The Family Business Bulletin

A family owner is often a founder of the business. Individuals who compose the family system often serve as a source of slack resources in the early stages of a firm’s development and frequently represent the main labor source. However, non-family managers and employees in the business system often enable a firm to grow over time and can add technical expertise not possessed by family members. The functionality of each of the three systems has an impact on the family business as a whole. Given the interdependent nature of the three systems, conflict in any one is likely to spill over to the other parts. For instance, conflict between family members can lead to contention in the firm if other family and non-family members are forced to choose sides. In addition, family employees may embody differing norms and expectations than non-family employees, which can lead to an “us versus them” mentality. Non-family employees may feel as though they are second-class citizens who lack the pathways to advancement offered to family employees who have grown up in the firm. Tensions can also emerge when family owners who are not employees seek to influence firm decisions.

All this to say, at the heart of family firms lies complexity. Those that successfully navigate this complexity are more likely to achieve superior performance; firms that do not are almost all doomed to failure. Therefore, a recipe for success involves ingredients such as strong family values, sound business practices, and informed and enlightened owners.

Chua, J.H., Chrisman, J.J., & Sharma, P. (1999). Defining the family business by behavior. Entrepreneurship Theory and Practice, 23 (4), 19-39.

Tagiuri, R. & Davis, J. (1996). Bivalent attributes of the family firm. Family Business Review, 9 (2), 199-208.

DATA – The World

How Prevalent are Family Firms Around the World?

by Dr. Jim Chrisman; Myles Melancon (Management PhD student); Tyler Burch (Management PhD student)

One way of watching trends in family business worldwide is to study stock indices. Below, we look at family firms in 37 countries around the world. As you can see, their prevalence has declined recently in the U.S. and Canada but increased in Mexico. Similarly, family firms are growing in Asia but less so in Europe and other parts of the developed world. In advanced economies, family owners are gradually selling their shares to nonfamily individuals and institutional investors. In emerging economies, maintaining family ownership and control is advantageous because it substitutes for the legal systems and property rights protections found in advanced economies, preventing the appropriation of wealth by outside parties. Nevertheless, family ownership and control among smaller firms remains ubiquitous around the world because it provides stakeholders with the lowest costs while exercising the greatest control.

Source: NRG International

INFORMATION – Firm Success

How Do Family Firms Maintain Superior Performance?

The impact of these factors on performance depends on the strength of the firms’ advantages and the seriousness of their disadvantages, how the advantages and disadvantages are used and the extent to which the competitive environment rewards the strengths and punishes the weaknesses.

Until now, no one has studied whether family firms are better able to maintain superior performance once it’s been achieved. Because maintaining superior performance is important for family owners who want to pass on the firm to the next generation, we addressed this research question as one that gets to the heart of what family firms are all about. Based on the idea that the characteristics of family firms make them more persistent and reliable, we expected they would be better at maintaining excellence, and the results of our study showed we were right.

In general, successful family firms have a few “isolating mechanisms” that prevent competitors from duplicating their strategies and critical resources. First, because they have greater discretion to make decisions that best fit the nature of the family and the firm, the ability of competitors to duplicate these strategies and resources is limited. Second, when they generate or obtain resources that create value, they’re more likely to build upon them over time because the owner-manager group is more closely knit and better able to communicate. Thus, family firms are able to maintain superior performance by building consistently and persistently on the historic decisions of their founders.

The funny thing is those tight relationships between family members are not easy to figure out. Their shared history, language and identity create a common managerial mindset that enables them to more easily recognize, assimilate and utilize each other’s knowledge. This makes communication easier and more effective, but complex for outsiders to understand. Even family owners and managers themselves don’t fully understand it. Fortunately, family firms tend to be somewhat conservative and unlike Coke, Budweiser, or Jaguar, less likely to fool around with something that’s working.

The complex networks that family firms build over time have the additional characteristic of inseparability. They gain advantages from sticking together and building on the trust and teamwork that has developed. This is self-reinforcing because the skills of individual family members tend to be more valuable within the family context than somewhere else. The inseparability of family members enhances their willingness to keep the human, social and other productive assets of the firm intact and to plan for their expansion and replacement by the next generation. This is an obvious but powerful advantage because resources that are jointly held by family members are unlikely to be easily imitated or appropriated by other firms.

In conclusion, there’s no universal magic formula for family firm success. However, family firms that learn and build on their history can create social relationships among their members that are not easy to tear apart. They’re more likely to develop their own unique formulas that will lead to superior performance for a very long time.

Adapted from: Fang, H., Kotlar, J., & Chrisman, J.J. (forthcoming). Family control and sustainable competitive advantage.Family Business Review, and, Fang, H., Chrisman, J.J., & Holt, D.T. (2021). Strategic persistence in family business.Entrepreneurship Theory and Practice, 45, 931-950.