The ‘Family Factor’ in Family Businesses

Understanding family businesses entails understanding the ‘family factor’, more specifically family ownership, involvement, commitment, values, vision, self-perception and succession.

Family businesses play a prominent role in the global economy. It is a unique form of business as it is subject to influence from the family. The family is the original economic unit from which all other forms of economic organisations evolved.

Families in family businesses are a unique fusion of ownership, strategic influence, concern for family relationships and a dream of continuity. Understanding family businesses entails understanding the ‘family factor’, more specifically family ownership, involvement, commitment, values, vision, self-perception and succession.

When addressing the family in the family business one needs to be sensitive to the way families define themselves as there is a great deal of boundary ambiguity, which can be navigated only via the family’s personal definition of family. Family influence in family businesses may vary from one-sided control of the strategic direction of the business to one where strategic control is left entirely in the hands of professional management.

A family first philosophy or a business first philosophy may work well or fail, as a function of the changing demography of the family, and the environment in which the business operates. As both the family and business grow what is needed is not an enmeshment but a philosophy that mediates between a family first or business first approach offering a more balanced framework for decision-making and planning.

Families share common goals and resources. As generations are added, the family business will have multiple family systems to consider. Each will have its own background, values, goals and development, but they are interconnected as a larger family system, as well as a family business.

The family and business are not necessarily compatible and the family factor may impose costs and liabilities. Family, ownership and business clearly involve different and sometimes conflicting values, goals and actions and in a family business individuals may have multiple roles and priorities. Problems may arise from the unwillingness of family members to monitor, evaluate and discipline other family members such as in the case of nepotism. In other situations the family business may be more insular and self-interested than non-family businesses as outsiders are not trusted and seen as potential competitors and enemies. Family members may not always be able to supply the business with enough talent, for example, in businesses that require highly specialised knowledge of technology and markets.

The family factor when invested in and harnessed well is a source of competitive advantage. This occurs when the family business puts high priority on the human capital, emotional capital, social capital and financial capital. On human capital one may say that family members are motivated, committed, flexible and have been socialised and trained early to understand the nature of the family business.

Family businesses have an advantage in building social capital as they have a distinct ability to cultivate and nurture long-standing relations across generations.Social capital enhances value creation in all businesses but in family businesses these advantages are absorbed in family members’ social links and in the family network’s configuration, and therefore are more sustained across generations.

Family businesses have the ability to attract and provide good quality due to the goodwill and trustworthiness generated by the family name and commitment over time to customers. Families leverage their social and professional networks to ease access of valuable resources. Family cohesiveness is central in accessing and generating valuable resources particularly in difficult times.

The total value of the family business to family business owners is the sum of both the financial and emotional value. Family businesses also make non-financial valuations of investments and assets together with financial appraisals. Non-financial values of the family may push the family business to: take an investment diversifying business activity in order to lower total risk, but that at the same time is value driven; make investments in brands or sectors that bring high reputation to the family; hold steadfast in their reluctance to diversify the business portfolio because the founding member started the company in this line of business, expressing legacy value; family business owners may continue to employ workers even through outsourcing would be more financially beneficial.

Family businesses enjoy the competitive advantage of strong trustworthiness if they leverage the interpersonal trust that emerges during the early stages of a family business. As the family business grows this trust needs to be supported with the trust that the family members leading the business are not only willing but capable of performing effectively. Transparency and clear policies also help build trust as the family business enters the stages of sibling partnerships and cousin collaborations.

Communication is a vital ingredient in re-vitalising collective identity and interpersonal trust.

About the Author - Roberta Fenech is a freelance Occupational Psychologist currently

reading for a PhD at the University of London