Joining a family business isn’t for everyone. It’s a risky decision that needs a lot of careful consideration. You might build a successful dynasty that grows into a Fortune 500 company, with generations of family continuing to lead the business. Or, like the vast majority of family businesses in the U.S., your business might not make it to the second or third generation. Even worse, your family dynamics could break down, leaving a legacy of dysfunction that long outlasts the business.
So how do you decide whether to join a family business? The next generation should consider six key issues before diving in:
1. There can only be one CEO Think about where you currently stand in the family and where you can potentially go in the business. If you’re in the second or third generation, there may be siblings and cousins all hoping to take over as CEO. Stop and think about whether your goal is senior leadership. If it is, ask yourself if this is realistic. Who is competing for those positions? Is your cousin the “golden child” of the family? Are you the most qualified? Are there family politics involved?
When people discuss what drives long-run productivity, they usually focus on technical change. But productivity is about more than robots, new drugs and self-driving vehicles. First, if you break down the sources of productivity across nations and firms there is a large residual left over (rather inelegantly named “Total Factor Productivity” or TFP for short). And observable measures of technology can only account for a small fraction of this dark matter.
On top of this, a huge number of statistical analyses and case studies of the impact of new technologies on firm performance have shown that there is a massive variation in its impact. What’s much more important than the amount spent on fancy tech is the way managerial practices are used in the firms that implement the changes.
Although there is a tradition in economics starting with the 19th-century American economist Francis Walker on the importance of management for productivity, it has been largely subterranean. Management is very hard to measure in a robust way, so economists have been happy to delegate this task to others in the case study literature in business schools.
Managers are more frequently the butt of jokes from TV shows like “The Office” to “Horrible Bosses,” than seen as drivers of growth. But maybe things are now changing.
MIT Sloan Research Associate and Lecturer, Tage Rai
From Behavioral Science
“A sick, demented man.” That was Donald Trump’s assessment of Stephen Paddock, who shot nearly 600 people, leaving 58 dead, during a concert in Las Vegas on Sunday. Echoing Trump’s rhetoric, House Speaker Paul Ryan said that “one of the things we’ve learned from these shootings is often underneath this is a diagnosis of mental illness.” Most Americans agree that there is a strong link between mental illness and mass shooting, and shifting the national conversation to mental health reform carries the advantage of avoiding the more politically divisive gun-control debate. But what if Stephen Paddock had no diagnosable mental illness? And what if his mental state was the rule, not the exception?
In the aftermath of a mass shooting, we naturally seek to understand the killer’s motives. Our first instinct is to assume that the killer must be mentally deranged somehow. He must be a sadist who takes pleasure in the suffering of innocents, or a psychopath who feels no empathy for his victims, or a schizophrenic haunted by paranoid delusions. How else could someone commit such an awful atrocity? Yet, there is no evidence that Stephen Paddock was any of those things. He had no history of mental illness. He had no criminal record. He was a successful businessman. Relatives and people who know him are in disbelief. Paddock’s father was a notorious bank robber, but the two men never met, and if Paddock inherited violent tendencies from his father genetically, they never manifested until now. Read More »
Former SEC Chief Economist and MIT Golub Center Senior Fellow Chester Spatt
Join us on November 1, 12 noon to 12:30 ET for a live conversation with former SEC Chief Economist and MIT Golub Center Senior Fellow Chester Spattand Golub Center Director and Professor of Finance Deborah Lucas.
As the 10-year anniversary of the great financial crisis approaches, the program seeks to answer two questions: what have we learned? And have we made enough progress to prevent a repeat of something similar? Chester and Deborah will discuss financial regulation and housing market finance reform, and share their ideas for fostering stronger ties between the regulatory and the academic communities and what lies ahead
MIT Sloan Prof. and Golub Center Director Deborah Lucas
Laurie Goodman,co-director of the Housing Finance Policy Center at the Urban Institute will also appear on the program to talk about housing finance reform.
You will be able to view the show on Livestream by bookmarking this site and tuning in November 1st at 12 noon.
Submit your questions on Twitter using #MITSloanExperts before and during the show. Your question could be answered live on the air.
Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy
From The Hill
In a recent column, I discussed cyber risks that could adversely affect bank and brokerage customers and explored the conditions necessary for development of actuarially sound insurance products at the retail level to protect individuals from the most catastrophic of cyberattacks to their accounts.
While new consumer-oriented insurance products are being offered to guard against cyberattacks, they don’t necessarily mitigate a consumer’s nightmare scenario. That scenario goes beyond having personally identifiable information stolen to having your bank’s digital records wiped out or otherwise corrupted by a malicious actor, eliminating any history of your account balances. So this is the question: would your bank or brokerage stand by you in the event of such an attack or is cyber risk insurance necessary?
Regardless of the availability of cyber risk insurance for individuals, the threat to consumers flows from vulnerabilities within and across financial institutions. To the extent an individual’s bank or other financial services provider has strong institutional defenses, risk to individuals falls dramatically.