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Serial business families – the Lindström case

Denise Kenyon-Rouvinez is President and Founder of the Family Business Network Suisse Romande, and Associate of The Family Business ­Consulting Group.

The Lindström family is a good example of how serial business families can use their past experience to avoid recurring 'situations' – and ultimately run a business that benefits the business and the family members involved

As discussed in the last issue, there are many family business owners who sell their business only to start another a few years later. These serial business families all follow a common three stage process: sale of the family business, interim period and recreation of the new family business. This issue focuses on the Lindström family, a serial business family in Sweden who built on the experience of their first business to make their new family business stronger.

The Lindströms
Back in 1936 in a depressed, vast area of north Sweden where two-thirds of the land is covered by forest and wildlife, life was tough. In order to provide food for his family, Mr Lindström entered into an agreement with Volvo, the Swedish truck and car company, and became Volvo's exclusive truck/bus/car dealer for a large part of Northern Sweden.

Under Mr Lindström's leadership, the business grew and soon became a model dealership in the Volvo group. However, life in the north was not getting any easier. The region was remote from any higher education system. Thus each of Mr Lindström's five children, between the ages of 18 and 20, left home for university in Stockholm and Uppsala, 1,000 km away. Although they were sad to see their children leaving home, Mr and Mrs Lindström were glad their business was working well and providing the means for the next generation to receive a good education.

Returning north having studied in a big city was difficult for some of the Lindström children. The eldest son worked in the family business for 15 years, and the third child (the only daughter), became a doctor and started her own practice in their home town. The second and fifth children, howver, never really felt that they could return to such a remote area and instead searched for jobs in Stockholm.

Anders, the second son, was very successful in his work as a 'company doctor', turning around companies in difficult situations. Though not active in the business and living 1,000 km away, he became chairman of the board of the family business, a position he was to hold for 28 years.

The siblings had ample opportunities to meet outside the business board. The family still held regular meetings, as they had since the children's early youth. Their parents were keen for them to learn about the evolution of the business, especially as they had worked there during the summer holidays and because the business was in their blood. Together, the family established rules for the family's relationship with the business. The five children were to be equal owners and none was allowed to enter the business without a university degree and prior work experience outside the family business.

In the early 1970s Mr Lindström decided it was time to transfer ownership of the business to his five children. For tax reasons, the five siblings each decided to buy their share of the business from their father.

Olov, the fourth sibling, joined the business after working for five years with Ericsson, the leading Swedish telecommunications company. However, living in a remote area was hard both on him and his wife, who could not find a job corresponding to her high qualifications. After three years they decided to head south and establish their lives in Stockholm.

Håkan, the fifth sibling, was unhappy in the family business for other reasons. He was the youngest of the five children and his closest sibling was seven years older, the eldest being 15 years his senior. His situation differed from that of his four siblings, who were closer in age and had all been born just before or during World War II. They had all become involved in the family business in one way or another while he was still a young boy. He began to feel left out and resented it. Håkan therefore asked to be partly bought out of the business so that he could have a capital sum to start up on his own. He subsequently set up a successful business in Stockholm.

The selling stage
A major strike and problems with trade unions led the family to decide that family members should no longer be involved in the management of the business. They hired an external chief executive and implemented a strong board with two independent outside directors who were experts in other businesses. Only two family members held seats on the board: Anders sat as Chairman while his siblings held the other family seat in rotation. The new chief executive received 5% of the shares and the five siblings shared the remaining 95%.

Over the years, no dividend was distributed to shareholders and all profits were kept in the business to sustain its growth. The amount of money accumulated in the business was so high that the business became over-capitalised, and in 1985 the company bought some of its shares back from the owners. As a result, the siblings each received a substantial amount of money for some of their shares, and continued to retain 95% of the shares.

In 1997 Mr Lindström passed away at the age of 85. He had been chief executive of the business until the age of 68 and continued to work in the business until he was 75. His children decided many years before that as long as their father lived they would keep the business. However, they also agreed with him that when he died, they could sell the business if they wished. When the family business was sold in February 1999, it had 130 employees and an annual turnover of US$75 million.

Because of the remote location of the business, the decision to sell was not too difficult, but it was nevertheless an emotional time and the siblings wanted to make sure that the business and its employees had a good future. Ensuring the continuity of employment by the new owners was more important than the sale price alone.

In the end, the business was sold to the former chief executive of the business who had, over the years, come to be regarded almost as a family member. An only child, Mr and Mrs Lindström had regarded him as one of their own sons. Since he was from the north and had lived and worked most of his life there, he was well respected in the local community and knew the local customs and traditions. The Lindström siblings felt there could not be a better buyer for their family business; they even helped him finance the management buy-out.

The interim stage
Besides being Chairman of the family business board, Anders was well-known in Sweden as a successful company doctor. In his last position, Anders was the chief executive of a publicly-owned business in the food industry that also owned department stores and employed 20,000 people. Before that, he had been the chief executive of an engineering company with production plants in 26 countries.

As successful as he was, it had always been his dream to retire early and run his own business. So, when in 1989 he was contacted by one of the largest private car dealers in Sweden to ask if he wanted to buy their Uppsala dealership, which at the time was losing money, he did not hesitate. This was a business he knew and it gave him the opportunity he was looking for.

The re-creation stage
Not only was the new business familiar to him, it was a business to which he could apply his skills and turn-around abilities. Above all, Anders saw the business as a great opportunity to start a family business with his own children. He had three daughters and one son, all with university degrees in management, and he wanted to share with them what he had experienced with his father and his siblings in the original family business.

The four children now own 50% of the holding company and their father the remaining 50%. Together with Margit, Anders's wife, they are all board members of the holding company. As of last year a new system of rotating chairmanship has been put in place: in turn each of the children is the chairman of the board for one year. The board also has three external independent directors.

The holding company owns several operating businesses. It has 170 employees and an annual turnover of about $100 million. In each case Anders is the chairman of the business board and one of his children is a board member. Anders spends about 20% of his time working for the Uppsala dealership, another 40% as a corporate doctor to other businesses, and the remaining 40% doing voluntary work for the community.

Though it is not always easy and they acknowledge that they don't always agree upon issues, Anders, Margit and the children feel very fortunate to have a business that helps maintain close family relationships. For several years their children were living in different countries – England, Germany and Sweden – and they feel that if they had not come back home for board meetings four or five times a year, they would inevitably have seen far less of each other and spent a lot less time together.

Despite this they have strict rules relating to the business, and they are not always easy to live with. The three daughters are married, but in-laws are not accepted as shareholders; pre-nuptial agreements are signed to this effect. Also, in-laws are not  invited to join the board. Thus, they spend four or five weekends a year at home while their spouses travel to Stockholm for board and family meetings.

To compensate for this potentially difficult situation, the family invests time in talking with the in-laws to make sure that the reasons behind the rules are understood and accepted. In addition, once a year in-laws are invited to the family council meeting, when the family will often organise one event around the business for the in-laws to get to know and understand the business. A big family reunion is also held in Sweden each summer and once a year they all go on holiday together to the south of France.

Looking back and comparing the two family businesses, Anders realises how much of a positive experience the first business was for him and how much he learned from his father. During the course of 28 years, Anders and his father had exchanged views on business issues on a daily basis. Moreover, Anders's father gave much thought to how the business and the family worlds could work as a unit. He wanted to see his children enjoying working together and sharing something. Today, these values are being instilled in Anders's own children. As a result the new business has benefited and the mistakes made in the first venture are hopefully being avoided in the second. A strong family has created strong businesses.

One aspect of the original business, however, remains a painful memory for Anders. This concerned the departure of his youngest brother, Håkan. Håkan did not think there was a place for him in the family business and thought Anders was too domineering. Today, Anders admits to being perceived as dominating and demanding. In turning around businesses in difficult situations and as chief executive of a very large business, he recognises that he might not always have had the time to take his siblings' emotions into account.

Anders tries hard to be perceived differently and to reduce his role. He was the chairman of the original family business for 28 years. Today, he is not the chairman of the holding company. As a board member he is at the same level as his four children.

Unlike the original family business, the new business distributes substantial dividends, although a large portion of the profit is kept in the business to finance growth and acquisitions. The new investments bring up an interesting aspect of shared ownership. Of the family members, it is Anders who spends the most time working for the new business and looking for potential new investments. However, as a board member, he has to report to his board – in effect, to his own children who might agree or disagree with his propositions. At times he finds this tough. All in all though, he is happy with the situation. The children are becoming more involved in investment decisions. Anders feels that they have many interesting discussions and that the adult children are not afraid of putting forward their views. He also makes space for them to meet and discuss the future of the business without him.

Evolution of business, family, ownership, governance and rules: There are a number of repetitions between stage I – the original business – and stage III – the new family business. The business sector, the size of the business, the percentage of family ownership, the closeness of the family members involved as owners, board positions, governance tools and rules are all very similar. All were a success in stage I and were kept in stage III. The changes made are due to two main reasons: geographic location, which made it difficult for the second generation to take over the original business; and the family problem that led to the departure of the young­est son in the original business. A numb­er of measures are being taken in stage III to prevent this from re-occurring.

With hindsight it seems simple, even obvious: keep the successful formulae, change the others. However, given the general human tendency to repeat mistakes, the ability of many serial business families to recognise and learn from their mistakes is quite remarkable.

Conclusion
Other business families can learn much from the Lindström case and from a general understanding about how serial business families go about their business:

Characteristics of serial business families: Like most serial business families, the Lindströms have stuck to their field of expertise in the form of car dealerships and have remained with the same car producer. They are building the business with the next generation in mind and show a typical long-term attention span in their strategic thinking.

Motivations to re-create a business: There were two reasons behind the re-creation. The first was a family reason – Anders wanted to re-create something with and for his family; he wanted to share with his children the values he inherited from his father; and he wanted them to share something intense and unique that siblings cannot share unless they work together. The second reason was an entrepreneurial one. Anders was 50 when he retired from his former job. He wanted to have his own business and to be his own boss, and he wanted his business to be a private concern.

In the Lindström case, like with most other serial business families, family and entrepreneurial spirit are the drivers behind the creation of the new family business. Moreover, the fun and enthusiasm shared by the members of serial business families tend to indicate that they have achieved a good balance between family and business needs.

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