Author Inc The Family Firm Institute Isbn 9781118730928 File size 16MB Year 2014 Pages 192 Language English File format PDF Category Family and Friendship A thorough explanation of how family enterprises work The family enterprise whether an operating business a family office or both is the backbone of the US and international economies These enterprises cut across industries and geographies and can be first generation entrepreneurial companies or multi generational businesses with famil
Author : Inc The Family Firm Institute
ISBN : 9781118730928
Year : 2014
File Size : 16MB
Category : Family and Friendship
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Understanding Families in
Business and Families of Wealth
THE Family Firm
Cover image: texture © iStockphoto.com/gaffera; leaves © iStockphoto.com/hugbee
Cover design: Wiley
Copyright © 2014 by The Family Firm Institute, Inc. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
Family enterprise : understanding families in business and families of wealth /
The Family Firm Institute, Inc.
pages cm. — (Wiley finance series)
ISBN 978-1-118-73092-8 (cloth); ISBN 978-1-118-73098-0 (ePDF);
ISBN 978-1-1187-3091-1 (ePub)
1. Family-owned business enterprises. I. Family Firm Institute.
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
Family Enterprise: Understanding Families
in Business and Families of Wealth
Defining Family Enterprise
Family Business Review article: “From Longevity of Firms to
Transgenerational Entrepreneurship of Families: Introducing
Family Entrepreneurial Orientation”
Assessment Test 1
Classic Systems of a Family Enterprise
The Family System
The Ownership System
The Enterprise System
Assessment Test 2
Representative Governance Systems
in Family Enterprises
Family Governance: Family Council
Owner Governance: Ownership Forum
Assessment Test 3
Key Characteristics of Family Enterprises
Comparison of Family Systems and Enterprise Systems
Assessment Test 4
Concepts in Family Enterprise Study
Systems Thinking: A Very Brief History
Systems Thinking: The Individual in the System
Relevant Systems Concepts: Triangles,
Scapegoat(ing), Homeostasis, Boundaries
Content and Process
Family Business Review article: “Using the Process/Content
Framework: Guidelines for the Content Expert”
Assessment Test 5
Theoretical Frameworks in Family Enterprises
The Three-Circle Model
The Developmental Model
The Balance Point Model
Assessment Test 6
Core Professions Working With Family Enterprises
Differing Perceptual Filters
Understand the Differences Among the Core Professions
Assessment Test 7
Multidisciplinary Professional Teams
Types of Teams
Challenges Teams Face
Family Business Review article: “The Effects of Goal
Orientation and Client Feedback on the Adaptive
Behaviors of Family Enterprise Advisors”
Assessment Test 8
Applying What You Have Learned
Suggested Readings From Family Business Review:
Journal of the Family Firm Institute
About the Website
About The Family Firm Institute, Inc.
About the Authors
his book, which is the result of years of research and education undertaken
by the Family Firm Institute, Inc. (FFI), would not have been possible
without the intellectual collaboration and steadfast support of numerous
individuals. A special debt is owed to the many members of FFI who, since
2001, have contributed to the rich body of knowledge contained herein—
most especially the chairs of the Body of Knowledge Committee—Fredda
Herz Brown, Karen Vinton, Mark Voeller, and Frank Hoy.
With regard to this book, we particularly want to thank co‐authors
Judy Green and Jane Hilburt‐Davis whose leadership in the field of family
enterprise advising and consulting is legendary—Judy as the president of FFI
and Jane as FFI chair emeritus and curriculum developer for the FFI Global
Education Network (GEN).
Thanks are also due to Paul Karofsky, who supplied the work on the
cases that appear here and has provided advice and input at key stages in the
development of this project.
We also want to thank John Davis, Dennis Jaffe, Cary Tutelman, and
Larry Hause for permission to use their intellectual models included as part
of the course.
Thanks are also due to Karen Shea of Karen Shea Design for her work
on the graphics.
Family Firm Institute
Family Enterprise: Understanding
Families in Business and
Families of Wealth
t would not be an exaggeration to say that family enterprises are as ubiquitous as they are complex. Indeed, family enterprise is as old as humanity
itself, at least in an anthropological sense. Members of families have been
working together—and coming into conflict with one another—for millennia.
Of course things have changed considerably since the days when
collaboration within families was simply oriented toward securing basic
necessities. Today, under the imperatives of global supply chains, markets
without borders, and economic interdependence, family enterprises have
become powerful, and complex engines of a world economy. Many of the
world’s largest businesses, such as Wal‐Mart, Samsung, and Tata, as well
as hundreds of thousands of small to medium‐sized enterprises, are family‐
owned and major drivers of economic output across the globe.
The purpose of this book is to clarify the complex nature and functioning of contemporary family enterprises for a wide variety of professionals—
both inside and outside the family enterprise, providing an informative and
cutting‐edge multidisciplinary approach to the understanding of and advising to family enterprises worldwide. Although focused on the professionals
in the family enterprise field, it is our hope that this information will also be
useful for owners and members of family enterprises.
The book is divided into nine chapters, each of which presents essential
knowledge and methods central to understanding classic approaches and
current trends in the field.
The discussion begins with the challenges and opportunities peculiar
to defining what, precisely, constitutes a family enterprise. While various
definitions are explored and assessed, this book defines family enterprises as
those with two or more members of a family involved in the ownership and
business of the enterprise.
The second chapter focuses more explicitly on the classic systems of a
family enterprise. Three systems, in particular, are emphasized, namely, the
systems unique to the family, the ownership, and the enterprise.
The third chapter explores representative governance systems in family
enterprise. Not surprisingly, family enterprises deploy a variety of governance systems that encompass family, ownership, and enterprise.
The fourth chapter highlights the key characteristics of family enterprise, including optimism, loyalty, competitiveness, innovativeness, legacy,
and commitment, among others.
Chapter 5 explores relevant concepts in family enterprise study. Systems
thinking and process and content, in particular, are elaborated in some detail
and applied in the context of family enterprise.
Chapter 6 offers useful theoretical frameworks for analyzing and understanding family enterprises. Specifically, the three‐circle model, the developmental model, and the balance point model are considered at some length.
Chapter 7 outlines the core professions most likely to engage in work
with family enterprises, while Chapter 8 closes with a discussion of the importance of deploying a multidisciplinary team approach to address the challenges and opportunities facing family enterprises in today’s globalized world.
Chapter 9 concludes the book with three actual cases in family enterprise. In this way the book affords readers the occasion to apply what has
been learned by engaging the real world challenges and opportunities characteristically faced by those working with and within family enterprises.
Each chapter is designed to engage with relevant graphics, illustrations,
and examples, as well as suggestions for further reading. Additionally, each
chapter concludes with a brief self‐assessment.
Taken in its entirety, this book provides a toolkit of multidisciplinary
concepts, methods, examples, and assessments directly applicable to, and of
use for, those engaged in the work of family enterprise. With family enterprises constituting between 65 to 80 percent of all businesses engaged in
today’s global economy, it is clear that providing such a toolkit is essential
not only to the success of family enterprises and the professionals who work
with them, but also to the future prosperity and well‐being of the world’s
economy and the many individuals who are employed within it.
Defining Family Enterprise
ound virtually in every sector of the world’s economies, family enterprises
are the most common form of business entity in the world. Yet, their
ownership, management, and family composition create a complexity that
requires special knowledge and skills in order to understand them and to
advise them effectively.
Indeed, perhaps one of the most discussed issues in the field today is
how to define a family enterprise. There is no one definition for family
enterprise, but there are a few working definitions that have evolved over
Family firms are those in which multiple members of the same family are
involved as major owners or managers, either contemporaneously or over
time (Miller, Le‐Breton Miller, Lester, Canella, “Are Family Firms Really
Superior Performers,” Journal of Corporate Finance, Vol. 13, Issue 5, 2007).
Family firms are those in which the family controls the business through
involvement in ownership and management positions. Family involvement in
ownership (FIO) and family involvement in management (FIM) is measured
as the percentage of equity held by family members and the percentage of a
firm’s managers who are also family members (Sciascia and Mazzola, Family
Business Review, Vol. 21, Issue 4, 2008).
A family enterprise is an economic venture (enterprise group) in which two
or more members of a family (family group) have an interest in ownership
(owners) and a commitment to the continuation of the enterprise.
The family business is a business governed and/or managed with the intention to shape and/or pursue the vision of the business held by a dominant
coalition controlled by members of the same family or a small number of
families in a manner that is potentially sustainable across generations of the
family or families.
A firm of any size is a family business if:
1. The majority of decision‐making rights are in the possession of the
natural person(s) who established the firm, or in the possession of the
Defining Family Enterprise
natural person(s) who has/have acquired the share capital of the firm,
or in the possession of their spouses, parents, child, or children’s direct
2. The majority of decision‐making rights are indirect or direct.
3. At least one representative of the family or kin is formally involved in
the governance of the firm.
4. Listed companies meet the definition of family enterprise if the person
who established or acquired the firm (share capital) or their families or
descendants possess 25 percent of the decision‐making rights mandated
by their share capital (European Union definition 2009).
The first and second definitions identified above are classic academic
definitions articulated and developed by preeminent scholars in the field.
The third and fourth definitions are written by practitioners. While the
first two definitions are primarily descriptive, the third and fourth are more
prescriptive and place a greater emphasis on continuity.
The fifth definition is taken from the final report of the European Union’s
“Expert Group, Overview of Family‐Business‐Relevant Issues: Research,
Networks, Policy Measures and Existing Studies,” November 2009.
In spite of the fact that there is no one definition for family businesses,
this book will define a family business in the broadest terms as one in which
two or more members of a family are involved in the ownership and business of an enterprise. In fact, family, ownership, and enterprise constitute the
three core systems that characteristically inform family enterprises.
Family enterprises are at once the most common and the most complex
form of business entity in the world today. While no single definition
can be said to cover all forms of family enterprise, in the broadest
sense all such enterprises have two or more members of a family involved in the ownership and business of an enterprise.
You have now finished Chapter 1. Before doing the assessments, please
read the following, “From Longevity of Firms to Transgenerational Entrepreneurship of Families: Introducing Family Entrepreneurial Orientation,”
from Family Business Review.
From Longevity of firms to transgenerational entrepreneurship of Families:
Introducing Family Entrepreneurial Orientation
Thomas Markus Zellweger, University of St. Gallen, St. Gallen, Switzerland
Robert S. Nason, Babson College, Babson Park, MA, USA
Mattias Nordqvist, Jönköping International Business School, Jönköping, Sweden
Whereas existing research on the longevity of family firms has focused on the
survival of firms, this article investigates transgenerational entrepreneurship of
families. By building on the transgenerational entrepreneurship research framework,
the authors argue that by shifting from firm to family level of analysis, one gains
a deeper understanding of family firms’ ability to create value across generations.
The authors find evidence for their argument in that such a level shift reveals
extended entrepreneurial activity, which is missed when focusing exclusively on
the firm level. The study introduces and empirically explores the construct of family
entrepreneurial orientation, which may serve as an antecedent to transgenerational
value creation by families.
longevity, family ﬁrm, transgenerational value creation, transgenerational entrepreneurship
John Ward’s (1987) seminal study on family firm succession was the first and still
remains the most influential to put a number to the rate of success in intrafamily
business succession. Family business consultants and popular press journalists
quote Ward’s statistic that 30% of firms survive through the second generation,
13% survive the third generation, and only 3% survive beyond that. The 30/13/3
statistic has been largely unchallenged and moreover seems to suggest that there is
something fundamentally “wrong” with family firms and that they inevitably fall into
the three-generation survival trap. Even though these figures are often misquoted
and misunderstood—for example, it has been shown that the survival rates of
publicly quoted nonfamily firms are by no means larger (Aronoff, 2001)1—earlier
family business research has contributed to this rather depressive image of family
business succession. These studies often view nepotism, preservation of the status
quo, and expropriation of nonfamily shareholders as main rationales for succession within the family (Fukuyama, 1995; Morck, Shleifer, & Vishny, 1988; Morck &
Yeung, 2003). The literature that does focus on successful succession within family
firms concentrates on building a model or identifying variables which can overcome
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