A family business is a commercial organization in which decision-

making is influenced by multiple generations of a family, related by

blood or marriage or adoption, who has both the ability to influence
the vision of the business and the willingness to use this ability to
pursue distinctive goals.

 A sole family has to own the majority percentage of the ownership

 Has to have control over the voting system.
 Possess power in strategic decision-making.
 Multiple generations of that single-family have to be involved in that business.
 The same family has to draw the senior management of that firm.

A family business is of utter significance in the economy of a country. It is one of the oldest
economic systems with a substantial contribution to the GNP or Gross National Product of a
country, total export, and total employment.

What are the advantages of a

family-run business?
There are many advantages to running a family business, such as:

Stability
The leadership of a family business is normally determined by the position of each
individual in the family. As a result, there is generally longevity in leadership, which
ensures overall stability within a family-run business. In many family-owned
companies, the business leader will stay in the position for many years, with life events -
such as illness, retirement or death - being the trigger for change at the top.

Commitment
Family firms tend to have a greater sense of commitment and accountability at their
heart than non-family firms, as it is not just the needs of the business at stake, but the
needs of the family too. This desire for both the family and business to stay strong
fosters additional benefits, including a greater understanding of the industry, the
organisation and the job; stronger customer relationships; and more effective sales and
marketing.

Flexibility
Working in a family-run firm requires a lot of flexibility. While non-family businesses
tend to have very clearly delineated responsibilities for every role, family members will
sometimes be required to wear several different hats, taking on tasks outside of their
formal remit where needed.

Long-term outlook
Non-family firms draw up their goals for the next quarter. Family firms, however, think
years - or even decades - ahead. A longer-term perspective is a good way to foster a
culture of clear strategy and decision-making throughout the business.

Decreased cost
Economic downturns and other challenging times can be a struggle for many
businesses, where the board of directors needs to work out how to keep the business
afloat while still paying staff. In family firms, however, it will often be the case that
family members are willing to contribute financially to keeping the business afloat
during times like these.

It may be that this involves taking a temporary pay cut, contributing some of their own
finances, or pausing the payment of dividends while the company gets back on its feet.
For the family behind the business, long-term business success is crucial to their
financial survival, which gives more flexibility where finances are concerned.

What are the disadvantages of

family-run businesses?
While it is clear that there are plenty of benefits to family-owned companies, they also
have their downsides:

A lack of family interest

In a family business, there can be a great deal of pressure on future generations to keep
the business going, even if they have no real interest in doing so. This can result in a
workforce - or worse, a management - consisting of family members who are apathetic,
unenthusiastic and disengaged.
In any other business, it is likely that such an approach would see employees having
their contracts terminated. In a family business, this is more of a challenge.

Conflict between family members

The dynamic between different family members, family (and business) history and a
blurred boundary between family life and work life can all cause conflict within any
family-run business. And the family connections can often make such issues difficult to
resolve.

When Dhirubhai Ambani, founder of Indian petrochemical manufacturing company

Reliance Industries, died in 2002, he left no will. His older son, Mukesh, was made
chairman and managing director, while younger son Anil became vice-chairman. The
feud between the two brothers became public and, in 2005, their mother demerged the
company, leaving Mukesh in charge of the petrochemical business, and Anil responsible
for Reliance Energy, Reliance Communications and Reliance Capital.

A lack of structure
Family businesses rely firmly on trust - but trust alone may not be the best way. It is still
vital to take rules seriously - both internal rules, and external corporate law.

In 2008, Samsung Group chairman Lee Kun-Hee was forced to hand in his
resignation after being convicted of tax evasion, in addition to being investigated for
selling stock to his son at unfairly low prices - demonstrating how good structure and
management can make an enormous difference.

Nepotism
Some family businesses can fall into the trap of promoting family members to senior
management roles, even when it may be clear that the individuals within these roles do
not have enough education, experience or skills to fully embrace their responsibilities.
In these situations, it would be far more sensible to place more qualified non-family
members in these positions - but is this possible without causing friction within the
family?

While it can be a challenge to balance family relationships and expectations with finding
the right person for the job, a lack of competence at a senior level can have a huge
impact on a company’s success, as well as on talent retention.