Generation-to-Generation: The Rules of Family Businesses

HCLI Research
Published 19 June 2017

HQ Asia spoke with Heinrich Jessen, Chairman of Jebsen & Jessen (SEA) Pte Ltd, on leading a family-owned business and the unique challenges.

It’s no secret that family-owned businesses (FOBs) have a unique set of challenges that impact the company’s survival – they typically last just one generation. In fact, according to the Family Firm Institute, only 30% of FOBs last into a second generation and 12% remain viable into a third and beyond. That makes Jebsen & Jessen’s (J&J) 122 years of operations, with more than 50 years of operations in Southeast Asia, even more impressive.

We dug deeper to find out more about it from the chairman, Mr. Heinrich Jessen, who is a third-generation leader of J&J, a recent winner of the 2016 Businessman of the Year and a biologist by training.

“Family businesses have unique characteristics that can be very positive – particularly if the family is involved in the business meaningfully.” – Heinrich Jessen
Benefits & Challenges of Family-owned Businesses

“A family business has benefits and challenges regardless whether it’s in ASEAN or elsewhere,” says Jessen. He describes how the meaningful involvement of the family can instil values into the business, such as decision-making with a long-term orientation and business continuity through meaningful relationships with employees, suppliers and customers. These values are central to how family-owned businesses outperform competitors who may fall into the pitfalls of pursuing short-term interests.

But family-owned businesses don’t come without their challenges. “Families can also bring out the worst in the business. A negative is when there is an untimely death, conflict, divorce or disability. These are all worries,” says Jessen. “If it’s a founder-driven business, it can be catastrophic if the founder is suddenly no longer there or is engaged in a conflict. That is regardless of whether you are in ASEAN or any part of the world.” Jessen explains that planning is essential to off-set a potential unplanned-for disaster.

How can a family-owned business navigate around these challenges then? For Jessen, it’s about setting the right rules for the business.

Mitigating Challenges with Rules

Research says firms that survive to the third generation and beyond are those that–at an early stage– had put in place formal rules to ensure effective family governance. For Jessen, it’s about defining the rules that augment their values and culture while preventing J&J from falling into the common pitfalls.

Concentrate top management decision-making into a few hands. It removes conflict, bureaucracy & compromised decisions, which are common when several family members are involved in decision-making. “At J&J, and this goes for the whole family enterprise globally, there have never been more than three family shareholders at a time,” says Jessen.

Manage by meritocracy and avoid nepotism. J&J operates a federation of small companies where success stems from a culture of entrepreneurial leaders and managers with a sense of accountability. Sending the right messages to non-family employees is critical to that and therefore leaders must first be responsible for their decisions which should benefit the business, not for self-interest or their family members.

Clear reporting lines for efficient feedback. It’s important to continuously learn, and getting honest feedback is key to that. This is why, at J&J, there are rules put in place so that family members do not report directly to each other.
But it needs leaders who are willing and capable enough to uphold these values and continue to lead the business forward. How does J&J build a leadership pipeline to ensure business continuity?

Success in Succession

“There’s no cookie cutter strategy,” says Jessen. “It’s a combination of succession planning and some luck involved.”

One of the group’s principles is that in order to become a shareholder, the family member must work in the business. There is no such thing as a silent partner in Jebsen & Jessen. Linked to this approach is another policy which states that shares are not inherited, they must be purchased.

Over the three generations of leadership at J&J, he admits that they have thus far been fortunate enough to have always had the right number of people within the family – never too few or too many – who were willing and able to take on this challenge. “Which means we have had the luck to not deal with conflict,” says Jessen. But even with this luck, it takes deliberate planning to nurture talent into the leaders of tomorrow for the company.

Jessen believes that learning can be particularly efficient when done externally. “Because getting feedback is not easy when you are the crown prince. I believe next-in-lines learn more in an external company because it’s much better to make your mistakes there and get genuine feedback for learning purposes.”

Centralised at the top, decentralised everywhere else

Although top management decisions are concentrated in a few hands at the holding level, everyday decision-making is decentralised and very much delegated to the subsidiary level. This is because J&J operates almost as a federation of small companies. “Asking for lots of signoffs is inefficient; we need managers and leaders who can stand up and make decisions at the frontline,” says Jessen. How do they encourage such behaviours from their managers?

To Jessen, it begins with the organisational design – the structure and culture.

“We have a flat organisation structure and a key value at J&J is having an entrepreneurial spirit for managers,” says Jessen. “When decisions are made that turn out to have been wrong, we also don’t have a culture where the blame game is played. In many companies, when things go bad, typically the first question is whose head needs to roll, but in J&J, it’s about what we can learn from it. Because we want to encourage the right behaviours to take charge, be proactive and make decisions, we don’t punish but rather we celebrate the good decisions and look at how we can learn from the bad ones.”

Leadership Lessons

When asked to share leadership advice, Jessen said the following:

Be humble. It has for instance always been a policy that family shareholders do not draw a salary.
Count your blessings. Profits are considered a means to grow, never an end in itself.
Lead and live by example. This means if you’d like staff to be on time, you must be on time. If you would like staff to work hard, you work hard. Even the family members who currently lead J&J apply for leave and stay within the leave policy that all employees follow. The values of top management trickles down to the rest of the organisation and as leaders if we do not uphold the right set of values, then there is little chance that the rest of the organisation will.
“These three points may be mundane, but they are mundane for a reason – if you live it truly, then it can be very effective,” says Jessen.

Did you know?

Despite their European-sounding company name, J&J does not have a headquarters in Denmark or Germany where the founders came from – their roots are firmly in Asia [Source]. Because of Jessen’s environmental management background, he took the company on a sustainable path to become one of Asia’s first carbon-neutral companies in 2011 where they would even turn down profitable projects if they fall short of J&J’s green requirements [Source]. They were also among the first companies to pledge to say no to shark’s fin at company dinners in 1995 [Source]

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