Family Business

To begin, what does family business mean? A study of family businesses finds 21 different definitions of family business. The definition that the book takes into account is:
“ A family business is a company in which there are an entrepreneur or next-generation CEO and one or more family members. They influence the firm by their managerial decisions, their ownership control, the strategic preferences of shareholders and the culture and values family shareholders impart to the enterprise.”
Working in a family business can bring valuable benefits compared to nonfamily businesses. However, there are a lot of problems, especially related to the management process of all employees (family members and nonfamily members are not treated in equity for instance.)
We will see in this essay on the one hand that family businesses are generally more efficient than nonfamily businesses and on the other hand the problems related to family businesses.

Family businesses are the primary engine on economic growth. Indeed, they employ more than 75% of the working population over the world and they constitute 80 to 98% of all companies in the world. But, how come family businesses run the world?

Firstly, over the years, a family business acquires know-how on its field. This know-how is transferred across generations.
Thereby, this company will provide goods & services quickly and with a higher quality, according to the knowledge and the skills that this one acquired with the passing years. Moreover, this enterprise will be more competitive, efficient and faster in the production and in the distribution process, which offers a competitive advantage to this one against others companies. Secondly, there is a strong commitment by family members in family businesses. In other words, family members put a lot of themselves in “their” company by working more efficiently and in a better way. In fact, the result of their work influences on the company’s success. Nonetheless, it is not the only advantage: they are also involved in company’s profits although they may accept lower salaries to help the business during a crisis for instance.
Moreover, the reputation of the company makes the reputation of the family. This one wants to protect the family name and its reputation. That is why family members are so involved in the business.

Then, overlapping responsibilities of owners and managers in the same time reduce administrative costs and allow speedier decision-making. The founder of a business will have two tasks: the first one is to control the company, to check if everything is fine or not, etc. The second one is to take decisions and to put in place these decisions for the company’s survey. Therefore, the time between checking and taking decisions is reduced because this task is assigned to the same person.

Finally, family businesses can develop a long-term strategy. Thus, there is a longer-term commitment to investments in people and innovation. There is a kind of stability because this company might be built for future generation. According to the institute for family businesses, the long-term strategy of family businesses may attract external investors because it stimulates the long-term thinking (growth, development and success).

Even though, all the advantages described below may influence our desire to start up a company and then a family business, we find a lot of disadvantages sizeable in this kind of companies. The main disadvantage on a family business is all problems related on the one hand to family and/or on the other hand to business. On other words, family problems may affect the business. Indeed, if there is a divorce between two members of the same family and both are in the company, it will create tensions between them and will affect their investment on work and vice versa.

The second main disadvantage is the nepotism. Members of the family will be treated differently from nonfamily members with better salaries for instance. The blurred system boundaries is an important notion on this book. Emotions can be, sometimes, hard to put aside for the owners (founders) of a business. Family businesses do not apply the rules to family’s members.
Let’s take an example: The Chief Executive Officer is the father and the CEO’s son is a manager. Let’s imagine that the son takes a bad decision for the company. The father who is the CEO may hide this problem whereas if it was just an employee who did this mistake, he probably would have been fired. In fact, “emotions can leads to behaviors and actions that ration thought would seldom support” according to Ernesto J. Poza. There is an absence of clear policies and business norms for family members.
That is why nonfamily workers with high careers aspirations are often reluctant to join a family business because of their future prospects. To finish this part, the third disadvantage is the succession process. The most prevalent reason that the succession process fails is due to a failure in succession planning. The main explanation of this phenomenon is that successors were not prepared well or sometimes successors are just incompetent.
According to the book, we can analyze three different cases: * The conservative case: Older family members try to preserve tradition and resist to changes, especially a strong resistance to ideas and changes proposed by the younger generation. That means that the firm’s strategy is locked in the past because of the tradition; there is a parental shadow that remains on company: * The rebellious case: The new generation destroys or discards traditions instead of going on the same way. That means that maybe the competitive advantage is obsolete. * The wavering case: The new generation is unable to take the best decision against competition.
One figure very important: Only 30% of all new businesses all around the world are transferred to the 2nd generation.

To conclude, we have seen that family businesses are in generally more efficient that nonfamily companies. However, they are facing to a lot of problems, especially problems related about family members. In Ernesto J. Poza’s book, he explained that an alternative of the blurred system boundaries is joint optimization. Thereby, writing policies to involve family members in nonmanagerial tasks is a way of resolving this problem.
As a matter of fact, joint optimization is a way to interrelate the three subsystems, which are ownership, management and family. If a company manages to put successfully these three subsystems in a unified way, the problems may be resolved in somehow because the larger system will be most effective.

Bibliography

* Poza, Ernesto J, (2010) Family Business, 3rd edition, South-Western, a part of Cengage Learning * Institute for family business, http://www.ifb.org.uk * Business Link, http://www.businesslink.gov.uk

Bibliography: * Poza, Ernesto J, (2010) Family Business, 3rd edition, South-Western, a part of Cengage Learning * Institute for family business, http://www.ifb.org.uk * Business Link, http://www.businesslink.gov.uk