Dirk R. Dreux and Bonnie M. Brown
Family businesses, whether private or public, are a major component ofthe global economic system. Since shares tend to be closely held, theseowners constitute a unique private…
Abstract
Family businesses, whether private or public, are a major component of the global economic system. Since shares tend to be closely held, these owners constitute a unique private banking market of highly concentrated wealth that has, to date, been undeserved. Given the pending, worldwide retirement of the Cold War generation, many of these businesses will either recapitalize or change hands, liberating a great deal of previously illiquid capital as well as destabilizing many historical financial relationships. Beyond this significant temporal opportunity, family‐owned businesses constitute an important and ongoing market for service providers of all types. Critical to the success of any marketing effort directed towards these businesses will be the overt recognition of the unique and eclectic characteristics of the enterprises themselves and the families that control them. Traditional relationship management practices will not prove sufficient. Successful entities will re‐examine their historical, product‐driven sales tactics and reorganize them into actual marketing strategies based on the needs, issues and characteristics of the family system client. Entities that ignore these differentiating elements are likely to experience significant frustration as well as missed opportunities, as this emerging market reaches full flower.
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Eric L. Teksten, Steven B. Moser and Dennis J. Elbert
Today the governance and management structure of business organizations, particularly publicly traded corporations uti lizes a board of directors. Organization use of boards of…
Abstract
Today the governance and management structure of business organizations, particularly publicly traded corporations uti lizes a board of directors. Organization use of boards of directors is considered an openly accepted and utilized structure to provide leadership and management direction in business organization. Because large public companies recognize the value to the corporation and because of the increased regulatory requirements placed on publicly traded companies, the use of boards of directors are strongly endorsed. For small businesses and privately held companies, however, a board of directors is not always viewed as a useful part of the corporate structure. This paper reports on the results of a study which focused on the board functions and operations of small privately held corporations. A survey of 180 small, of ten family owned, non‐public corporations was conducted in one Mid western state. The study corroborated the expanding body of literature suggesting the lack of formality in board functions for small privately held companies. Critical factors influencing board function and action included needs of the company, abilities of the directors, sophistication of ownership and management, as well as life cycle stage, percent of family ownership and trading status of the corporation’s stock.
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Carlo Salvato, Francesco Chirico and Pramodita Sharma
In this chapter we investigate the role of family-specific factors in facilitating or constraining business exit in family firms. Family business literature seems to have an…
Abstract
In this chapter we investigate the role of family-specific factors in facilitating or constraining business exit in family firms. Family business literature seems to have an implicit bias toward continuity and persistence in the founder's business. This is explained by heavy emotional involvement and development of path-dependent core competences over generations. However, several long-lived family firms were able to successfully exit the founder's business. Exit allowed them to free significant strategic resources, which were later reinvested in exploiting novel entrepreneurial opportunities. Our aim is to investigate the process of exit from the founder's business in family firms, to explain both triggers and obstacles to decommitment and de-escalation. We address this issue through the study of the Italian Falck Group's exit from the steel industry in the 1990s, followed by successful startup of a renewable energy business. By carefully triangulating different data sources and different voices within and outside the controlling family, we develop a framework describing family-specific facilitators and inhibitors of business exit, and subsequent startup of a new business. Three types of family-specific factors emerge as relevant in shaping a family firm's likelihood and speed of exit from a failing business: family-related psychological triggers and obstacles to business exit; family-specific components of the structural de-escalation context; family responses to ensuing de-escalation and exit needs. The emerging framework offers a more nuanced interpretation of decommitment activities in family firms, pointing to the differential role family-specific factors may play as facilitators or inhibitors of business exit. We also suggest how these family-specific results may contribute to a deeper understanding of exit in nonfamily firms. Our results also have practical implications for family business entrepreneurial management. Actively managing the different determinants of exit choices that emerged from our study will set the stage for de-escalation from a failing course of action – a dynamic capability all family firms should learn and practice if they intend to transfer their entrepreneurial orientation to next generations.
Rocío Arteaga and Alejandro Escribá-Esteve
This research is aimed to better understand what characteristics of family firms create a context in which family governance systems are more frequently adopted.
Abstract
Purpose
This research is aimed to better understand what characteristics of family firms create a context in which family governance systems are more frequently adopted.
Design/methodology/approach
We analyse a sample of 490 Spanish family businesses using cluster analysis, and we identify four different types of family businesses whose characteristics are associated to the adoption of different family governance systems, i.e. family councils and family protocols. The comparison between clusters of the baseline parameters was performed using one-way analysis of variance (ANOVA) for parametric variables, the χ2 test for parametric variables and Kruskal-Wallis for nonparametric variables. By conducting between-profile analysis of covariance (ANCOVA), we tested for differences in the dependent variables (i.e. the existence of family councils and/or existence of family protocols) between the clusters, using cluster membership as the independent variable.
Findings
Taking into account the characteristics of family firms in terms of ownership structure, management involvement, and family and organizational complexity, we identify four different contexts that create different communication needs and are related to the use of different family governance mechanisms. We characterize the different contexts or types of family firms as: founder-centric, protective, consensual and business-evolved. Our findings show that family protocols are associated to contexts with high family involvement in management and family complexity, while family councils are more frequent when there is a separation of managerial and ownership roles and there is a high organizational and family complexity.
Research limitations/implications
The study highlights the value of social systems theory in order to explain the association between the characteristics of different firm types and contexts, and the use of family councils and family protocols to govern the relationship between the owner family and the business.
Practical implications
Family governance mechanisms are widely recommended by practitioners and scholars. However, they are usually adopted only by a small percentage of family firms. This study helps to better understand what family governance systems may be more appropriate in different contexts and relativize the necessity of these governance mechanisms in function of the communication needs created within each context.
Social implications
The improvement of family governance mechanisms helps to increase the likelihood of survival and durability of family firms. These firms contribute to more than 60% of employment in most developed countries. Consequently, good governance in family firms has social implications in terms of labour conditions and stability.
Originality/value
Most family firms don't use family protocols or family councils to govern the relationship between the owner family and the firm. However, little is known about the reasons for this lack of structuration of the family-firm relationship. Using social systems theory, our research contributes to better understand the conditions in which business families are more prone to use structured forms to manage this relationship, as well as the reasons that may be constraining their adoption.