Balancing competing values

Carole Howarth, of Lancaster University Management School, looks at the complexities of running a family business – and how they combine the social values of families with the performance values of business

Some liken it to a dance where one partner has to step back to enable the other to step forward. Others have suggested that succession is like a relay race where the team, sequence, training and handing over the baton all have to be agreed and planned well in advance. Whatever metaphor is used, it is clear that succession is a critical juncture in the life of family businesses. The vast majority of family businesses do not survive into the second generation. And yet, throughout the world, many of the longest surviving firms are family owned or controlled. A significant number of them have prospered for three, four or five generations. In Europe, family firms established in the 16th century continue to prosper five centuries later. In Japan, the oldest recorded family firm — founded in 578 AD — is still in existence.

We usually assume that businesses are performance-based whereas families are relationship-based and, therefore, in family businesses, where the two come together, tensions might be expected. For example, businesses aim to control costs, be efficient and increase profits in order to be sustainable and provide a return on investment. Families look after each other and, in particular, weaker members of the family are supported by stronger or more able members. Parents’ altruism towards their children is undertaken out of concern for their welfare and not with the thought of any return. Where this leads to family members being provided with employment in the family business, it gives potential for tensions with non-family members. Where family members are favoured in promotion decisions, non-family employees may be de-motivated because they cannot perceive any prospects for themselves. Parental altruism within family businesses can also lead to free-riding and shirking by sons and daughters.

However, if the business has a strong relationship-based system then there are likely to be fewer competing values and, paradoxically, this can increase longevity and improve performance. Certainly, family businesses are renowned for taking a longer term view than non-family businesses, especially where the family business is not listed and is therefore not subject to the vagaries of the stock markets. What seems to be important is that the ideology of the firm is shared by all and, in the private sector, this appears to be more prevalent in family businesses. Indeed, managers and employees in family businesses often see themselves as stewards, putting the organisation’s interests before their own individual ones. To encourage this, it is important that values and objectives are communicated and discussed. Many family businesses share their history with new employees, customers and suppliers to highlight the values the firm was founded on. This also compounds the long-term perspective and helps employees to buy into the idea that the strategies of the family business will be looking well into the future.

As family businesses succeed from one generation to the next, the ownership structure will change. The most usual progression is from a controlling owner to a sibling partnership to a cousin consortium. As more people are involved in the ownership of the business, complexity increases. Where many people own small numbers of shares, decision-making can be difficult. The change in form and increased complexity which frequently occurs with generational succession usually requires greater formalisation of systems and roles, as generational succession becomes more complex.

Many family businesses have found that setting up a formal family council has helped their business and relationships in the family. This is a formal forum that provides a space for family members to discuss family issues, plans and dreams that may be relevant to the business. Membership and format can be whatever works for a particular family but most business families find it is better that meetings are held regularly and formal roles
are identified. 

Family businesses are particularly interesting because they legitimately combine the social values of families with the performance values of business. Obviously, other types of business and indeed other organisations also have to balance social values with performance objectives. What we learn from family businesses who successfully manage competing objectives can also be applied in other contexts.