The Nature,

Importance, and
Uniqueness of
Family Businesses
(Poza, 2010)
What Constitutes A Family
Business?
• 21 different definitions of Family Business (Chrisma,
Chua, & Sharma, 1996)
• A Family Business constitutes the whole gamut of
enterprises in which an entrepreneur, or CEO, or one or
more family members significantly influence the firm.
• This influence is exercised through their managerial or
board participation, their ownership control, the strategic
preferences of stakeholders, and the culture as well as
the values family stakeholders impart to the enterprise.

• Intention, values, and strategy-influencing interaction of

owners differentiates family businesses from
management-controlled businesses.
Global Family Business
Statistics
• 2/3 of firms around the world are family-owned (Davis,
2010)
• An estimated 70%-90% of global GDP annually is
created by family businesses (Pozo, 2010)
• 50%-80% of jobs in the majority of countries worldwide
are created by family businesses (European Family
Businesses, 2012)

• 85% of start-up companies are established with family

money (European Family Businesses, 2012).
Percentage of Family Businesses in the
Private Sector
Percentage of Family Business Contribution
To National GDP
Percentage of Workforce Employed
By Family Businesses
The Systems Theory Perspective in
Family Business Stewardship
• The Systems Theory proposed in the 1940s by Austrian
biologist Ludwig von Bertalanffy suggests that “systems
interact with their environment and they acquire new
properties through this convergence, thus resulting in
continuous evolution”.
The Systems Theory Perspective in
Family Business Stewardship
A Typology of Family
Businesses

Family First

Joint Management

Family
Optimization First

Business
Blurred
Ownership
System
First
Boundaries
 Family First Business
• Employment in the business is an entitlement and a birth right.

• Since the business exists primarily for the purpose of family,

perks given to family members are extensive.

• A culture of secrecy, tolerance for mistakes, and incompetence

are common.
 Business/Management First
• Likely to actively discourage family members from working in
the business unless they are skilled and qualified to assume
responsibilities.

• May require work experience outside the business as a

prerequisite for employment.

• Personal/Business Spending are separated and wages are

market-based.
 Ownership-First Business
• Applicable for those business where many family members own
sizeable shares but are not actively involved in managing or operating
the enterprise.

• Family members who are not active in the business can get in the way
of effectively operating the firm by pressuring the managers for quick
returns , regular dividend payouts, and enhanced shareholder value
over the short term.

• These impatient and greedy family members do not appreciate the

role of patient capital --- or investing the family business over the
long term.
 Blurred System Boundaries
• These are businesses that are vulnerable to the consequences of blurred
boundaries among the family, ownership, and management subsystems.

• Complex family relationships and sudden emotional upheavals by a

family member can suddenly override the logic used by well-run family
enterprises.

• Can be manifested in the lack of awareness demonstrated by employees

or family members on whether an issue is family-, ownership-, or
management-based.
 Joint Optimization
• Balances the goals and needs of each subsystem in what appears to
be well-orchestrated symphony!

• Joint optimization can be achieved through family forums,

governance bodies, strong cultures, family unity, strategic planning,
fair policies, and solid management practices --- all directed towards
the achievement of a greater good: sustainable family business
stewardship.
The Strategic Perspective: Competitive
Challenges Faced by Family Businesses
• The innovation imperative as a result of shrinking
product life cycles, changing customer Profiles, cutthroat
competition, and globalization
• Maintaining cost competitiveness
• Rapid change in optimum distribution strategy
• Increasing individualism among millennials who view
extended family and legacy building as “alien constructs”
that hold no immediate appeal
• Next-generation members’ fear that the current
generation will not relinquish power anytime soon as a
result of increased longevity
• Growing complexity of corporate, individual, and estate
tax laws complicate succession & inheritance