Underlying factors for success at cousin consortiums or “third generation” companies
Cousin consortiums tend to coincide with so-called “third generation” companies, i.e., companies owned or managed by the founder’s grandchildren.
Studies across different national and international contexts have shown that only 15% of companies make it this far. That means that only a fraction of the family businesses created by founding entrepreneurs reach their grandchildren. Food for thought. Why? Family businesses are subject to certain variables and factors which make them unique. However, according to our own research, 47% face problems of succession, communication and leadership which they are unable to overcome.
At cousin consortiums, the “emotional glue” holding the inheritance together has been weakened by the time it reaches them. The question members usually ask themselves is: are we cousins or partners?
Let’s see why this is a key issue facing this type of company:
- Ownership is divided amongst several lines or branches of the family, bringing together a large number of members. Consequently, the family bond is usually stronger within the immediate family than with the rest of the family.
- There are normally more passive shareholders (who do not work in the family businesses) than active shareholders (who participate in the management). The shareholder’s economic return from his or her stake in the capital is not simply a need, but rather a demand.
- There is usually a great deal of diversity amongst the individuals involved in the family business, in terms of educational background, expectations and values. In a group of cousins, the age difference between the older and younger cousins can span almost a whole generation (20 to 30 years).
- Family ties have a smaller impact on business decisions. However, breakdowns in communication can lead to a lack of cohesiveness and conflict.
- Management and governance responsibilities are usually distributed over various family lines. Thus, power lies with the line with the most family members working at the company.
With all of this in mind, cousin consortiums must be able to meet three big challenges:
- Cohesiveness: coming up with an idea together, in which objective and professional criteria prevail.
- Professionalization: giving priority to economic results over the emotional legacy.
- Governance: setting in place instruments and mechanisms to properly organize their relationships as owners; leadership and participation of family members in the corporate and family governance.
Garrigues Family Business Department