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Paul Karofsky
Executive Director, Center for Family Business.
By Ken Gornstein
Paul Karofsky is the executive director of NU’s Center for Family Business, a membership-based educational program that serves family members of all generations who are stakeholders in their family business. Housed in the College of Business Administration, the center is celebrating its tenth anniversary this year.
Q. How do you define a family business?A. It’s a business where a significant portion of ownership, if not a majority, is in the hands of multiple family members who typically work in a management role as well.
Q. We tend to think of family businesses as small mom-and-pop stores. But that’s not necessarily the case, is it?
A. That’s clearly not the case. More than one-third of Fortune 500 companies and more than one-third of New York Stock Exchange companies are family businesses as we’ve defined them. Ford Motor Company, M&M Mars, Wal-Mart, Coors, Anheuser-Busch, BMW—these are all family businesses. Family businesses account for more than one-half of this nation’s gross domestic product, and employ more than half the nation’s labor force.
Q. Is the failure rate of family businesses greater than that of other businesses?
A. That’s very difficult to track. But here’s what we know: Fewer than one out of three family businesses survive through a second generation, and fewer than one out of ten family businesses survive through a third generation. It’s my understanding that the average life of any business is twenty-four years.
Q. What’s the most common reason a family business fails?
A. Research shows that three factors correlate with a failure of family businesses to survive. One is flawed leadership. The average tenure of a CEO in a nonfamily business is four to seven years. In a family business, it’s twenty years. Another factor is unresolved conflict—issues that can surface within the family business that have not been resolved from years past. The third factor is differing goals, either on a family level, a business level, or a personal level. You and I may be brothers in a family business. You want to fatten it up and sell it; I want to keep it on for my grandchildren. You want to expand internationally; I want to keep it slow and simple, and play a lot of golf.
Q. Do dysfunctional families lead to dysfunctional family businesses?
A. When things aren’t going well in a family business, all the dysfunction and all the stress in the family are guaranteed to come to the fore. So family interactions, family dynamics and relationships, and dysfunctional behaviors will play themselves out in the business. By the same token, the good stuff plays itself out in the business as well.
Q. Is it better for a youngster to strike out on his own before joining the family business?
A. Absolutely. It’s important that that young person be able to prove to herself or himself that they are competent, that they are able to survive in this world independently and make their own living and build their own career. In addition, they have to bring something to the party in terms of knowledge, skill, and experience. They are going to be held to a far higher standard of performance than nonfamily members are.
Q. What’s the first thing a youngster should ask himself before deciding to join the family business?
A. “Why am I doing this?” Is the son going into the family business to reconnect with the father he never had? Is the daughter going into the business to build the relationship with her mother that she always craved? Or are they going in because they love the business?
Q. How have family businesses changed over the years?
A. Once upon a time, all family members in the business were paid equally. Whether they were the janitor or the CEO, they had the same amount of money, drove the same company car, et cetera. Today, some of that equality is changing. “Equal” is not necessarily fair in a family business. Also, the roles of women are changing significantly in family businesses. More and more women are taking over leadership roles.
Q. What’s the most important service your center provides?
A. The heart of our center is a leadership-development forum for members of the younger generation, a seniors’ forum for members of the senior generation, and an intergenerational forum, where members of both generations come together and address issues of their own unique concern. There’s a bond of confidentiality that is respected and observed, and the group builds a sense of community. It’s not group therapy, and it’s not a board of directors—it’s lifelong learning with peers.