Family cohesion: Stick together to stay together
Having grown up as part of an entrepreneurial family, Torsten Pieper early on developed a keen interest family businesses – this being one of the reasons why he is now a researcher and educator in this very field. His dissertation entitled “Cohesion in entrepreneurial families” was one of the first scientific contributions that specifically dealt with the topic of family cohesion in entrepreneurial families, and identified family cohesion as a central prerequisite for ensuring the survival of an entrepreneurial family. In this interview, Torsten talks about the importance of family cohesion and the different forms that cohesion can take, and what the entrepreneurial family can do to strengthen cohesion.
Claudia Binz Astrachan: In your dissertation you write that family cohesion is central to the long-term survival of an entrepreneurial family. Where did your interest in the topic of family cohesion come from, and how did you come to the conclusion that an entrepreneurial family without cohesion is bound to fail?
Torsten Pieper: I’ve always been fascinated by the question of why some family businesses continue to exist successfully for centuries, while countless others fail after one or two generations (and sometimes even earlier) – which is why I dedicated my dissertation to this question. I asked a some of the most long-lived German family enterprises a very simple question: What is the reason you’re still around?
My guess, based on the research at the time, was that these successful family businesses had excellent corporate governance mechanisms, or in other words, that they handled the interface between property and company very professionally. This was why my original focus was on the corporate side. In conversation with members of these family dynasties, however, a completely different reason for the company’s longevity emerged: One interviewee after the other emphasized the need to professionally manage the family behind the business. “If you can manage that, the rest (i.e. the management of the company) is a piece of cake”, said one of my interviewees.
This “Eureka moment” made my shift the focus of my dissertation on the family side of the family enterprise, and in particular on the question of how to keep a growing family of entrepreneurs together for a long time. The answer to this question is by no means trivial. Entrepreneurs often assume that family member will stand together, supporting each other whatever may come. This may be the case in smaller “core families” when all family members still live under the same roof, and where mutual obligations are relatively easy to enforce. But once the children leave, get married, and have children of their own, it becomes more and more difficult to find a common denominator amongst diverse interests and objectives that different family members and family branches might hold and pursue.
Family unity does not just happen miraculously. My research showed, among other things, that long-lived and successful entrepreneurial families understand the management of the extended family as an essential task and use considerable resources to bind several hundred family members to one another and to the company.
CAB: In your research, you identify different attachment mechanisms, different ways in which family members feel connected to the company and the family. Why is it important for an entrepreneurial family to be aware of these different mechanisms?
TP: Perhaps we should first talk about cohesion is, and what positive consequences of cohesion are. Cohesion describes the sense of community or the “we-feeling” of a group. Cohesion can be measured by how badly individual group members want to remain part of the group, or by how little they want to exit, which are two different sides of the same coin. Real cohesion does not require coercion – in cohesive groups, members never feel like they are being held hostage, consciously or subconsciously. Groups with greater cohesion have higher mutual commitment and altruism among their members, they put the survival and benefit of the group before individual needs, and they can make decisions more quickly. All of this is of course very important, especially in the context of a family enterprise that sometimes relies on quick decision-making.
Now, about the different bonding mechanisms: My work has shown that cohesion in entrepreneurial families is multidimensional. The primary source of the bonding can be the company or the family; and the bonding can be emotional or financial in nature. Combining the two dimensions results in four types of cohesion: emotional ties to the family, financial ties to the family, financial ties to the company, and emotional ties to the company. Without going into the details, each type of cohesion requires different conditions and uses different mechanisms to promote it. Each type of cohesion can occur separately; but in combination there are synergy effects that strengthen overall cohesion and make it more robust against possible disruptions.
One example: A family that primarily ties its members to the company using financial means (i.e., business-financial cohesion) will have difficulties effectively retaining its members if the company is not doing well and payouts are reduced – as happened to many enterprising families during this pandemic. If the financial drought lasts longer, the family may be tempted to accept a potential takeover offer from a buyer, because there is little else that ties them to the business besides monetary gains. A family, on the other hand, that relies on additional sources of cohesion – family-emotional or business-emotional in addition to business-financial – is more resilient during financial crises. The most robust form of bonding is achieved when all four types of cohesion are balanced and used simultaneously.
CAB: Did you come across certain problem areas during your research, such as factors or dynamics that weaken or even destroy family cohesion?
TP: There are innumerable reasons that endanger family cohesion. Joe [Astrachan] often says very accurately that “Family and business can mix, but it is like keeping nitroglycerine from exploding”. For example, problems often arise when a common vision and shared values are missing. Entrepreneurial families often spend considerable energy and resources building highly complex formal corporate governance structures in the hope that these will keep the family united. Formal structures are important to a certain extent, but too much formality and structure often makes organizations and families rigid and constrict them like a corset. This inhibits flexibility and reduces the speed of reaction, which is becoming increasingly important, especially in times of increasing uncertainty and complexity.
CAB: What exactly can an entrepreneurial family do to strengthen family cohesion – and can that really be generalized in view of the uniqueness of families?
TP: At the informal level, a shared vision, and an overarching purpose, which addresses the question of “why are we in business together” are the foundation upon which family unity and alignment can be developed. Family members and branches can have individual objectives, but if they lack a unifying vision, something that motivates them beyond making money together, they risk falling apart when things become hard.
At the formal level there are governance mechanisms, advisory boards and other structures that can serve for communication from the family to the company and from the company to the family. And these are important. But in my experience, it is the informal mechanisms that bring the formal mechanisms to life. Or, to put it another way, formal mechanisms alone are not enough to create cohesion and secure it in the long term. What is needed is, above all, informal mechanisms such as a common vision and shared values to keep the family together and aligned over time.
CAB: Let’s wrap this up. If you could give an entrepreneurial family just one piece of advice – what would it be?
TP: Entrepreneurial families often hold back when it comes to family management. They are also often more pessimistic about their chances of survival. But longevity is quite possible, and centennial families like Merck or Haniel are proof of this. Cohesion makes the family influence constructive. And the earlier you start building solidarity, the better.
This interview has previously been published on blog.hslu.ch/familienunternehmen (in German).
