What does a dysfunctional family business look like? Although there are always individual differences, The Los Angeles Lakers (“Lakers”) provide a classic example of a dysfunctional family business in action.
Once upon a time, the Los Angeles Lakers (“The Lakers”) were Basketball royalty. During the period from 1979 to 2003, the Lakers won 7 NBA championships. It was also one of the most valuable sports franchises not just in basketball but in all sports.
A DYSFUNCTIONAL FAMILY ON THE EDGE
Today, the Buss family (the family that owns the Lakers) owns a family business on the edge of disaster. Not only are the Lakers in decline as a basketball team, but there is a classic family civil war going on among members of the Buss family—and there is nothing “civil” about it! Jeanie Buss, who was specified to be the “controlling owner” of the Lakers by her deceased father, has fired her own brother, Jim Buss, who was running basketball operations. In turn, Jim and his brother Jonnie brought suit to prevent a meeting at which they would have effectively removed Jeanie as a director of the Lakers. Jeanie Buss sought and received an injunction to prevent her brothers from doing this.
Widespread Phenomena of Failed Family Business Generational Transitions
The underlying cause of the problems of the Buss Family, and, in turn, the Lakers is a dysfunctional family. The situation confronting the Lakers is dramatic because they are a high profile family business. However, the problems and underlying causes facing the Lakers are common to many (if not most) family businesses.
Preventing this Type of Family Business Drama
Was it possible to prevent this type of Family Business Drama? They answer is a qualified “yes”. The nature of some families is so toxic that nothing can realistically be done to prevent “Family Business Drama.” However, in other families, there is more of “garden variety” dysfunctionality, and prevention from excessive drama and even chaos is possible.
The solution need to be done before the passing of the senior family leader—not after! In the case of the Lakers, a legal protocol for ownership and management of the Lakers was laid out and Dr. Jerry Bus might well have believed that he had done everything he need to do correctly. However, without further steps the organizational arrangement prescribed for the Lakers was a recipe for a future disaster; and in 2017 the disaster actually happened.
Need for a “Strategic Family Business Plan”
What the Buss family needed and what is in fact needed in all family business is what we term a “strategic family business plan.” A “Strategic Family Business Plan” is not a strategic plan for the family business per se; rather it is plan for the family’s use of the family business.
A STRATEGIC FAMILY BUSINESS PLAN
A “Strategic Family Business Plan” is a document that captures the family decisions with respect to the two kinds of “special family issues” that must be resolved outside of the business: 1) “Family strategic issues” concerning the Business’ “Purpose” or “function” vis a vis the family, and 2) A set of six key “family dynamics issues” that face all families owning family businesses.
Family strategic issues are issues concerning how the family views the business as a vehicle for family needs. Family dynamics issues are interpersonal in nature and affect key aspects of the function the family and the business. The two kinds of Family Strategic Issues are captured in and summarized as a family “mission and vision
The three-part construct of “Mission, Vision, and Values” is widely used in strategic planning. We are applying this construct here to family business planning.
The “Family Business Strategic Issues
This means that there are three specific “family business strategic issues”:
- The family business “mission” is the overarching statement of the role or purpose of the business for the family. Some families want the business to operate independently of the family, while others what it to be an integral part of the family and vice versa.
- The family business “vision” is the overarching longer term objective of the business for the family. For example, some families want to operate the business indefinitely, while others what to prepare or position it for eventual or near term sale.
- The family business “values” are the core guiding principles of the family for operating the business. These guiding principles must address six key areas of “family business dynamics issues.”
The “Family Business Dynamics Issues”
Every family operating a family business must deal with a set of six key issues involving family dynamics:
- How family members in the business are treated
- Treatment of non-family members in the business
- Expectations of Performance and Accountability for both family and non-family members working in the business
- How “rewards and recognition” (including job titles) are handled for both family and non-family members working in the business
- The willingness of family members to learn, develop new capabilities and change, and
- How leadership both of the family and the business is handled
These family dynamics issues play out not just in the family but also inevitably in the business as another arena.
- How these issues are resolved is critical to the continuing success of family businesses.
- These issues must be resolved in the family business planning process to avoid day to day conflicts in the business.
The solutions to the family dynamics issues are (or should be) summarized into a set of “family values.”
The Function & Value of a Family Business Plan
A “Family business Plan,” then, summarizes the family’s decisions about both the strategic family business issues and the family dynamics issues. Taken together, these decisions define the “Foundation” of the Family Business for the Family.
The Family Business Plan articulates the plan of the family for the use of the family business. It is not a strategic plan for the business. In a sense, it is prerequisite or context for developing a sound strategic business plan.
The next step after completing the Family business plan is the development of the strategic plan for the family business.
How A Family Business Plan would have helped the Buss Family
The development of a Family Business Plan would have helped the Buss Family avoid the inevitable chaos that occurs when this type of plan has not been completed. Such a plan should have been developed while Jerry Buss was alive and could participate in the process of its development.
During that process, many of not all of the key issues (including “What ifs”) could have been raised, discussed and resolved. For example, Jim Buss was given the responsibility for managing the basketball operation of the Lakers. Some “what ifs” that might have been discussed are:
- “What happens of the Lakers are “in decline” as a basketball team”?
- “Can Jim be removed from his role”?
- “What are some of the criteria and benchmarks for the team being ‘in decline’”?
- “How serious must the decline be before removal is justified”?
Some families are “conflict adverse”. Some family leaders are “conflict adverse” and would prefer to “pass” before these types of unpleasant issues are dealt with. There are even some who intentionally leave behind a situation with the potential for chaos because they want the organization to fail after they are gone, further burnishing their reputation as “the Great Leader.” We have detailed this type of leader in our book, Building Family Business Champions, in a chapter titled the “Dark side of Family Business.”
THE BOTTOM LINE
The success rate of family businesses surviving to the third generation is estimated to be in the range of 13-16%! That means that of 100 family businesses that start successfully, 84 to 87 will be gone by the third generation. Although we are lacking precise data, the success rate of family businesses until the fourth generation is undoubtedly worse.
Maintaining family business success for more than one generation is clearly a difficult task. Nevertheless, many companies have achieved this, including Simon Property Group (a NYSE-listed shopping mall developer and operator), Westfield (an Australian and U.S. shopping mall developer and operator), GOJO™ (developer and manufacturer of Purell™), and Heineken (the Dutch beer brewer). In addition to these large and relatively well known companies, there are others just as successful albeit smaller and lesser known. One classic example is Bell Carter Foods, a client for ours for more than 19 years. Bell Carter recently completed the transition to the fourth generation of family leadership. We have detailed this example in our book, Building Family Business Champions.
Developing a family business strategic plan can be a very valuable tool to increase the likelihood of a successful family business generational transition and decrease the likelihood of family conflict and business failure.
So in order to avoid the dysfunctional chaos of a situation like the Buss family, a family must develop a family business strategic plan. I have recently completed a set of videos for LinkedIn titled “Creating a Family Business Plan.” These videos will provide a step by step method to help anyone interested in developing a family business plan do so. They also discuss the classic core set of issues that typically must be resolved by every family and include a sample family business plan.
A link to the course is provided here - Creating a Family Business Plan
A FINAL WORD
The alternatives are clear: Family Chaos or a Family Business Plan? The choice is yours!
 See Eric Flamholtz and Yvonne Randle, Building Family Business Champions, Stanford University press, 2016