CHAPTER 3: FAMILY ENTERPRISE
Family Business – a company that has two or more members of the same family own or
operate together or in succession. Ownership passes through one generation of the family,
to the next.
FAMILY AND BUSINESS OVERLAP
Care and nurturing of family members
Employment and advancement in the firm
Loyalty to the family
Production and distribution of goods and/or services
Need for professional management
Effective & efficient operation of the business
ADVANTAGES OF A FAMILY BUSINESS
1. Firm-specific knowledge: These companies are in a unique position to pass this
knowledge along from generation to generation.
2. Shared Social Networks: Family members bring valuable social capital to the
business when they share their networks with younger members of the family and
thus help to ensure the firm’s future performance.
3. A focus on the long run: Most family managers tend to take a long-range perspective
of the business. 4. Preservation of the firm’s reputation: Because they have a stake in preserving the
family’s reputation, members of the family are likely to maintain higher standards
when it comes to business ethics and ideology.
5. Reduced Cost of Control: Because key employees in a family business are related and
trust one another, the firm can spend less on systems designed to reduce theft and to
monitor employees’ work habits.
DISADVANTAGES OF A FAMILY BUSINESS
Families tend to be stable, while businesses, especially those competing in the global
economy, often face instability
Family seeks to perpetuate traditions, while the business must innovate to prosper
A business must deal with differences in competence and merit
A family is characterized by unity and cooperation, but a business grows through
diversity and competition
For families, loyalty usually trumps opportunity, but businesses are regularly
challenged by opportunities that arise for both the company and its employees
FAMILY BUSINESS MOMENTUM
Organizational culture – patterns of behaviours and beliefs that characterize a specific
Cultural Configuration - total culture of a family firm, consisting of the firm’s business,
family, and governance patterns
The culture of a family firm may be a strategic resource that promotes learning, risk
taking, and innovation.
FOUNDER’S IMPRINT ON CULTURE
Distinctive values that motivate, guide, and help to create a competitive advantage
A special way of delivering customer service
Core values and business ethics permeate the growth
There is also the risk of a negative imprint on culture. For example, narcissism, self-
importance, fixation with success
THE COMMITMENT OF FAMILY MEMBERS
1. Desire-based commitment – commitment based on a belief in the purpose of a
business and a desire to contribute to the firm.
2. Obligation-based commitment – commitment that results from sense of duty or
3. Cost-based commitment – commitment based on the belief that the opportunity for
gain from joining a business is too great to pass up.
4. Need-based commitment – commitment based on an individual’s self-doubt and