In the United States, the increasing presence of women in senior professional roles as leaders and business owners is accelerating. According to the National Association of Women Business Owners, 39% of privately held businesses are women-owned.1 While there’s progress to be celebrated, the story is more complex in substantial family-controlled businesses.
In research conducted by the Society of Trust and Estate Practitioners, just 7% of North American family firms surveyed were led by women, and 34% had women on their boards.2 The study also found that the oldest child was the CEO’s successor 45% of the time, concluding that “[s]electing the next CEO based on the male primogeniture logic, despite decreasing in popularity, is still a trend….” Yet there appears to be a strong desire to elevate women in leadership in family businesses: 70% of the 525 largest family businesses polled by EY were considering a woman as their next CEO, with 30% strongly considering it.3
Given that so many family-owned enterprises seem to value the inclusion of women in leadership, we set off to examine what families had done to be successful in elevating women leaders. Based on our experiences working with business-owning families, and interviews with approximately 30 women from those enterprises,4 we found three key factors that strongly influenced women’s paths to leadership:
(1) early (and egalitarian) exposure to the business; (2) communication of inclusion as a family value; and (3) strong female role models in the family.
In situations in which not all of these factors were present, however, success still occurred thanks to a “disrupter.” In these cases, an event or individual caused legacy approaches to be abandoned or challenged, which opened the door for women in the family to join development paths and prominent roles in the family enterprise.
Exposure to the Business
Among the families we spoke with in which women ultimately took on leadership roles in the next generation, experiences with the business in childhood and adolescence tended to be similar across gender lines. Boys and girls were equally exposed to the business and its inner workings. Both invested time with dad (when the father was the owner-operator) at the place of business, resulting in a common understanding and interest in the business. Providing equal inspiration to the next generation without regard to gender appeared to be a precursor to women joining the business and taking on substantive roles within it.
In many family enterprises in which early exposure was more divided by gender, boys were offered jobs “in the business”—packing boxes, working on the line, in the field or in the factory—while similar tasks were deemed “inappropriate” for young women. When these barriers existed, boys and young men developed a deeper understanding of the family’s business fundamentals as they learned the business from the ground up. Conversely, for girls and young women in these situations, early work assignments revolved around support functions, answering phones, processing invoices or other types of administrative work. One interviewee told us that during high school and college, she was asked to fill in for the receptionist: “I saw only two or three women in a company of more than 50 employees and thought, ‘This is what is possible for me here.’”
In the families we spoke with that successfully developed female leaders, girls were given similar opportunities to the boys. Equal opportunity across all next generation members communicated the message that anyone could learn—and eventually lead—the family business.
Intentional Inclusivity
Our research found that one of the best ways that elder family members, both employees and nonemployees, raised awareness about potential leadership opportunities among all members of the next generation was through the practice of, and communication about, inclusive values and behaviors. The women we interviewed described messages and behaviors—exhibited by both parents—that influenced their paths from their early years through young adulthood. In fact, 78% of leaders we interviewed described their families as valuing inclusion, whereas only 22% of our non-leader group said the same. In families in which boys and girls (and young men and women) heard the message “there is opportunity for you in this business,” women were more likely to engage. Attitudes and approaches like these by parents often shaped children’s interests, sources of inspiration and views of what roles were possible.
These practices and communications of inclusive values were identified as being impactful during both formative years and at pivotal moments. One such moment consistently cited by those interviewed surrounded the choice of college and career paths. In business-owning families, when college-bound kids were counseled differently based on gender, boys were often encouraged to pursue majors that would be additive to the family business and girls were told to simply find something that makes them happy.
In a number of cases in which women became leaders, they described their fathers as progressive, feminist or “ahead of their time” in relation to how they viewed women and managed diverse employees. The CEO of a significant retail business described her father as “way before his time,” as he always treated her mother like an equal partner, gave her a paycheck and didn’t want her to feel like she had to ask for money to spend on herself.
Hearing the message “you’re capable and have potential to be successful in this business” naturally led to more success. Conveying this message— through words, actions or gentle (often unconscious) nudges—to both genders equally creates inclusivity that allows diversity to flourish in the next generation of leaders.
Female Role Models
Having strong women as leaders and role models in a family was the third factor that affected women’s leadership in a family business—as well as the attitudes of all genders in successor generations. When women leaders were present, men were open to women’s leadership, and girls and women saw themselves as equal partners or successful leaders in the family enterprise. Of the women we interviewed who took on leader roles, 65% of them had clear strong female role models as mothers or grandmothers. Of the non-leader group, that figure was only 22%.
The mothers and grandmothers who modeled leadership for the next generation either had formal roles in the family business or were treated as equal partners in business decision making, despite not holding a formal title in the company. They told their daughters: “You walk in there like you own the place.” These women showed their daughters and granddaughters what was possible, which fueled the ambition of the next generation of women.
Alexandra Lebenthal’s grandmother was the co-founder of Lebenthal & Co., a Wall Street investment bank. After founding the company in 1925, Sayra Lebenthal worked full-time in the business until she was 92. Alex, who became CEO of Lebenthal & Co. in the 1990s, recalls her grandmother sitting behind her big desk: “That was my normal—I thought that if she was doing that, it was what other grandmothers did.”
In other families, mothers and grandmothers didn’t have a formal role in the business, but their ability to make and influence decisions was undeniable.
Given the importance of role models for women, expanding their understanding of what’s possible and inspiring them to be more ambitious is crucial. In family enterprises, familial role models seem to have an outsized impact on women in the next generation. Women from the same family, raised with the same values, religion and culture, can be powerful pathfinders for the next generation of women.
The Role of Disrupters
While the paths of the next generation are largely set by early adulthood, we discovered it’s never too late for the course to change. In families we spoke with in which the success factors we’ve outlined here weren’t present, in whole or in part, sometimes “disrupters” —in the form of both people and events—emerged to change the assumed path of leadership development for a company. These disrupters altered the course of the next generation’s development or created an environment for men and women of the next generation to become leaders. These disruptions occurred in a number of common ways.
An advocate. In families in which women became leaders, sometimes individuals in the family enterprise (family and nonfamily leaders) elevated women who were previously not on a leadership trajectory. These leaders invested continuous time and energy into developing the next generation leaders’ talents, became advocates for them in the senior generation and helped the next generation navigate complex relationships with the senior generation and, in some cases, the board.
Personal ambition. A few remarkable women were able to change the course of their own paths through determination, motivation and will. Some were very successful in outside enterprises but were intent on breaking into the family business, even though the red carpet wasn’t rolled out for them.
Untimely and unfortunate events. In several instances, there was an inherent bias toward the first-born son ascending to lead the family business enterprise, but something disqualified him. There were a few different types of disrupters that came into play in these cases, ranging from self-disqualification, to an untimely death, to too little experience. In most of these cases, a capable sister stepped into the role meant for the male heir when it became clear that he wasn’t fit (or available) for the job.
Lessons Learned
Regardless of the approach a family has taken historically to grooming the next generation of business leaders, opportunities exist to increase the representation of women—and diversity generally—in family business leadership. The most important first step is to be intentional. The cumulative impact of early life often encouraged or dissuaded the next generation of women.
To give everyone the opportunity to develop the interest and skills necessary to be successful in a business-owning family, inclusion must be a priority in the family and in the business. Family leaders must start by saying that they value diverse perspectives in the business and that every member of the next generation has the opportunity to prove that they can succeed. This sentiment might also belong in a family mission statement or guiding principles or may merit time on the agenda at the next family council meeting. In addition, consider the following:
- Provide opportunities for boys and girls to do a variety of jobsduring adolescence and young adulthood for every member of the next generation. Some family businesses create a set rotation through different departments or types of work for family members.
- Model and value equity in family relationships. While seeing a true partnership in mom and dad’s relationship is clearly an important model for children, sibling and cousin relationships are also important. Instead of always giving leadership responsibility to the oldest, consider younger family members for age-appropriate opportunities, and allow quiet children to speak first.
- Keep the rules consistent, regardless of age and gender. If the owners don’t think family should work in the business or think that everyone should work outside the company for a specific amount of time, communicate the same message to everyone—no special treatment for the first born.
- Rethink the family narrative. How do you tell the origin story of your family business? Is grandpa a brilliant entrepreneur who bootstrapped and grew the business without help? Consider how women and others might have contributed. Perhaps there’s a more inclusive way to portray the family’s success.
- Elevate the stories and successes of women and other diverse leaders—in the family, in the company and in the community—to demonstrate what’s possible and broaden horizons for everyone.
Estate-Planning Impact
Advisors can also help business-owning families be intentional in how they think about succession and who ultimately manages and owns the company. Estate planners in particular can bring awareness to how succession impacts ownership. In fact, estate-planning attorneys can and should play a valuable role for these families by digging deeper into the donor’s intent, raising questions of equity and showing the likely long-term impact of plans that disproportionately benefit the successor leaders of the business.
Frequently, the next generation of business-owning families will inherit unevenly. Those who work in the business will more often inherit the business to the exclusion of those who don’t, or in other cases, the next generation business leaders will receive a disproportionate number of shares. Those working outside the business will receive other assets, such as marketable securities, real estate or cash to “equalize” them.
Mom and dad often reason that this type of estate plan creates more alignment—the leaders of the business should benefit from their hard work and understand the consequences of missteps without interference from family members who might not understand the business to the same degree. This type of plan often parallels the prior generation’s experience, and it gives them a false sense of comfort that there will be family harmony free of disagreements about business decisions in the future.
Unfortunately, this type of uneven apportionment of the estate between successor leaders and others often creates significant wealth disparity in the next generation despite the donor’s original equalizing intentions. This disparity is appropriate only if the donors understand the potential outcome when they design their estate plans. However, too often, donors think they’re providing equal treatment by giving a $20 million business to their son who’s successor CEO and $20 million of marketable securities to their daughter who doesn’t work in the company. Given the gender disparity in who leads the family businesses and all the factors discussed above, most often, women don’t inherit the business. This seemingly equal treatment often leads to very different outcomes.
While the rate of return on a private company is never certain, it often exceeds public equities, as well as real estate and certainly cash. One data point to consider is the U.S. Private Equity Index provided by Cambridge Associates: During the period from 2000 to 2020, private equity produced an average annual return of 10.48%, while the S&P 500 returned 5.91%.5 Simplistically, if one child received $1 million invested in private equity and another received $1 million invested in the S&P 500 in 2000, the long-term impact on their wealth would have been significant. By 2020, the child who inherited the private equity investment would have accumulated more than twice as much wealth as their sibling. See “Private Equity vs. S&P,” this page.
Of course, the differing value of the inheritance could also go the other way. Perhaps the company is in a waning industry or has significant outstanding liabilities. Each owner should take stock of the expectations and outlook for their family business and be cognizant of whether the long-term impact will be significant wealth disparity within the next generation and potentially many generations to come.
An estate-planning attorney can play a valuable role by asking why. Understanding the donor’s intent, focusing on the intended outcomes and encouraging communication can put the family on a better path:
- Why does the client want to leave a disproportionate share of the company to one or more descendants?
- What’s the desired outcome of the plan (control, alignment of interests or something else)?
- If the intention is to allow the next generation leader to maintain control of the business, is there another way to accomplish that objective, such as voting and non-voting shares or through independent governance?
- How will a significant disparity impact family relationships after the client’s passing?
- Is the client prepared to communicate the plan, and why it was created this way, to their children and other adult stakeholders?
Asking questions that allow clients to fully articulate their intent and think through the outcomes of various scenarios will result in a more suitable estate plan for each family.
Endnotes
1. www.nawbo.org/resources/women-business-owner-statistics.
2. Andrea Calabrò and Alfredo Valentino, “STEP 2019 Global Family Business Survey,” KPMG and STEP Project, https://assets.kpmg/content/dam/kpmg/sa/pdf/2020/step-2019-global-family-business-survey-report.pdf.
3. “Women in Leadership: The Family Business Advantage,” EY and Kennesaw State University (2014), https://assets.ey.com/content/dam/ey-sites/ey-com/en_us/topics/growth/ey-women-in-leadership-the-family-business-advantage.pdf?download.
4. Between May 2021 and May 2022, 28 interviews were conducted with women from U.S.-based companies across a diverse range of industries. Of the 28 women, 18 are current or former leaders in their family business, and 10 weren’t.
5. www.investopedia.com/ask/answers/040615/how-do-returns-private-equity-investments-compare-returns-other-types-investments.asp#citation-3; Cambridge Associates, LLC, “U.S. Private Equity Benchmarks (Legacy Definition) Q2 2020 Final Report,” at p. 8.