John L. Ward
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Faculty Bookshelf

Kellogg School family business guru explores best practices in new text

by Raksha Varma

Cinical Professor John L. Ward has made a career of studying the inner workings of family businesses. The Kellogg School faculty member's latest book, Perpetuating the Family Business: 50 Lessons Learned from Long-Lasting Successful Families in Business, aims to educate families and non-family executives about best practices used to meet the challenges facing businesses owned and operated by families.

Ward, a veteran author and co-director of the Kellogg Center for Family Enterprises, is a leading expert in the still-developing arena of family business. "This is a relatively new field," says Ward, who teaches Family Enterprises: Issues and Solutions at the Kellogg School. "It's very under-studied. There wasn't much published when I first began."

After receiving his MBA and PhD from Stanford University in 1973, Ward taught at Loyola University and began consulting for companies. Since 1980, Ward's research has focused on the strategic differences between family and non-family businesses.

"Along with most people, I initially did not think family businesses were effective," Ward says.

After he later came across a database that demonstrated family businesses perform exceptionally well, Ward began analyzing the group's strengths. His research inspired him to write three books: Keeping the Family Business Healthy; Creating Effective Boards for Private Enterprises; and Strategic Planning for the Family Business. He also has authored a collection of 60- to 80-page booklets, and has contributed his expertise to trade journals and magazines.

"Historical evolution is at the heart of my latest book," says Ward, who used international examples and case studies collected in the last 10 years for the text. "The family's evolution determines the complexity and growth of the business."

Ward's book describes the challenges facing family businesses, common historical patterns of family business failure by the third generation, and 50 practical models and lessons.

"One of the most important principles in my book is to form an outside board of directors," Ward says. "This action creates a form where the best interests of the family are explored with more objectivity and a broader amount of experience."

He also recommends family businesses have "a diet of regular family meetings" to discuss the family, its values, vision, challenges and conflicts.

"Drafting a family constitution is also a principle I suggest," Ward says. "Family companies are better off laying out the rules ahead of time to avoid future problems. Plan to discuss the exact interaction between the family and business, including hiring practices and succession processes."

Ward accents the importance of values to family enterprises. "Unlike other types of businesses, family-operated businesses emphasize reputation, continuity and personal values," he explains. Non-family businesses, especially those impacted by public shareholders, tend to stress discipline, accountability and professionalism. Entrepreneurial companies, on the other hand, underscore innovation, change and creativity.

"It's important for our society to have a healthy mix of businesses," says Ward. "This fuels competition and a dynamic economy. The United States' economy has relatively fewer family businesses; international economies tend to include a larger number of family businesses."

Ward estimates 25 percent of the U.S. market is composed of family businesses. Other countries, such as those in Asia, the Middle East and Latin America, have more because these countries are at an earlier stage of economic development and lack sophisticated stock markets. Family businesses are also more widespreadin these countries, Ward points out, because of prominent differences in tax policies, legal matters, culture, inheritance and laws.

"The United States has a completely different mentality and culture," Ward says. "Some say it's not wise to mix business with family here."

Indeed, some families cannot make decisions, Ward says, because they view the interests of the business as direct competition to the interests of the family. The most successful family businesses, such as Wal-Mart and Cargill, synthesize the "competing" interests to simultaneously maximize both groups.

"Family interests and relationships can color business decision-making," Ward says. "Families, however, can also bring huge strengths to businesses. They can make fast decisions and don't feel the need to impress stock analysts."

Families who own and operate businesses control the larger percentage of shares, with the balance occasionally open to public shareholders. "These families can follow unconventional strategies because they're usually in this for the long haul, not quick returns." These families tend to be significant contributors to society, offer leadership in the community and are long-term risk-takers.

Ward will continue to research this trend and others, helping shape the discourse surrounding family businesses. His next booklet is scheduled for January publication.

For more information, visit www.JohnLWard.com