Welcome to Let's Talk Legacy. I'm your host, Gary Michels and I am excited today about our show and the guests that we have for you. Ivan Lansberg is the co founder of Landsberg Gersick Advisors, and Devin DeCiantis is the Managing Partner. LGA serves as a trusted advisory and education partner to the world's leading family enterprises, and they've recently released the book The Enduring Enterprise, How Family Businesses Thrive in Turbulent Conditions. Welcome to the show, you guys.
Thanks so much for having us, Gary.
So can you each give us a little bit of a rundown on your backgrounds and also on the work that you do at Lansberg Gersick Advisors?
Sure, I'll dive in first. I've been fascinated by this topic of family business ever since I met Ivan nearly 20 years ago, and he introduced me to this new species of private enterprise that nobody ever taught me about business school, but that I have since come to understand is the dominant form of capitalism around the world, which has been a terrific
journey for me. And I was instantly inspired by their longer term planning horizons, their deep commitment to stakeholders and communities, their strong emphasis on family values and organizational culture, and as a reformed investment banker, I was also really impressed by how they tend to outperform non family businesses over the longer run and over the years of our work together, advising enterprising families around the world, along with our team, our travels have
taken us to some of the most affluent and stable countries, like the US, of course, but also some truly exotic and volatile
places. And in recent years, we've actually turned our academic lens to studying some of those differences, the differences between these contexts, and quickly discovered that at Frontier family firms take a very different approach to managing risk given their long history of navigating these kinds of moments of uncertainty, and as a result, they tend to prioritize a different set of strategic objectives, for instance, resilience rather than growth, which is the opposite of
what often gets taught in most western business schools and gets practiced in most western boardrooms and and that's the counterintuitive notion that became the foundation for this book and for subsequent research, and which we're excited to talk to you about here today.
So for me, the topic is very personal. I grew up in Venezuela. I'm the son of an entrepreneur, and witness up close the difficulties of not just building an enterprise, but actually transferring an enterprise from one generation to the next in a context that's sort of falling apart. So I went to graduate school here. I My first job was at the Yale School of Management, and when I got to Yale, I began to get interested
in basically two questions. You know? Why, if succession planning, for example, or continuity planning, as we call it, is so obvious, why is that so few people do it? And the second question really had to do with what can be done? You know, what can we how can we mobilize the internal resources of an enterprise and of a family to be able to get them to do the, you know, take the steps they need to take in order to continue the enterprise that they work so hard to build.
I think it's interesting this topic. How did the two of you guys start working together and start collaborating? I'm curious.
There's actually a family story there too, Gary, and it's this concept of families of choice, so to speak, the familial networks that end up combining and uniting disparate tribes into this fabric of of trust. I went
to grad school with Yvonne son. In fact, we're roommates, and so for many years, would spend American Thanksgiving with Ivan and his family as a Canadian, didn't have much to do that weekend, and began to embrace that tradition as a byproduct of socializing with with Dan and Ivan and their wonderful family.
And it wasn't until years later, over casual conversations, that we first began to explore the possibility of training some some of my consultative interests, training that lens in the world of family enterprise, and I couldn't have asked for a better friend and mentor and partner in that journey.
Yeah, no. I mean, I think we also share an interest in economic development. Devin comes from a sort of blended Lebanese and Italian background, and in my case, my father was Dutch. That's why my name is not particularly Latin sounding. So it was a joy to collaborate with Devin and find, you know, common interests around this, you know. So we put Thanksgiving to good use.
I love it. So I know you guys are aware that our shows about legacy, I know that's a big part of the work that you guys do, and one of the best. Examples of creating and passing on a legacy is family businesses, as we're discussing here, and you say that family businesses are actually much more resilient and enduring on a worldwide level than other types of businesses, and can withstand more turbulent conditions.
Before we go into why that is, if you could lay out what some of the most common threats are that usually topple businesses and and why resilience is important.
Absolutely Gary, in fact, what's fascinating is in family businesses and non family businesses, our attention almost always immediately focuses in on on business oriented risks, operational risk, security risk,
safety risk, reputational risk, compliant risks. But it's only this sort of the second order reflections that get us to thinking more about things like ineffective governance or asset concentration, where, in the case of family businesses, disengagement and dependence and death and divorce and a whole bunch of other DS and so forth, that could very easily derail an enterprising family in its quest for legacy, but which are obvious if you pay enough attention to them, and which can
be attended to proactively.
Yeah, for us, the issue of continuity is really quite important because it often is a key priority. Enterprising families make decisions not just for themselves, but for their kids and for their grandkids even. So they have a as Devon suggested, a long term horizon in terms of the choices and priorities that they that they make. So it is critical.
Talk a little bit more about risk. It's such a powerful one word, and you just throw out there several different areas of a business where there's risk.
Oh, it's, it's absolutely essential for a variety of reasons. One is, it's, it's a critical function of any any enduring enterprise, any organization that aspires to continuity, ought to attend to the things that could derail its
success. So the the real challenge of of managing risk is essentially predicting and preempting crises, enduring them effectively as quickly as one can, and bouncing back quickly, and in that moment, reviewing and reflecting on what worked, what went well, what didn't, so that when we bump into the next risk, we have a bit of a playbook. And so in a way, you can call risk management is, in a way, it's crisis prevention or
preparation and crisis recovery. It's the it's the thoughtful, proactive, pragmatic, strategic approach to containing crises which inevitably occur and and allowing an organization to better metabolize those moments and escape on the other side, possibly even better off than when they entered it.
You're talking a lot about risk management here. Where does taking risks come into play? Because no risk, no reward. We've heard that before, right? Do you see a difference in a family run business than maybe not, a family run business, and how they take those risks?
It's a terrific question. In fact, what we see is a distribution of risk appetite across all of humanity. You know, if you were to gather any number of humans, we've done this countless times in classrooms and in large group
settings. And you sort of, you ask, you know, on a scale of one to 10, where does everybody's risk appetite play out from absolutely none, never to, you know, put all the money on black and roll the roulette reel, and you'll find that there's, in fact, a pretty normal distribution across human beings
as it relates to their risk appetite. You'll find that entrepreneurs tend to skew a little more toward the risk seeking behavior, maybe even excessively, so, some might argue, and taking on those risks, but that's part of the entrepreneurial spark that that is so catalytic in in a in a free market, in our modern economy, and yet that same impulse can get you into trouble if you're taking on too much risk, especially when you're when you're anchoring or
tethering The risk appetite of the organization to a single individual, and not necessarily reflecting the distribution of appetite and the capacity to bear that risk across the entire system. And we, we talk a lot about that in the book as well.
Yeah and one of the things that's unique about families is trying, particularly families that endure as business families, is finding an optimal balance between tradition and change, basically between being able to harness their identity, the way they do things, their connections, their resources, while at the same time being conscious that with every generation, you have to innovate if you're going to stay in
business, right? So being able, and obviously, sometimes within the same generation, given the pace of change that we're experiencing, striking a balance between those two is a real skill, and enduring enterprises managed to do that very well. You know, families can get very caught into. You know, very caught up in into what they've done, and continue to try and do it forever, but that that never quite does well.
So we often talk about a concept called SWOT analysis, strengths, weaknesses, opportunity and threats. Do you guys see that family businesses tend to do a better job at that analyzation of that, are they more resilient than a typical business that isn't tied together by family ties?
We'll say that enterprising families that we've met, especially the ones that we've studied, that end up standing the test of time, tend to be more attuned to the threats, certainly, even perhaps more so then the opportunities, not that they both aren't important to your point earlier. You know, without taking on risk there, there can be no reward. But enterprising families that succeed over the long term tend to be or let's say, prioritized managing the downside risk more
so than they would prioritize chasing the upside. It's one of the key differentiators between family controlled companies and non family controlled companies, and that manifests in their long term out performance. In fact, a lot of really terrific research has been conducted that has demonstrated that, you know, up to a third of all long term out performance is that the contribution to that out performance comes from how an
organization manages through crisis. Because when you're managing over 25 year cycles or 50 year cycles, crises are inevitable, sure, and it's how they respond in those moments that actually lead to their long term out performance. They they understand that this is a marathon, not a sprint, and they manage their resourcing accordingly.
I mean, it takes a mindset of of continuity, rather than of growth. That continuity, in and of itself, is a worthy goal to pursue. Obviously, you need to grow if you're going to be, you know, viable in the markets in which you operate. But how you grow matters if you're if you're making decisions like many public companies do, you know,
quarter by quarter. If that's your focus and all of your incentives are wired to short term results, then your ability to not lose sight of the long term gets compromised.
Right. Well, most of our listeners are located in the United States, which you would consider United States an advanced economy, and that sounds like a good thing, but you say that can actually often mean people are less equipped to deal with the uncertainty or crisis. Can you explain that?
Yeah. Thank you, Gary for pointing that out. It was one of the big counter intuitive insights that, for that emerged from from our early work and study of this that stability is, in fact, a double edged sword, while it can foster prosperity and that predictability can allow you to deploy capital with more confidence, it can also lead to
complacency and to a lack of preparedness. And advanced economies, for instance, have enjoyed a period of stability that has led to some immense prosperity, but in the absence of any extended periods of uncertainty or crisis, they tend
to lack resilience. If you look back across the long, sweeping arc of history, there's been a more or less 80 year period, a golden age of stability, one might argue, that began after the Second World War, and has led up until the last you know, 10 years or so, and it's only now, literally a lifetime ago, that leaders are having to confront the kind of, you know, sudden and unexpected regime change or shifts in policy or macroeconomic conditions, inflation and so forth, that
have been, you know, that Haven't persisted for a generation, and so we don't have the muscle memory for how to deal with that. You contrast that with Frontier economies, where they understand intuitively that building resilience is essential for survival and success, because they have to deal with this not once every 25 years, but you know, once every 25 minutes.
Well, you're putting your finger on something really important there Gary, because it's one of the counterintuitive things about the book, is that advanced economies in general, but businesses operating in advanced economies have something to learn from the way businesses, and particularly family businesses, operate in frontier markets, right? You know, there's an analogy that we use,
that I think sort of works very well for this. There's some research in biology that the closer you live to a developed health system, the weaker your immune system is. It's sort of the organizational analog of that very construct we begin to take for granted all of the things that we have, the institutional frameworks, the markets, the regulatory systems that provide law and order and so forth and so on and and before you know it, you you know you just assume that that's the
way life is. All of a sudden you get something like COVID come in and. And then it turns your world upside down and and you know, for for family enterprises that succeed over generations in volatile environments, that's just a way of life. It's chronic. It's not episodic.
Right. I always ask when I have our guests on a question of the research and the work that you guys are doing, how does it impact anybody? Because there's people that are going to hop on to this podcast and they're going to go, that's really interesting about family businesses, and there's other people that are going to go, I don't have a family business. Or how does that affect me? And I wanted to ask you guys why it does matter?
Absolutely. Well, I mean, your podcast is oriented around the concept of legacy. And so you know, if you if you look to some of the longest surviving enterprises in the world, that family businesses are disproportionately represented in any list of those, whether it's, you know, Google the world's oldest family businesses, or you look up communities like Les Zeno quien, which are a community the worldwide of family businesses
who have all been around for at least 200 years. I mean that family even in the books of Jim Collins and porous A Good to Great and built to last and so forth, family enterprises are disproportionately represented among the samples of businesses that are seen as the as the sort of the gold standard for for
continuity, for standing the tests of time. And that's despite the fact that corporate life spans have been shrinking for the better part of the last century that the in the context within which all businesses taking place has become more dynamic and complex and more challenging to navigate, and so for for enterprising family to be able to demonstrate an organizational solution that involves the transference of power, of leadership, of of of control, of wealth, of culture
and values and so forth across generations is is truly something that Non family businesses would ignore at their own peril, and that family businesses can look to in the case of many of the cases that we feature in the book as exemplars of what what one could do and embrace within your organization in order to achieve continuity, assuming, of course, that's something that's that's of interest to you.
One other comment I would make in terms of what's
what's applicable, we've already rattled off a few. You know, the long term view, the fact that family businesses managed to bring together three constituencies that need to be managed on an ongoing basis, the owners, the family itself, and the managers and executives and employees that work in the company, those three constituencies need to be harnessed to move in a common direction, and there is a real skill in managing those stakeholders in a coherent way,
and that's where governance come in, which we talk about extensively in the book. But beyond that, family companies, I think, are wonderful laboratories for learning how to deal with paradoxes, you know. So you know, how do you how do you deploy nepotism and excellence at the same time? How do you long term at the same time, while you're managing, you know, trying to be expedient and responsive to the demands of the
market? How do you think you know? How do you develop big dreams, but yet attach them to deadlines and not hold yourselves accountable to those big dreams? These are very powerful ideas, and that's one of the reasons why we wanted to document them and provide ample examples of families that do this well. And you know, our aspiration, our conviction is that these ideas are actually transferable to people who are
not in family businesses. Let me just make a caveat there, because a lot of it single entrepreneurs are just family businesses in waiting, essentially, if you succeed right, and you build some wealth through your family through the enterprise, you very quickly are going to bump up against the
issue, who do I leave things to? What do I do with it? And clarifying that fundamental question of what is your purpose and why are you in business together is one of the key things that we find family enterprises that endure and really invest some energy?
Yeah, well, you include some really powerful real world examples in the book, including stories about family businesses in Peru, Korea and Syria that all found ways to flourish in times of hardship. Could you share a few of those, or even a specific company in the United States that you saw that I'm having some challenges, and with working with you guys and kind of, kind of collaborating, there was some growth there?
I'd love to share an American example, or a series of American examples, just to provide some of the context and in the US you mentioned it earlier. Gary, we consider this to be, of course, not just us, but most of. Economist an advanced economy, it is sophisticated, it's complex. It's for the most part, post industrial and that means that there are a lot of institutional stabilizers out there. There are a lot of market mechanisms to provide access to
capital and so forth. But that wasn't always the case. You know, we gotta, we don't have to look that far into history to recognize that at one point, the American economy was an emerging economy, and at one point before that, a frontier economy, truly
a frontier economy. And in all the ways that we might look to Venezuela or Nigeria or Yemen or Syria and so forth today, and so if you look back in the annals of American history, many of the iconic family businesses that are around today were forged in the crucibles of crises, as it were, you know that the Marriott family enterprise was built, essentially was launched during the Great Depression as a as a root beer stand, attending to the needs of of the displaced during the Great Depression.
You've got organizations like Cargill and Mars that were founded in the 18th century, during a time of tremendous industrial upheaval and structural disarray, and yet they are now among some of the largest businesses in the world.
And so, you know, in the American example, we don't have as many in the book that are based in sort of the modern experience of what it's like to operate in the US, because, frankly, the the investments in institutional stability have been made so that companies don't have to attend to all of these and invest in all these risks. They can just focus on the unbridled pursuit of profit. But you don't have to go back
all that far. In fact, you know only about 100 years or so to realize that so much of of American capitalism was built in these more frontier conditions, and it's part of what created a lot of that early dynamism that led it to become one of the leading countries in the world.
And today, you see, you know, the beginnings of some destabilizing elements in American you know, society in general, but the economy, the economy in particular, where, again, part of our message through the book is to alert leaders not to take those institutional stabilizers for granted.