Good Example Of Family Business Essay

Type of paper: Essay

Topic: Family, Company, Business, Family Business, Relationships, Management, Control, Ownership

Pages: 7

Words: 1925

Published: 2020/10/05

E. Hoover and C. Hoover (1999, 1-2) stated that family business was primarily that of relationships. It is a consensual opinion that relationships between family members remain the focal factor in the failure or success of family ventures. What do pose the biggest threat to the survival and success of family ventures in the long term are the relationships among chief players, such as family members, rather than the external environment or commercial ecosystem composed of competitors, clients, and technologies. According to Massachusetts Mutual Life Insurance Company (2012, 2), family enterprises are companies whose success depends on communication, trust, work and life balance, and planning. All of these categories can ensure the successful operation of the company if there is a harmonious relationship between family members.
E. Hoover and C. Hoover (1999, 1-2) summarized that a family business is any venture, wherein family relationships and business have an essential effect on one another. The members of a family are mutually dependent from an economic perspective, and there is a direct correlation between the quality of family relations and business. The concept also implies a series of situations ranging from multigenerational family ventures that incorporate hundreds of family proprietors to single generation enterprises founded whether by cousins and siblings or a husband and a wife who run the business (E. Hoover and C. Hoover 1999, 3-4). Bennedsen, Perez-Gonzalez, and Wolfenzon (n.d.) also stated that family business owners participating in formal governance institutions like the board or management needed to be family members, whether through marriage or blood. As for the ownership type, family businesses, according to Harris (n.d.), are privately owned enterprises.
Poza (2010) suggested that family companies excel nonfamily analogues in terms of performance when measured by benchmarks like value creation for stakeholders, job generation capacity or the bottom line. Family-run and family-possessed ventures employ idiosyncratic strategic business approaches prioritizing advantages, such as flexibility, speed, sustainability, the quality of services and products, employee care, brand, patient capital, and client relations. Family enterprises encounter significant challenges; still, they have inimitable advantages that stem from the dynamic and unique family-business interaction. Differentiating companies other than family businesses from their family-possessed counterparts is the relationship between the family and its business. The point is that family members exert the guidance as stakeholders and managers.
The working definitions of the family business concept implies a number of key characteristics. Two or more family members or families are in possession of a minimum of 15% of assets. Family members have a strategic influence on the management of the company by serving as the members of the board of directors, advisors to the management, being active stakeholders, actively participating in management, and continuing to shape the corporate culture. The participants of family ventures have concern for family relations and a dream about the continuity of the business across multiple generations. There are four defining features of the entity of family business distinctiveness. One of the key traits is the presence of a family. Ownership, family, and management overlap with win-lose propensities, which, failing company growth, make the venture vulnerable during succession. Given a high family unity, the interaction of management, family, and ownership can generate competitive advantage in the form of long-term investment horizon. The fourth trait is the dream of retaining the venture within the family cherished by proprietors. The aim is for a business to be passed on to the next generation on a continued basis (Poza 2010, 6). Bennedsen, Perez-Gonzalez, and Wolfenzon (n.d.) also claimed that a family company must retain control and ownership privileges across generations.
Villalonga and Amit (2004) noted that a minimal threshold of company control should not be lower than 20%. Family members need to be the biggest vote or shareholders in the company. There is the need of it being run by family directors or officers. Family members have to be second or later generation company owners. Bennedsen, Perez-Gonzalez, and Wolfenzon (n.d.) stated that the amount of control exerted by family members must be equivalent to their share of ownership. Villalonga and Amit (2008, 3057) suggested that family- or founder-controlled companies are the ones, in which the founder or a family member by way of either marriage or blood is a shareholder, a director or an officer, whether as a group or individually. There may be founder-controlled or first-generation ventures and family firms proper that are later-generation companies. The individual legitimately considered the founder is responsible for the early growth as well as development of the venture or a predecessor company into the business that gained recognition at later stages. Such person does not necessarily have to be the one who launched and incorporated the business or the one who took it public in his or her time. That predecessor companies were incorporated into the definition of family businesses demonstrates that companies emerging as a result of a merger with such company or the acquisition thereof also fall under the category of family- or founder-controlled companies (Villalonga and Amit (2008, 3058).
Caspar, Dias, and Elstrodt (2010, 2) claimed that family businesses were the family-run companies that succeed on condition that they meet two interrelated challenges, such as the achievement of a strong business performance and the ability of retaining family commitment to and the capability of operating uninterrupted as the proprietor. Synchronized must remain critical dimensions like the harmonious relationships in the family and understanding the way family needs to be engaged in the business, a dynamic business portfolio and a strong company governance, an ownership structure that provides enough growth-required capital allowing the family to exert control on the principal components of the business. One should not disregard the relevance of charitable foundations to boost family values across multiple generations and the professional management of wealth (Caspar, Dias, and Elstrodt 2010, 2).
According to Raymond Institute (2003), family enterprises are an indispensable factor in the viability of the American business. While looking to gain superiority in the building of businesses, the development of skills, and identification of marketplace needs, every Americans generation passed its acquired skills and businesses to children. The tradition now acts as a basis for the economic stability, inventiveness, and the commitment to community distinguishing family companies (Raymond Institute 2003). It follows therefrom that the defining features of family companies are their contribution to the economy, the development of creativity, and hereditary nature. Massachusetts Mutual Life Insurance Company (2007, 3) also suggested that family enterprises were the source of consistent innovation.
Raymond Institute (2003, 7) went on to admit that family businesses were for the most part big ventures avoiding debt, founded around 1959 at the average, having senior managers nearing their retirement age, and employing an average of 50 workers on a full-time basis. There is a strong likelihood of family members being named successors to a company. The increasing management role for women, the co-management by chief executives, and the greater degree of commitment on the part of the senior generation are also among the major defining trends of family businesses in America (Raymond Institute 2003, 13). Elizabethtown College (2013) suggested that family enterprises were companies responsible for the greater generation of employment, the return on assets, and GDP production, as opposed to nonfamily ventures. These are the principal features that define the nature of family enterprises in the USA; still, it is safe to admit that the country sets the tone for family-run business worldwide as a role model country.
Shanker and Astrachan (1996) stated that a business with a significant degree of family involvement has at least one member of the family in the managerial capacity, with numerous generations working in the company and possessing it (cited in Astrachan, Klein, and Smyrnios 2002, 47). Astrachan, Klein, and Smyrnios (2002, 47) noted that a family can exert influence on the business through the extent of its involvement in governance, ownership, and management. Klein (2000, 158) suggested that a family can exert its influence given that it is in possession of the complete stock. If not, the influence through management or corporate governance can be compensatory (cited in Astrachan, Klein, and Smyrnios 2002, 48). Barach and Ganitsky (1995), Birley (1986), Heck, Scannell Trent (1999), and Ward (1987, 1988) stated that a family company could be considered such if there is a transfer of company possession to the next generation of owners (cited in Astrachan, Klein, and Smyrnios 2002, 49).
Daily and Thompson (1994) were of the opinion that at least one generational property rights handover should take place in order for an enterprise to be deemed as a family business (cited in Astrachan, Klein, and Smyrnios 2002, 49). Klein (2000) opined that family business was an enterprise run by its founder (cited in Astrachan, Klein, and Smyrnios 2002, 49). According to Astrachan, Klein, and Smyrnios (2002, 49), all of these authors seem united under the conviction that succession is what adds significant and indispensable business-related experience to a family company along with its members. During the transition from the first to the second generation, the degree of experience acquired by family members is at its greatest.
McConaughy, Walker, Henderson, and Mishra (1998) stated that any company managed by a founder or a founding family member can be regarded as a family business (cited in Miller, Le Breton-Miller, Lester, and Cannella 2007, 831). Anderson and Reeb (2003), Cronqvist and Nilsson (2003), Faccio and Lang (2002), La Porta, Lopez-de-Silanes, and Schleifer (1999), Smith and Amoako-Adu (1999), and Barth, Gulbrandsen, and Schone (2005) also argued that a founder or any member of the founding family has to possess a fraction of the business or act as a board member (cited in Miller, Le Breton-Miller, Lester, and Cannella 2007, 831). Bennedsen, Perez-Gonzalez, and Wolfenzon (n.d.) stated that the one in possession of the family must be a significant fraction of shares.
Still, as per some definitions, the ownership monopoly rests entirely with a single family. Jernigan and Lord (n.d.) claimed that a family business was regarded as being any business controlled and owned by a single family. According to Miller, Le Breton-Miller, Lester, and Cannella (2007, 831), some studies claim that, in order for a company to be considered a family business, numerous members of the same family over a certain period need to run or possess the venture. Bennedsen, Nielson, Perez-Gonzalez, and Wolfenzon (n.d.) defined family companies as run by chief executives in blood relation to the founder or the principle owners of the enterprise (cited in Miller, Le Breton-Miller, Lester, and Cannella 2007, 831).
Allen and Panian (1982) noted that members of a descendant family and their affines, or relatives by marriage, must possess or control a minimum of 5% of voting stock in a corporation as well as a presence in the board (cited in Miller, Le Breton-Miller, Lester, and Cannella 2007, 832). Anderson and Reeb (2003) agreed that the members of the founding family must be in the board and have a fractional equity ownership of the business (cited in Miller, Le Breton-Miller, Lester, and Cannella 2007, 832). Ang, Cole, and Lin (2000) opined that a founding family must be in possession of more than a half of company shares (cited in Miller, Le Breton-Miller, Lester, and Cannella 2007, 832). As seen from the above, board presence and the possession of voting stock along with the lion’s share of company shares by the descendants of the founding family, their blood or relatives by marriage allow considering the company a family business.
Handler (1989) claimed that the definitions of family ventures could be subdivided into three broader groups (cited in Bennedsen, Nielsen, and Wolfenzon n.d.). Barry (1975), Lansberg, Perrow, and Rogosky (1993), La Porta, Lopez-de-Silanes, and Schleifer (1999) noted that the combined amount of company ownership defined family businesses (cited in Bennedsen, Nielsen, and Wolfenzon n.d.). Davis (1983) suggested that there was an overlap between a company and a family, that is to say, family members take an active part in enterprise activities (cited in Bennedsen, Nielsen, and Wolfenzon n.d.). Ward (1987) argued that the transfer of the company through generations was the defining characteristic of family businesses (cited in Bennedsen, Nielsen, and Wolfenzon n.d.). Rosenblatt, de Milk, Anderson, and Johnson (1985) provided definitions synthesizing these three underlying features of the family business (cited in Bennedsen, Nielsen, and Wolfenzon n.d.).
Family business owners may be both the members of the founding family in blood relation to the founder and relatives by marriage. The major feature of family business remains its transfer from generation to generation. Company founder or family members do not have to possess all company assets. Despite some scientific interpretations passing company possession into the hands of the sole proprietor, a joint ownership is a legitimate option, with family members in possession of a certain fraction of assets. Thus, as studies suggest, a family company is not necessary to be owned or controlled by a single family, it can be owned by a number of related families such as the case of sons of woman who is a shareholder of the company; they eventually will be owners of the company. Overall, a family company is a family-run and owned enterprise transferred from generation to generation and built on relationships, as requisites of success. Such companies may be co-owned by family members and unrelated individuals on the condition that there is the presence of family members in the board, their participation in decision-making, and possession of the essential number of assets.


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