century. He is a frequent lecturer and writer on the topic of effectively managing the challenges of running a family business and is the co-founder of Next-Gen Advisors. He can be reached at