Selling the Family Business: Letting Go While Preserving a Legacy
“I’ve worked in the company for the last 42 years. And I never until this year even imagined the possibility that we might think about selling.” That’s what Don Graham, the head of the legendary Washington Post, told reporters shortly after he announced the sale of the family business to Amazon CEO Jeff Bezos.
Graham’s grandfather, Eugene Meyer, bought the company in 1933. During the 1960s and 1970s, his mother Katharine Graham led the company to greatness. After eight decades of leading one of the most well known newspaper companies in the world, the family decided to let go after struggling to stem the decline in sales. It’s unlikely that the decision to end the family’s stewardship of the company after four generations was easy.
Families that control an enterprise over multiple generations have a lot more to consider than the average business owner, according to Jennifer Pendergast, Ph.D., a senior consultant at Egon Zehnder’s Family Business Advisory division. “When families sell, they want to know that their employees and communities in which they operate will be well cared for,” she says. “They don’t want their legacy to be tarnished.” They want a buyer who is not just in it for the money, will maintain their values and not tarnish their name or reputation.
Preserving the family legacy is a critical element of a decision to sell. Over time the family’s identity gets interwoven with the company’s reputation. Families take pride in pointing out the family name on a product that now sits on the shelves of global supermarkets or taking friends to a resort they own. When selling, families tend to look beyond the financial aspects of the deal and focus on the long-term ethical and social implications of relinquishing control.
Ph.D., Senior Consultant
Egon Zehnder’s Family Business Advisory division
Christopher Bancroft, a member of the family that controlled Dow Jones & Company, publishers of The Wall Street Journal, said he regretted the decision to sell the family business to Rupert Murdoch after he learned of the phone-hacking scandal Murdoch’s News International was involved in. “If I had known what I know now, I would have pushed harder against the bid,” he told the Guardian.
For a family, the company’s brand is an asset they may never be able to disassociate with. The pressure to preserve the family’s legacy tends to magnify over successive generations. “Although it depends upon the family’s culture, generally next generation members do feel an obligation to support the legacy,” says Pendergast. Next gen leaders have told her that they “don’t want to be the generation that loses the business.”
Dr. Pascale Michaud, senior advisor and partner at Cambridge Advisors to Family Enterprise, agrees. “There is an emotional attachment to the core business nurtured by prior generations.” She says next gen leaders are under pressure to consider factors the family believes are “non-negotiable.” This could include the location of the family’s headquarters, the name of the company after the deal and the future of relationships with suppliers close to the family.
Senior Advisor and Partner
Cambridge Advisors to Family Enterprise
These “non-negotiable” factors are best understood by another family business leader, according to Pendergast. “The ideal buyer of a traditional family business is often another family business,” she says. Families need assurance that the brand will thrive under an owner who deeply connects with the family.
However, the financial impact and family legacy are not the only concern for family business leaders on the verge of selling. Pendergast says the business gives extended families a reason to connect and work together.
The family needs to think about what they will do with their time and how they will connect with each other after the venture is sold. “If they can see that there are opportunities to sell the business and stay in business together in a different fashion, either as investors or as philanthropists, that can soften the blow,” she says.
A Family Office Exchange survey found that 80% of family businesses had at least one family foundation. Survey respondents said philanthropy was a good way to cement the family’s bonds and teach successive generations the value of wealth. The Gates Foundation and IKEA Foundation are the best examples of families working together beyond the core business.
However, some families sell precisely because of an inability to stay together. Lack of family vision or unity is the worst reason to sell a family business with otherwise good performance, according to Dr.Michaud. “Selling appears to be the easy, (falsely) quick-fix answer when the family has lost its sense of identity. Cashing out in these contexts usually only make things worse for the family, leading to a vicious circle of entitlement and spending, creating more distance from one another and criticism towards each other,” she says.
Selling the family business is likely to be an emotional journey for most families. Both experts we spoke to agreed that selling for the right reasons to the right buyer and consulting professionals could make the decision easier.
Above all else, the family needs to consider new ways to keep members unified and shape their collective identity. Successfully completing this transition could help the family let go of the business while preserving their legacy.