3 minute read

Family Business

Mutual Acceptance Of Roles, Agreement To Continue The Business, Propensity Of A Successor To Take Over

The family business has arrived into its own as a distinct enterprise with unique concerns and issues. In the broadest sense, a family business is an enterprise where family members have influence over strategy and major policies, maintain the intention of keeping the business in the family, own significant portions of stock, and sit on the board (Shanker and Astrachan 1996). Other criteria for a family business include that the founder, or the descendants of the founder, still run the company on a daily basis, and where multiple generations participate in daily operations, and have significant management responsibilities (Holland and Boulton 1984).

Employee-owned businesses vary in their size and type. Sole proprietorships as family businesses represent upwards of 17 million organizations in the United States, 10 percent of which are family farms (Shanker and Astrachan 1996). A sole proprietorship is owned by a single person with other family members likely to help out. Partnerships owned by two or more people represent 1.5 million organizations in the United States (Neubauer and Lank 1998). Private corporations owned by three or more people in the family represent 3.8 million organizations in the U.S., and employ numerous family members with multiple generations (Shanker and Astrachan 1996). Of more than 21 million family-operated companies, over 11,300 have publicly traded stock (Shanker and Astrachan 1996). Examples of family-owned international businesses abound: Tetra Laval, the Wallenberg group, and H&M (Sweden), Hermès, Michelin, Bic, Marie Brizard, and L'Oréal (France), Tata (India), Kuok Group (Hong Kong), Seagram and Bata (Canada), Fiat, Ferrero, Barillo, Beretta and Benetton (Italy), Lego (Denmark), Caran d'Ache, SGS, and André (Switzerland), C&A (Netherlands), Bahlesen (Germany), Kikkoman ( Japan), Claroen Pokphmd (Thailand), and the Rothschild banking family. Estimates of contribution to the global Gross Domestic Product (GDP) from international family businesses is up to 70 percent throughout the non-communist world (Neubauer and Lank 1998). Thus, family businesses can range from a "mom and pop" enterprise with fewer than twenty employees to one that is significantly larger, such as the Coors Brewing Company, to even larger multinational corporations. Perhaps more importantly, these businesses also have a significant impact on the global economy.

Among the most emotionally wrought issues in a family enterprise is who will be the successor to the business. Succession is the transfer of ownership and control to the next generation (Churchill and Hatten 1987; Ward 1987; Goldberg 1991). Succession planning involves efficiently and fairly distributing assets from older to younger generations, passing control of the business in a way that will ensure effective business leadership, and maintaining and promoting family harmony. An assumption of succession is that all parties to the process are satisfied with the outcomes of the process itself (Stempler 1988). Because the rate of succession for family businesses is low—30 percent of family firms are passed from the first generation to the second and 10 percent survive to be passed onto the third generation—it is important to understand how the family business works and what will determine whether or not the business will be successfully passed onto the next generation. Of particular interest to those who study family business succession is how family members who have a business manage conflict, as this is considered to be a key to surviving the succession process.

Because continuity is a unifying concern among all members, succession is considered the ultimate test of a family business (Gersick et al. 1997; Le Van 1999). Thus, conflict can be perceived either as the ultimate threat or ultimate opportunity for a family enterprise. Conflict is a disagreement between two or more interdependent parties who perceive incompatible goals, scarce resources, and interference from others in achieving their goals. Therefore, as part of the succession process, family businesses need to be aware of the five points in which conflict is most likely to occur: (1) the mutual acceptance of roles; (2) the agreement to continue the business; (3) the propensity of a successor to take over; (4) the propensity of an incumbent to step aside; and (5) succession planning.

Additional topics

Marriage and Family EncyclopediaFamily Theory & Types of Families