Family Firms
Although the family firm itself cannot fairly be described as a management idea, it does embody a number of distinctive features around which has been spun a specific theory about corporate behaviour. Family firms have become big business. They have their own magazine, Family Business, their own specialist community of consultants and their own academic institutions – for example, the Loyola University Chicago Family Business Centre.
The Institute for Family Enterprise at Bryant College in Rhode Island defines a family firm as: An enterprise that has been in the control of a single family since inception. It can be either private or public, so long as family members have an input in the operation and future of the business. Other distinctive features of family businesses include the following. Their age Contrary to the general impression, the average life span of a family firm is less than that of a public company.
Although it is said that it takes one generation to make it, one to enjoy it and one to lose it, few family businesses continue into the third generation. The idea that they live much longer stems from the fact that a number of them have continued in business for a remarkable length of time. Japan’s Hoshi Hotel, for example, claims to have been run as a family firm since 718ad.
Europe’s longest running family businesses come from Italy, where Barovier & Toso, a Venetian glassmaker, was established in 1295 and the Beretta family has been making guns since 1526. The most prolific creator of family firms, the United States, cannot boast such longevity. The Institute for Family Enterprise says that the oldest family firm in the United States is Tuttle Market Gardens, founded in 1636. The Wall Street Journal’s candidate for “oldest family business” in the United States is a company called Zildjian Cymbal.
It did not qualify for the institute’s award, however, because it has spent most of its life in another country. It was founded in Istanbul in 1623 and only relocated to Norwell, Massachusetts, in 1929. A different attitude to growth Many economists believe that family firms, when they reach a certain size, restrain growth. As very small businesses they are ebullient promoters of it, but at a certain stage a sort of sclerosis sets in.
Well-established family firms, for example, often resist mergers and acquisitions for fear of losing control to outsiders, and (maybe) of having the family’s name disappear from over the front door of the company’s headquarters. It is no coincidence that the massive shift that has taken place during the 20th century, from the predominance of the family firm to the predominance of the public corporation, has been paralleled by a shift from a corporate culture in which growth was one of a number of long- term goals to a culture in which it was the predominant goal by far. A survey of American family businesses in 1995 found that those which recorded high growth in turnover were more likely to have:
- international sales;
- a strategic plan; and more than three board meetings a year.
Problems with succession These generally fall into two categories. The first is dealing with members of the family themselves. Who is to be groomed to take over at the helmfi After two or three generations there can be a number of competing cousins, who, if they are not to be groomed for the top, want out. This can create all sorts of problems that a public company does not have to face. To resolve them a new breed of dispute resolution specialists has grown up, most of whom have legal or counselling qualifications. The second problem is how to hold on to good non-family employees who know that the very top seats are denied to them.