Bank of America : New Report Reveals Lessons Learned From Family Businesses That Keep the Business in the Family

Family-owned and -controlled businesses, which account for 90 percent of all U.S. companies,¹ rarely outlive their founders to survive the next generation. Only one in three defies the odds, but that requires a well-thought-out transition plan and, in some cases, even a non-family member to step in and lead, according to a new white paper by U.S. Trust, Bank of America Private Wealth Management, and the University of Virginia Darden School of Business.

The paper reveals eight lessons learned about building a family business and enhancing its value across generations. U.S. Trust, which helps family businesses live past their founders, partnered with the University of Virginia Darden School of Business to explore the distinct challenges and advantages of owning a family business, particularly when it comes to transitioning leadership, ownership and control. Their findings are outlined in a jointly published report, Family Matters: Cultivating human capital, financial capital and innovation across generations in family businesses,with insight from proprietary and academic research, case studies, and in-depth conversations with business owners.

'Companies that thrive for multiple generations under the ownership of the same family offer valuable lessons for building sustainable companies,' said Katy Knox, president, U.S. Trust, Bank of America Private Wealth Management. 'These businesses are strengthening communities, sustaining families, and driving growth and innovation throughout the economy.'

According to business owners recently surveyed by U.S. Trustwith family members involved in or employed by their business, seven in 10 see family involvement as a competitive advantage.² When asked about their transition plans, 52 percent of business owners hope to eventually sell or transfer ownership of the company to family members or employees.³ Despite this optimism, history shows that the smooth transition of a family business is an exception, not the rule, and the rate of success decreases with each subsequent generation.

Lessons learned from multi-generational family businesses are distilled into eight actionable insights for family business leaders as they consider generational transitions, make strategic investments, work to create an inclusive culture, and innovate without losing their roots.

Eight lessons learned

1. Take a stewardship approach: Leaders should speak publicly and often about the company's mission and values, and make decisions that show a willingness to place the long-term interests of the employees and community over short-term profits.

1. Lean on values: Demanding that family members model the company's values builds goodwill with customers, employees and the community, and helps organizations stay resilient during tough times.

1. Continuously engage and develop the next generation: Family members are encouraged to learn what the business does and how they might build a career; those not interested in the business remain engaged in other ways, such as philanthropic organizations related to the company.

1. Balance cohesion with respect for difference: Families practice unity through common purpose, but also welcome diversity of thought and experience; intergenerational differences are a form of diversity and cultivated as a potential source of strength.

1. Reward innovation: Employees who ask questions, propose new ideas and take smart risks are rewarded. Real-time problem-solving and superior, customizable services increasingly are needed in a rapidly changing business world.

1. Treat outsiders as well as 'insiders': Every family member may not have the capacity, interest or temperament to succeed in the business. Non-family employees may be better suited to lead and may be encouraged through meaningful career paths and even ownership shares.

1. Talk numbers: Family stakeholders should understand the company, its risks and performance, and how it integrates with their own financial lives and plans. If possible, they should consider diversifying their investments or funding their own ventures with family support.

1. Communicate, communicate, communicate: Family members are connected, personally and professionally, and remain in regular contact so that institutional knowledge is shared and there is a common sense of identity and mission.

'Because a family business is a source of pride, identity and wealth, founding generations understandably want to see the business continue for the ongoing benefit of family,' said Karen Reynolds Sharkey, managing director and National Business Owner Strategy executive for U.S. Trust. 'Keeping the passion alive, engaging and developing future leaders, and effectively passing the baton to the next generation can be as hard as building the business in the first place. By sharing these insights, we hope to help business leaders plan a transition that protects, and even enhances, the value and legacy of the family business.'

'We are pleased to partner with U.S. Trust to shed light on these important and often little-considered issues,' said Greg Fairchild, Isidore Horween research associate professor of business administration at the Darden School and the University of Virginia's director of Northern Virginia Operations. 'The lessons distilled from these family businesses have applicability for both business creation and preservation.'

The report features four original case studies of businesses spanning one to five generations of family ownership. Collectively, the three issues family business owners say they contend with most are: human capital, financial capital, and innovation. The report covers each of these areas with in-depth contributed commentary from Darden School of Business professors and an exploration of five core leadership themes, including spotting and harnessing talent; developing the next generation; engaging ownership through communication; innovating and staying agile; and building (and sharing) wealth.

A full copy of the Family Matters report is available for free download and can be found at www.ustrust.com/familymatters.

U.S. Trust's survey of business owners is part of its 2018 U.S. Trust Insights on Wealth and Worth^® series, a broader study of nearly 1,000 high net worth individuals that examines the motivation, behaviors and goals for creating and using wealth. Detailed findings from the U.S. Trust survey of business owners can be found here.¹ Forbes 'The Facts of Family Business,' July 31, 2013^{2, 3} U.S. Trust 'Insights on Wealth & Worth Study,' 2018

U.S. Trust
U.S. Trust, Bank of America Private Wealth Management is a leading private wealth management organization providing vast resources and customized solutions to help meet clients' wealth structuring, investment management, banking and credit needs. Clients are served by teams of experienced advisors offering a range of financial services, including investment management, financial and succession planning, philanthropic and specialty asset management, family office services, custom credit solutions, financial administration and family trust stewardship.

U.S. Trust is part of the Global Wealth and Investment Management unit of Bank of America, N.A., which is a global leader in wealth management, private banking and retail brokerage. U.S. Trust employs more than 4,000 professionals and maintains 93 offices in 31 states.

As part of Bank of America, U.S. Trust can provide access to a broad range of banking solutions for individuals and businesses, and an extensive retail banking platform.

Bank of America
Bank of America is one of the world's leading financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 67 million consumer and small business clients with approximately 4,400 retail financial centers, including more than 1,700 lending centers, more than 1,900 Merrill Edge investment centers and more than 1,300 business centers; approximately 16,100 ATMs; and award-winning digital banking with more than 36 million active users, including 25 million mobile users. Bank of America is a global leader in wealth management, corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations across the United States, its territories and more than 35 countries. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation. Bank of America, N.A., Member FDIC.

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