By: Mariana Restrepo and Sharon Dorsett, PhD
Many people are familiar with the saying “shirtsleeves to shirtsleeves in three generations.” Across the world, this myth has fueled the belief that family businesses are destined to fail by the third generation. However, scholars have refuted this claim, including Nicholas Kachaner, our colleague George Stalk Jr., and Alain Bloch in a study conducted with the Center for Management and Economic Research at École Polytechnique, where they studied 149 publicly traded family businesses each generating over $1 billion in revenue. The study revealed that, “Across business cycles from 1997 to 2009, we found that the average long-term financial performance was higher for family businesses than for nonfamily businesses in every country we examined. The simple conclusion we reached is that family businesses focus on resilience more than performance. They forgo the excess returns available during good times to increase their odds of survival during bad times.”[1]
Myth or not, it is worth exploring the characteristics of family businesses that withstand the test of time, not just into the third generation, but beyond. The families who have beaten the odds share more than good fortune. At Generation Transition Advisors, years of working with family businesses have revealed three characteristics that emerge in successful generational transitions.
Characteristic #1: Have the Courage to Have Difficult Conversations
When the senior generation doesn’t name their fears about competence, alignment with the family values, or preparedness, those fears tend to fester.
We are currently working with a multi-generational family business in which the senior generation is beginning to think seriously about stepping back as the next generation assumes greater responsibility. On the surface, many of the conversations centered on decision-making, communication, and accountability. As we listened more carefully, a different dynamic emerged.
The senior generation was carrying legitimate concerns about the future of the business. Would the next generation make good decisions? Were they truly ready for the responsibility? Would they preserve the values and culture that had made the business successful? These questions were rarely spoken directly. Instead, they surfaced indirectly through second-guessing decisions, stepping back at the last minute, offering mixed messages, or focusing disproportionately on the shortcomings of the next generation.
The next generation experienced something very different. Rather than hearing concern, they often heard doubt. They began to question whether they were trusted, whether they would ever be seen as “ready,” and whether they could live up to the expectations placed upon them. The more the senior generation worried, the more closely they watched. The more closely they watched, the more the next generation questioned themselves. Anxiety was quietly moving through the system, even though no one was talking about it.
One of our goals in the work ahead is to create a space where those underlying concerns can be expressed openly. Rather than debating positions or defending decisions, we want each generation to articulate what they are genuinely worried about and what they need from one another. We don’t expect those conversations to eliminate the tension overnight. But when fears are named instead of acted out indirectly, people begin responding to each other rather than reacting to assumptions. That shift alone can reduce anxiety, increase empathy, and create the foundation for better decisions together. Naming a fear does not resolve it, but it does prevent that fear from shaping decisions without being examined.
Characteristic #2: Prepare the Next Generation Through Intentional Training
It is important for families to take an intentional approach when determining the type of exposure, level of information, and depth of operational knowledge they provide to the next generation about the business. Thoughtful exposure not only builds understanding but also sparks curiosity. As family members gain insight into how the business creates value, serves a broader purpose, and continuously evolves through an entrepreneurial mindset, they naturally develop an interest in learning more and becoming involved. This creates a natural bridge to the role of mentorship, where responsibility extends beyond the family itself. Non-family leaders can play a pivotal role in nurturing the next generation’s understanding of the business and reinforcing the values that it stands for.
One multi-generational family we work with faced this challenge when five G3 members were graduating college and developing a greater interest in the business, just as ownership responsibilities were beginning to shift toward them. They had very limited knowledge and exposure to the business. To bridge this gap, the family launched a Board Observer Program. Each G3 member attended board meetings in a non-voting capacity, paired with a board member as a dedicated mentor. Before each meeting, mentors provided context on the agenda and key points to be covered. After the meeting, the mentors held debrief sessions where observers could ask questions, clarify what they did not understand, and gain deeper insight into the reasoning behind decision-making.
What changed wasn’t just knowledge. The G3 members began building real relationships with non-family leaders they had previously only known by name. Those executives, in turn, gained insight into the values and work ethic of the incoming ownership generation. The next generation also came to see the impact their family business had on their country and understood that its legacy extended far beyond the family itself.
Characteristic #3: Redefining Decision-Making in a Continuously Evolving Enterprise
As the family grows and changes from one branch to many, so too should the business evolve as it grows into a larger enterprise. A generational transition beyond the second generation requires rethinking how an enterprise is structured and how decisions are made. Some members will want to be operationally involved, dedicating their time and energy to running the business day-to-day. Others will play a different but equally valuable role as engaged shareholders. Between those two ends lies a wide spectrum of ways to engage. Defining the ways in which family members can engage with the business prevents ambiguity from becoming conflict.
One family we worked with illustrated this kind of adaptation well. Leadership had transferred to the third generation and outside management, yet major operating decisions still had to pass through the second generation. This created bottlenecks and slowed the pace of operations. To resolve this, the family divided governance across three bodies:
- Owner Council: G3 family members in C-suite roles who were shareholders and the second generation
- Executive Committee: Presidents of each operating business unit
- Family Council: Family members, working in the business or not, focused on connection and shared time together, and development of G3 and G4 cousins
To define decision-making clearly, the family used Bain & Company’s RAPID framework[2], which defines the five roles in any decision: Recommend which gathers information and proposes a course of action, Agree which confirms feasibility, Perform which implements the decision, Input which contributes knowledge and expertise, and Decide which makes the final call and commits to action.
The family worked on a decision-authority matrix, mapping out the role each governance body occupies within the RAPID framework for every major decision. Some of the decisions taken by each governance body are as follows. The Owner Council oversaw the group’s portfolio strategy and major capital decisions such as acquisitions, IPOs, and dividend policy. The Executive Committee covered business-unit strategy, budgets, and senior leadership hires at the operating level. The Family Council set the family’s values, mission, and vision, along with the Family Assembly agenda, newsletter content, and other events that keep the broader family connected.
By defining which governance body is responsible for which decisions, the family created a living process, one that specifies when expertise is needed, who should be at the table, and how a decision gets made. Rather than fixing these roles permanently, the matrix is designed to be revisited as the organization’s needs evolve, so decision rights stay with whoever is best equipped to hold them.
Conclusion
Longevity in a family business is never guaranteed, but applying these three characteristics can improve the likelihood of successful generational transitions. In our experience, the family businesses that endure are the ones where the family leaders have the courage to have difficult conversations, are intentional about preparing the next generation, and continuously adapt to change.
