Family Business Audiocast | Episode 37 | Bridget Kustin | Emanuela Rondi
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About Our Guests:
Bridget Kustin is a Senior Research Fellow at Oxford Saïd Business School and Director of Ownership Project 2.0, a global initiative studying how family offices and large family businesses can scale impact on issues like climate tech, infrastructure, and inequality. An economic anthropologist with a PhD from Johns Hopkins, she has conducted fieldwork in 12 countries, examining both ultra-wealthy and low-income financial behaviors. A Fulbright Scholar and former NSF Fellow, her work spans academia and policy, with previous affiliations including the Gates Foundation and the World Economic Forum. Bridget is currently writing a trade book on the anthropology of family business ownership.
Emanuela Rondi is an Associate Professor of Management at the University of Bergamo, specializing in family business, social capital, and innovation. Her research uses ethnography and case studies to explore how family dynamics and external networks drive succession and resilience. She holds a PhD from Lancaster University and has been published in top journals like Entrepreneurship Theory and Practice. Emanuela also serves in leadership roles with IFERA, the Family Business Network International, and Osservatorio Family Office Italia, bridging academic insights with real-world family enterprise strategy.
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[Transcript]
R. Adam Smith: [Intro] Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I am fortunate for my many experiences within the family firm industry.
A warm thank you to our live audience on LinkedIn today – and for those listening in the future.
A brief comment on why I created this broadcast: private companies are a passion of mine, having grown up in a family of entrepreneurs, and having engaged for two decades in deals, strategic transformations, investments, and boards, with an array of fascinating family enterprises, family firms, and family offices. I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem. Whether you are a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. And now, it is time to turn our attention [01:00] to our accomplished guests on today’s episode.
I'm very pleased to introduce our guests today from California and Italy. We have Bridget Kustin, and we have Emanuela Rondi, and it's really wonderful, Bridget, to have you here, and also Emanuela.
Bridget Kustin: Thanks, Adam, it's great to be here. Merry Christmas, happy Hanukkah.
Emanuela Rondi: Hello everyone, great to be here too.
R. Adam Smith: Thank you both. And also, our friend Alfredo de Massis who introduced us. That was very nice of him, and our former guest, as well, on the show.
So, I'm going to share a bit about you, and then we'll dig into a conversation for about 20-30 minutes.
First, about you Bridget. Bridget is an economic anthropologist and a senior research fellow at Oxford Saïd Business School where she directs the Ownership Project 2.0 [Private Capital Owners & Impact]. We'll talk about that today. [02:00] It is a global research initiative examining how family offices and private capital owners can scale their impact to address global challenges. With extensive fieldwork across 12 countries, her research delves into the influence of very large family business owners on their enterprises, focusing on responsible ownership and stakeholder relationships.
Bridget is also a former Fulbright Scholar to Bangladesh and a National Science Foundation Graduate Research Fellow. She has consulted also for organizations such as the Bill and Melinda Gates Foundation and served on the World Economic Forum's Global Futures Council for Development Finance.
That's amazing.
Emanuela is an Associate Professor of Management at the University of Bergamo, specializing in the intersection of family businesses and social capital, particularly how family external relationships [03:00] impact succession, and also innovation dynamics. Her research employs qualitative methods, including ethnography and case studies to explore organizational processes in these family firms.
She serves as the Academic Coordinator for the Next Generation Summit for FBN (Family Business Network) International and chairs the Research Development Program of the International Family Enterprise Research Academy. We'll be talking about that as well, and also FBN. We have some guests from FBN today on the show as well and previously on the show.
So, today we'll explore the complexities of family enterprises, focusing on these issues that our guests cover: governance, succession, and the integration of social capital in fostering innovation and resilience.
So, Bridget, maybe a couple of minutes from you on what you're up to today, what you're focusing on, would be wonderful.
Bridget Kustin: [04:00] Sure. Thanks again for having me. It's an early morning in California, so it's a great way to start the day by hearing an accounting of the things that I've done in the past that have worked out well.
R. Adam Smith: Congratulations.
Bridget Kustin: No, it's a great start to the day. So, the ownership project at the Saïd Business School at the University of Oxford really got its start from a significant grant from the Ford Foundation when we were focusing on families that had large operating businesses with revenue above a billion dollars a year. And the question was, are families, broadly speaking, more responsible owners than non-families?
And we thought that that was an important question to ask because families, if they're not running listed companies, are private. They're usually under no obligation to reveal much of anything. And so, beyond anecdotes, beyond the extensive coverage of family owners in film, literature, and television, [05:00] there isn't a ton of global data looking at the large family-business-owning demographic.
What we found when we used both quantitative methods and then the qualitative methods, which I led, was that there seems to be a bit of a disconnect between a very positive story that families tell themselves about the kinds of owners that they are, and then what the data actually shows in terms of, for example, ESG performance (environment, social, and governance performance), where we found that families were not the best in class and that institutionally-owned, government-owned, even private-equity-owned businesses seem to perform better in terms of certain social responsibility metrics.
And so, that really has set up a question that the Ownership Project continues to grapple with, which is, what's the disconnect between the stories people tell themselves about themselves versus what the data actually shows? And so, we're still tackling that. [06:00] And what has changed with this new iteration of the Ownership Project is that we're no longer looking at operating businesses, but we're looking at family-led investable assets, wherever they sit. That could be the investable assets of the family office. It could be the family's private wealth that's managed by the CFO of their operating business. It could be the endowment of a family foundation. This is common among many large families, where a holding company often serves as the administrative hub for managing family affairs.
And the other thing that's different is that we've now really put our cards on the table because we have “impact” in our title. So, our study is not completely neutral, in the sense that we're looking at how families think about big problems, tackling global issues using the resources at their disposal.
So, that's the 30,000-foot overview of what's going on in the Ownership Project. And it continues to be a privilege [07:00] to be let into the private spaces of families and their boards and their businesses and their family offices, and that's just what it means to be an anthropologist. You're constantly party crashing, in essence, and asking permission to listen in and be a fly on the wall, and it's a continual sort of privilege and surprise that families will often say yes. And I think that's because they can understand intuitively that there is an importance to not just necessarily replicating positive stories but digging deeper and seeing what might be going on.
R. Adam Smith: That's wonderful. That's an incredible project and I look forward to talking more about it with you in the new year as it evolves. I, myself, am involved in some activities in a single-family office, but also a broader values and impact system with an effort in Europe and also looking at the same issues you’re facing and you’re attending to [08:00] in the [Global] Family Enterprise Program at Columbia Business School. So, we’ll definitely talk more about that and see if we can find ways to support each other.
Bridget Kustin: Absolutely. I’ll be hitting you up for an interview.
R. Adam Smith: Emanuela, you've had your coffee already, so thank you, Bridget, for being an early riser. We're going to move over to Italy now.
Emanuela Rondi: Yes, exactly. Here it is afternoon, so I already had lunch as well, and I should be awake somehow.
On this side of the world, I'm working on the aspect of family businesses and family offices, but more in general, what we call “entrepreneurial families,” by understanding how the different organizations through which they deal with business interests, but also philanthropic interests and legacy aspects, are coordinated by entrepreneurial families and how they are designing what we call the “entrepreneurial family galaxy,” [09:00] the constellations of different organizations through which they deal with their interests in order to allocate the different goals and coordinate among family members’ different interests, and also understanding how this galaxy could be a good way for engaging more with next generations in order to allow them to decide not just whether or not they want to contribute to the family business, but understanding how they can contribute to the development of the entrepreneurial family galaxy.
According to this view, the idea is that by being a family member, you are basically a key stakeholder of the family, and you need to understand what role you want to play and how you can contribute to the development of the entrepreneurial family over time in order to thrive across generations.
To do so, [10:00] we are investigating multi-generational families—I am especially interested in families with long traditions and strong legacies—to explore how they've been able to bring it to the present, and also how they are structured in order to prosecute it, in order to bring it forward to the future.
R. Adam Smith: Wonderful. That's amazing. Thank you so much for that. And I'm particularly interested in the focus on the innovation, entrepreneurial, technological elements of the family enterprise. It’s particularly important right now in the advent of AI and also the simultaneous generational movement into G2 and G3 with different types of mindsets around technology and entrepreneurship. It's quite tricky. So, I look forward to speaking about that together.
[11:00] I'll start a question for both of you. You both have extensive experience in researching family businesses and wealth globally. Bridget, with your fieldwork in many, many countries on these large family businesses, and then Emanuela, through your work on innovation, dynamics, and succession in many different cultural contexts, of course.
How do you feel that families navigate this tension between trying to pursue excellence and best practices organizationally, but then also staying true to their values and their business and not just pursuing, let's say, capitalism for the sake of capitalism?
So, we'll start with Bridget first.
Bridget Kustin: Thanks, Adam. I think it's important from our research to acknowledge the first distinction, which is, there are really two types of families that we encounter. One of the first things [12:00] you do when you're writing an academic article that's meant for a peer-reviewed publication is, you have to write your method section. And in your method section, you have to describe the population that you study. And it's basics, right? Location, sector, commonalities. This can be one of the most challenging things to write because you can have a population that's split between those who live on airplanes, who have a multi-jurisdictional experience, and do that intentionally, right?
For some, it might be a clear-cut case of tax strategy in terms of why they're domiciled where they are. For others, it can be much more complicated, linking to, for example, if the family was once fleeing a conflict or post-conflict situation. And there can be a sense of safety wrapped up in dispatching one family member to Canada, another to Switzerland, another to the UK, another to the US, right? The idea being, let's not have all of our eggs in one basket.
So, then how does one [13:00] describe a family or acknowledge cultural specificity when for one or more generations they've been intentionally placed all across the globe? So, there's that and that's sort of a kind of, let's say, prototypical, jurisdictional-less family for whom culture will be a very complex construct because they might have been in these places, as I said, for more than one generation, versus a family that is super rooted in one place—the single small town in Germany, somewhere in the Midwest United States—where everyone in the town knows them, their legacy is strong, there's no question where they belong. Culture and cultural inheritances are going to be a much more straightforward proposition.
So, both of these families, or both of these types of families constitute those that we study in our project. And again, we're very narrowly focused on the largest. So, for our project for our interviews, we set a threshold of a hundred million US dollars in investable assets [14:00] to participate in our interview or our case study, but our median is 2.1 billion, so we are on the upper end of the spectrum. So, everything that I'm saying is specific to this very narrow, very large demographic on one end of the spectrum. It certainly doesn't cover the universe of all business-owning families, all wealth-holding families.
That's just, again, a very top-line answer to the question; culture is already fraught depending on who you're talking to.
R. Adam Smith: Okay, Emanuela, can you talk about that distinction a bit? Particularly from the European perspective of this, as I say, this pursuit of best practices, which is both, I guess, internally motivated in terms of, you know, internal corporate excellence, but also externally from boards and, let's say, the children or next generation going to business school, coming back, and talking about doing this or that. [15:00] But then, there's this conflict between that and the original mission or legacy or the comfort factor of these large families sometimes that have already become successful.
Emanuela Rondi: Thanks, Adam, for the question. Also, according to what Bridget mentioned, your question raised two key points. The first is that the distinction between best practices and more like family dynamics is the tension that family business research has tried to address for the last 30 years in terms of, how can family businesses manage the tension between family logics and business logics?
In this regard, it's important to acknowledge that the professionalization of businesses—especially my target, which is more like a smaller type of wealth. And also, in terms of business largeness, I also study small and medium enterprises, [16:00] so it's a little bit a different target from Bridget’s. But here, you can really see the difference between medium-large firms, where this kind of managerialization has already taken place, and so they are maybe professionalized businesses where the family is not even involved but is just owning the business. And so, also being an owner for them, being a responsible owner, is a role that requires totally different competencies, whereas for smaller and becoming medium enterprises, there are much more family logics at play.
And here, the transition and organizational change is what is really at the core of the development of the family business. And by developing the organization, the family also evolves in terms of family governance, in terms of understanding the role that the family can play in the business.
[17:00] The second point that your question raised to me, in terms of reflection, is that for us as family business researchers, it has been a long time observing the organizational change. So how do organizations evolve? How do these managerial insights that we get from the business school get implemented in the business and in the organization and how do they become more structured? But until recently, we considered the family as something very static, as if the family is an institution that has its own characteristics with its own dynamics that somehow affect the business.
Nowadays, with the evolutionary changes that we have also in the family structures, in terms of modern families and as Bridget was mentioning, the fact that families are living in different places, and also what it means to be a family [18:00] is changing a lot. We have second marriages, we have stepchildren. How does it change in terms of the effect that these family dynamics have on the business and vice versa?
So, this is something that I think we need to investigate more and more. And as we consider the organizational change, we need to address also the family change and their co-evolution, whether they're able to co-evolve or rather whether this evolution brings them in different directions, and therefore, the business cannot be a family business anymore because of that. I think that this is something that research should dedicate more attention to.
Bridget Kustin: This is exactly what our research is showing as well, is that the heterogeneity, the difference that exists among families, means that what we see in our interviews is that the idea of best practices itself is a bit of a chimera. It doesn't really seem to exist. Because we're studying [19:00] the largest families who can afford the top advice from the top providers, one would think that there would actually be a kind of uniformity in topics like family governance, or having a family constitution, or a family council, or how things are structured, but we see exactly the opposite.
We see that even among the largest families, fourth generation and beyond, they have completely heterogeneous structures in terms of how they manage themselves. And it's because they do exactly what you said, Emanuela. They start with, well, what does our unique family look like? And then, from there, they say, well, then what does that family need? Rather than what does, you know, some kind of idea of a successful family in the abstract look like and let's have that. It always starts from this bespoke point of, we need to have something that works from the family.
Now, our sample is biased because we study the families [20:00] that exist. We don't study those that were once billionaire owners and then failed. And what that survivability bias suggests is that if I were to extrapolate from our data to make a claim, it would be that there is no such thing as a single best practice. This observation is tied to our families that had operating businesses from the first phase of the project that all that can really be said is that they're different from each other. It's not that there's a set of best practices that is observable across them.
R. Adam Smith: So, it's important, as you're saying, culturally in today's global world to be open-minded and have awareness of the different mindsets of cultures, but also generations, right? And then, what I was referring to earlier is this expansion of external advisors and boards and influences on the large families, which used to operate more in a bubble in a sense, [21:00] that they were sufficiently capable to operate their single operating company. But then, as the family office construct comes into place, it becomes more of a corporation, more of an organization. We can talk a bit more about that on our call today.
Let's continue on the Ownership Project with you, Bridget. So, the Ownership Project 2.0 explores how these offices, the family enterprise or the family office, can scale their impact to address global challenges. So, they're doing well, but they're also doing good, especially in climate, tech, infrastructure, energy, and crossing over to ESG, of course. As an operator, as an investor, can you talk a bit about two items there? What is your biggest cultural challenge within businesses that may hinder them from leveraging this private capital at larger scale, moving into, [22:00] let's say, good for you, good for society projects?
And then, secondly, as I was saying, how do you either advise or consult or encourage this effort to go beyond the wealth creation into more of the wealth legacy?
Bridget Kustin: Sure. So, I'll speak now from, as you said, the project focusing on family-led private capital, and I'll speak from the interviews, which, by the way, are still in progress. So, absolutely, I'm recruiting more families to speak to. Again, the criterion for participation is a minimum of 100 million US dollars in assets under management, and our median right now is 2.1 billion.
And the single biggest barrier that the data shows so far is, [23:00] without a doubt, loss aversion. So, it doesn't matter how many assets there are, it doesn't matter how strong the returns are, there is loss aversion. Families do not want to lose money. And the human reasons behind this are what I find so interesting and speak to my background as an anthropologist and is something that I'll be diving into in the writing that I'm doing on this topic.
But, without a doubt, loss aversion is the single biggest driver between the choices that get made, and then, what this means in terms of building legacy. It is a need to reframe what legacy means because before, legacy was something that could be achieved either by a philanthropic project—putting your name on the side of a building and knowing that it'll be there for generations to come and form part of the [24:00] memory of a place—or it could be legacy in the sense of this person or the family business or family office or the fund was incredibly successful. And that is going to be the source of the legacy for years to come.
I think there is a need for families to really lean into, you know, what would it mean to be the investor that drives a critical part of green tech or green tech forward and have that be one's legacy. I think an incredible example for families is the Jameel family of Saudi Arabia who, for many, many years, supported something called the Abdul Latif Jameel Poverty Action Lab at MIT.
And funding academic research has got to be frustrating as a philanthropist because it's years before you actually receive any kind of results from good research. It can take so long. It really is a [25:00] leap of faith. But the family kept funding this. They put significant resources into it. And then, years later, what ends up happening? And we're talking years later—many, many years. The two economists who run this lab win the Nobel Prize in economics.
What an incredible legacy for the family to know that their philanthropic resources changed knowledge as we know it, right? That's different than putting your name on the side of a building. And so, the second part of your question is, how do we get families to change their behavior? The most powerful force for changing behavior that we've seen is peer learning. It's not a data-driven approach. It's not putting academic research in front of them.
And so, as a project, we're very mindful of this, which is why we have our Family Advisory Council where we find family principles who are doing really interesting work and are willing to sort of be public beyond our website. [26:00] We put them in conversation with other families in strategic ways because getting families to hear this piece about legacy, I mean, it's not hearing it from me, Bridget, a random academic at Oxford that's going to make them change their minds. It's going to be an inspiring story from a peer.
Easier said than done though, because academics are used to thinking that we're the smartest people in the room and it's our voices that matter, and so it's a strategic decision to say no, no, when we convene a dinner of family principles, our headline speaker might not necessarily be an academic, it might be a family member who we think can really inspire.
R. Adam Smith: I think one comment there on the academic front is that on the Family Business platform the last two years—this is our 37th episode—we've had about 45 guests. And actually, I think about a third have been researchers, including some of your friends: Massimo Baù and Alfredo de Massis, and then also [27:00] Professor Mathew Hughes at [the University of] Leicester. So, I've learned a great deal from them, as have our thousands of listeners. It's been wonderful.
I think it's important to include researchers because they come from a very particular point of view that's very deep. It might not be wide, but if one can pull together to spend the time to bridge the research and academic, more the tactical information, and then bridge that into the broader theoretical business approach, that's super, super valuable.
So, that's been great.
Bridget Kustin: Oh, absolutely. I mean, academics are critical to the conversation. You won't get me arguing against that. But I mean, in terms of influencing family behavior.
R. Adam Smith: Yes.
Bridget Kustin: That's where I think that there's, you know, a place to think strategically about, who do families listen to when they're making good decisions?
R. Adam Smith: I'm also working on that myself intellectually [28:00] and in terms of governance, being on boards and working on a family enterprise project myself in terms of values. So, I definitely agree with you and want to have a conversation with you in the coming weeks about that as well, including looking at the different value systems and family enterprise operations and styles between US and Europe, which are quite different still.
Okay, Emanuela. On your side, your research highlights the impact of external relationships on innovation within family businesses and family enterprises. We've talked about external advisors on the show many times, including boards, councils, operating advisors, and external CEOs. So, we’d like your thoughts on how you see these types of relationships redefining the [29:00] competitive edge of family firms in general. But also talk a bit about the industries that are super innovative and dynamic, potentially technology, and how that's even more challenging.
Emanuela Rondi: Yes, so during my research on relationships in family businesses, also among family businesses and organizations in general, what I realized is that relationships and social capital are the real assets on which family business can develop their competitive advantage. This is because families are there to stay. So, they are able to develop relationships with the organizational stakeholders, whether they are customers, suppliers, other types of collaborators, or advisors as well, and this way they can [30:00] be reliable in terms of what they promise and also what they can deliver.
And there is always this idea that if I speak with a family member who is also an owner, that means that project is going to happen. So, there is this idea of having a face with whom to interact. And I realized that in innovation, this is particularly relevant because innovation is uncertain and very often it fails because there is not enough commitment to the organization to bring it to happen, whereas in family businesses, maybe they are, according to research, longer in making decisions, to commit to innovation, but once they decide, then they are much faster in implementing it.
So, this implementation phase is very important for family businesses. And having the family commitment, or even having a family as a leader of the innovation project, allows the organization to evolve towards change, [31:00] so to innovate. And especially related to digital transformation and all these new technologies, we conducted with the team of co-authors a study on Industry 4.0 and Industry 5.0 about the digital transformation of family businesses, manufacturing family businesses, and we realized that the relationship between generations of the family, so the intergenerational relationships of family members who work in the business, are crucial in bringing the transformation in the family business, meaning that the mentorship that the senior generation can have on junior generations about specific knowledge, but also the digital knowledge and competencies that relate to the transformation that the business needs to take that belongs more to the [32:00] junior generations, can act as a reverse mentorship for senior generations.
So, this is the best way through which family businesses can innovate by relying on strong relationships between senior-gen and next-gen and this way implementing change. We observe that when there is not this level of agreement about implementing innovation—so the innovation is driven only by one of the two—then it becomes hard to implement it, and the organization is stuck in a paralysis.
R. Adam Smith: Wonderful. I like the reference to reverse mentorship. It's helpful to look at it that way and to empower the next generation, not just involvement but also mentorship upwards. It can be tricky when the business owners are their parents and super successful people [33:00] with strong egos and personalities. So, I've seen this occur on boards and also in M&A contexts where, you know, we talked about this with some of our guests such as Emily Bouchard, and also Valerie Galinskaya from Merrill Lynch, and I think Lina Chehab as well, who’s on the call. [We] talked about the importance of communication and transparency between the generations. So, I think in order to extract that information holistically is making sure that the whole family ecosystem is open-minded.
So, both of you work closely with next-generation business leaders, obviously Bridget on the Ownership Project focused on scaling impact, and then Emanuela, you mentor next-generation leaders through the [34:00] NxG Network.
Can you both talk about that mentorship and what is the most critical skill for the rising-gen to develop in order to carry their enterprises forward and drive toward that legacy?
Bridget Kustin: Well, I would say emotional intelligence, the ability to figure out how to have difficult conversations, how to become leaders within the family, how to position themselves within inevitable family disputes, and how to do all of this with sensitivity and an awareness of where other people are coming from.
Another commonality among the families that we speak to who aren't just doing well financially but seem to be thriving as individuals is that they seem to genuinely like their family members, right? It's not a job to interact with them. And that is rarely something that happens without a lot of [35:00] effort being put toward it, whether that is training and technical resources and external mediation or processes led by consultants, where the families learn things about themselves and about the others through some kind of mediated process, or it's something as basic as having an open door policy and not having power, real or perceived, be overly concentrated in one individual, but there's a sense that people can access each other and speak about difficult topics. And so, you know, those are absolutely critical skills.
We don't focus on next-gens formally through the project, but, of course, we meet them in the context of the research that we do. Often, that will be the first person that I encounter at an event, and that will be someone that I get to know [36:00] before an interview with their parent or uncle or aunt ever takes place. It's been surprising to me to see how they can't always be champions of sustainability or innovative forward thinking because if there are multiple next-gens vying for control, there can be a real need to establish bonafides first to be taken seriously by the now-gen or the principles.
And, if anything, that can lead to a kind of conservatism in position, a desire to say no, no, I'm not beholden to ESG, or something that might risk being seen as trendy by the current principles. And so, you know, I don't subscribe to the idea that next-gens will save us or will save the world because depending on the family, they can be pushed into these positions of, as I said, a kind of conservatism.
So, I think empowering next-gens to find their voice, find their talents, develop that kind of confidence, [37:00] and getting whatever degrees or qualifications that they might need to be taken seriously, is really critical, but of course that depends on the age.
R. Adam Smith: But not as many degrees as you, though.
Bridget Kustin: Well, no, what I mean by that is, depending on the industry, depending on the family, you know, certain forms of qualifications might matter if there still is an operating business in a highly technical field, right? The ability to show the family that you're willing to obtain mastery of that technical field in engineering or chemistry or whatever it might be. That can matter.
If one wants to go into impact-driven investment, then an advanced degree in something relating to impact measurement is a great way to show that you have these bonafides and that this isn't a passing interest.
So no, I think that the point is that it's not about collecting degrees for the sake of it, but in order to then [38:00] be able to tell the family, listen, there’s some expertise on—
R. Adam Smith: Well, I was joking, but you're talking about the hard versus soft intelligence. So, obviously, both are really important. And they also are different between the large companies and the small companies, because the small companies tend to guide themselves, I think, toward a more competitive behavior, which is externally focused in our world, focused on the big company leaders, and the Elon Musks of the world are very motivating to bigger enterprises, but then the SMEs and, let's say, smaller businesses that are more mom-and-pops or entrepreneurs, it seems like they have a different mindset and there's a bit more of that personal pride element.
Emanuela, what do you have to say?
Emanuela Rondi: Yes, in terms of addressing the former question, I think that the main skill of the next-gen, I agree with Bridget about [39:00] emotional intelligence. I also think that next-gen needs to be able to have a long-term perspective. Very often when the next-gen takes a role in the family business, they are eager to show that they are capable, and that they can manage things by themselves. This is also a way to show their parents or their relatives that they deserve the role that they got.
However, they need to really think about the long term in terms of their longer career, because the first step in doesn't mean that they will retain that role for ages. So, probably they enter into the family business with a role that might change over time. Very often I saw next-gens that want to be in a rush [to get] a leadership role, but this needs to take its steps and [40:00] also have a cohabitation with the senior gens in order to be able to play that role.
And another element is to be able to think beyond immediate success in terms of personal gains and also for the business itself. So, focusing on sustainability, sustainability of the business, sustainability of the family with their presence in the organization, and also thinking about the long-term for the family legacy.
So also, when the next-gen comes in, they often want to change things very suddenly, but maybe it takes time for them to understand why the organization is working in a specific way. So, next-gens are normally very hectic and energetic, but having a long-term perspective means also being reflective and understanding the situation before [41:00] trying to change it. And I see that sometimes this is hard to grasp for next-gens who want to show that they deserve the place where they are.
R. Adam Smith: In the last episode, we spoke with Christina Wing at Wingspan Legacy [Partners] and Maryann Bell, her partner, and we talked a bit about this dynamic of pride within the companies and finding a way to embrace that pride and to avoid any sort of guilt, let's say, or hesitation to embrace the wealth creation.
Could you just talk a bit about that briefly? Then, we'll move on to some of our last comments, because I'm interested in not just the perspective of long-term thinking as the next generation, but also the way to have those communication tools within the families to encourage that long-term thinking in both ways, to move away from the short-term profits and [42:00] the immediate sense of capitalism within the companies but thinking more longer term within the families.
Bridget Kustin: So, in the first iteration of the Ownership Project, which focused on operating businesses, there was a really interesting finding in the interviews where, with my co-author, Mary Johnstone-Louis, we looked at how families actually spoke about time in the questions that we asked about their operating businesses. We found that “long-term” is sort of delightfully undefined and that for many families, the operating businesses were not necessarily thinking beyond the typical planning cycles of a non-family-owned business.
And where we found there was an interest in “long-termism” and a willingness to actually use numbers and be really prescriptive about what is meant by taking a long-term perspective is when it came to the family's desire to remain [43:00] owners or remain generationally wealthy. That's when people would start to talk about 22 to 24 years, right? The length of a generation, generational time.
And the reason why this was a really interesting finding is because it suggests, Adam, that the most urgent response to your question is to actually build in a bit of accountability and, okay, how do we build accountability for a long-term perspective and long-term thinking? Well, the first step is to actually define it, right? We really do tend to use “long-term” as a term of art whereas there's a need to start to have families hold themselves accountable for assigning a number to that.
If they say that they're interested in long-term thinking with respect to an operating business, well, where does a generation, where does 22 to 24 years, show up in your AGM, right? Is that really an active timeframe that is acknowledged, used, and that shapes [44:00] planning, right? Or is it used in a much more kind of loose and motivational way?
If we really want to push people toward a long-term perspective, then perhaps there is a need to start to ask families to think about where actual numbers and timeframes do and do not show up and not just use of the phrase “long-term.”
Emanuela Rondi: If I can build up on that; in research that we conducted a few years ago, we examined the temporality of family members, so the attitude toward time, and we observed that, very often, the role of advisors, more than managing the conflict itself, is to manage the different temporal orientations of family members of different generations. So, the next generation has an orientation toward time which differs from the one of the senior generation.
Take, for instance, the concept of future. What is [45:00] future for next-gen? It is different from what is future for the senior generation. And therefore, the role of the mediator is to find a synthesis and allow them to understand the other perspective and also the concept of long-term that they need to agree upon.
And based on that, in our recent book together with Alfredo de Massis that we recently published, we examine especially the role of the mediator in terms of managing the orientation that family members have toward the family wealth itself. So, as Bridget was mentioning before, this concept of loss aversion. But you can be loss averse in different ways in terms of the long term. You can be loss averse by being entrepreneurial. So, you diversify your wealth investments in order to be entrepreneurial and mitigate the risks. [46:00] But you can also be risk averse by being, instead, a custodian of your wealth. So, it's like I received this wealth from the 11th generation, I'm the 12th generation, and my role is to bring it to the 13th generation in the same way to give them the same opportunities.
Both of these concepts can be considered as risk aversion because you want to mitigate the risk somehow. But on one side, you play these roles as an entrepreneurial family member. On the other one, you play the role of a custodian. So, the strategy that your family puts in place in order to manage its assets might differ despite everyone being oriented toward the long term.
R. Adam Smith: Wonderful. Thank you so much. And just a brief moment to appreciate the book that you published with [47:00] Professor Alfredo de Massis, my friend. Congratulations on The Family Business Book published by Pearson [and the] Financial Times recently, these past couple of months actually. Really proud and happy to see that book. Congratulations to you.
Emanuela Rondi: Thanks a lot. Thank you, Adam.
R. Adam Smith: So, we won't do any Q&A today—we'll keep it short for the holidays—but just one more item. Both of you are thinking about this concept of success and looking beyond to legacy. I know we've talked about it in so many ways, but legacy is the most important topic for me personally within the family enterprise world and bridging the generational approach to it and also the financial and non-financial approaches to it.
So, I'd love to end up on your own comments on legacy personally and perhaps any sort of reference to a [48:00] concept or a single-family enterprise in the world that you admire in terms of their approach to legacy for the company and for the family.
Bridget Kustin: What a big question, especially in the wake of holidays where I think everyone is reflecting on family and family dynamics. We get a lot of people who come through the project who say, pretty clearly, that they don't really start to think about legacy until they're near or at the end of their typical working life, so late 60s, somewhere in the 70s. And I wonder what it might look like if there was a way we could shift that and the question around legacy is something that starts much sooner to then inform what people do during their most productive working years in their 30s, 40s, 50s.
[49:00] It always makes me feel a bit sad when people only become reflective after a lifetime of having worked in directions that they then decide they're not particularly proud of or feel inspired by or that they don't think reflect their legacy. And how can we start to, you know, within families, normalize legacy as something that you just start to work toward from your 20s?
The question of what that legacy should be is not something that I feel particularly driven to be prescriptive on, because it's too specific to the industry, too specific to the source of the wealth or how the family continues to generate the wealth, and something might not seem groundbreaking to an external, but within a family, within their own situation.
R. Adam Smith: I mean, really a way to say it is, perhaps the light there for the next generation would be more “why.”
Bridget Kustin: Yes, absolutely. [50:00] And I now confess that I forget the second part of your question. You asked about legacy.
R. Adam Smith: The second part, meaning, do you have a particular concept or a particular company that really draws your admiration?
Bridget Kustin: Yes, the one that I mentioned before. The family, the descendants of Abdul Latif Jameel, with respect to their philanthropic work, I think is really innovative, really exciting, making big bets about how to change knowledge, big bets around the future of technology.
There are a lot of leaps of faith that are evident in their approach. And I think that's really meaningful. So, that's specific to philanthropy. When it comes to families with large operating businesses, I think that those that focus on [51:00] doing the really, often not publicly recognized work of making the necessary retrofits or pursuing a net zero strategy, this work doesn't lend itself always to external comprehension because it might be buried in the balance sheets, it might be highly technical, but it matters.
We hear families talk with genuine passion about a decision to take certain measures at their factories or on their ships that can drastically increase the sustainability of their operations. And it's not ever going to show up in a newspaper. It's not going to be on the side of the building. It can be completely invisible work, but it's still work that matters. And they're genuinely proud of it. And so, I sort of want to give a shout-out to those families who might be building legacy in ways that aren't publicly accessible.
And then, for families who have an investment portfolio or who have a family office, I mean, the hardest question there is, [52:00] can they get beyond loss aversion? Can they start to build a legacy by engaging in forms of concessional financing? Can they sacrifice the top risk-adjusted market rate return? Can they leave some money on the table in order to build out the business case for a blended financing model or engage in catalytic investing and really help to build the future, even though it flies in the face of that loss aversion that I mentioned?
So, I think that there are absolutely exciting opportunities for legacy, but it requires grappling with big issues around public recognition or lack thereof and the ability to withstand public criticism because families tend to be criticized even if they're doing the right thing. They perhaps aren't doing enough of it, or they haven't done it soon enough. So, it's not easy to try and build a legacy in the face of a public [53:00] that has its own really valid reasons for being critical.
Emanuela Rondi: It's very interesting what you said, Bridget. I think that according to the family businesses that I've investigated, there is a very big difference between the multi-generational ones that are already like gen five, gen six, where the topic of legacy is part of the family discourse. So, the next generation grows up with this concept of having a legacy to bring forward, having a legacy to be a custodian of, and sometimes they also feel constrained by that. It's a burden that they need to carry on, and some of them really feel like it is a golden cage from which they want to escape from.
For others, they feel like, if I stay in this family, it means that nothing can change because we have always done like that and [54:00] there is this strong past of iconic figures that you need to cherish. And so, there is this immobilism of not being able to evolve.
So, they prefer to launch other businesses or work in other companies rather than serve the family business. And I don't use this word. I use this word with the real meaning of it.
For younger, less generationally involved family businesses, legacy is something that has not been developed yet. Maybe there is an iconic founder that has been able to develop the business. So, it is a figure that they are kind of proud of or grateful for. But at the same time, there is not this element of assets, physical and symbolic assets, they link so much.
So, [55:00] here I understand what Bridget said, that it's something that comes later in the individual life stage because legacy becomes an instrument to be immortal. So, it's a way through which the entrepreneur, for instance, wants to perpetuate him or herself beyond the death. And so, they are kind of creating this symbolic legacy that will last beyond their lives.
So, this tension, in any case, can have a strong influence on the next generation. So, while also in the literature, we always put a lot of emphasis on the positive side of legacy, we need to be also aware about its dark side and how to balance the two because we always ask family businesses to be able to innovate, evolve, and change, and on the other side, [56:00] we always cherish them for being attached to their roots, to their tradition, and to their legacy.
So, this is a tension that needs to be managed and that for the next generation can be a strong burden to bring.
R. Adam Smith: That's wonderful. I think we covered a lot of ground today, and I'm really looking forward to more conversations with both of you in the new year. Again, thank you to Alfredo de Massis, our good friend, and, of course, one of the most accomplished academics and researchers in the world in general, but particularly in this sphere. It was wonderful to have his support to bring us together.
And Emanuela, thank you for joining today and bringing your wisdom from your world and also your involvement in FBN and the International Family [Enterprise] Research Academy, and Bridget, also, from [57:00] Oxford and the evolving Ownership Project 2.0. To bring both of your accomplishments today to this platform is wonderful, especially as we finish the year and think of the contemplation that we all do at this time, and, as we're talking now, thinking ahead to the ways to build legacy and also preserve and empower that with our friends and clients. So, that's wonderful.
So, thank you for joining today, Emanuela and Bridget.
Emanuela Rondi: Thanks a lot, Adam, for hosting us. And thank you, Bridget. I always learn so much when I listen to you. So, it was great to share this stage with both of you. Thanks a lot.
Bridget Kustin: Same. This was great. Thank you everyone. What a pleasure. Happy New Year.
R. Adam Smith: Happy New Year to everybody. I want to thank you again and the attendees today. This is R. Adam Smith signing off. Stay tuned for the next episode of the [58:00] Family Business Audiocast on LinkedIn.
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Explore the strategic intricacies of family business success with the RAS Family Business Audiocast. Join R. Adam Smith as he delves into exclusive discussions with global leaders shaping the future of private wealth and enterprise. Each episode offers a rare glimpse into the core decisions driving prosperity in high-stakes markets. Tune in to gain expert insights and innovative strategies that empower family businesses to thrive across generations.
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Family Business Audiocast™
