Is it better to be in a family business?

Is it better to be in a family business? I ask the question to provoke some thinking.

The answer could easily be “it depends”, but if you are in the second or third generation family line, you are most probably subject to ill feelings, perpetrator or victim of power struggles on wealth or control, or even utterly bored by a state of indecisiveness and more of the same. You would probably answer that you are not better off at all.

The aches in family business management are still unresolved on a global level, and perhaps even more in countries which still have a paternalistic and strong emotional bonding in families that extend beyond their small and close nuclearity. To start with, there still exists a confusion on roles with family members acting as shareholders (or still aspiring to be through inheritance), directors (when occasionally boards function properly) or managers or employees. There is a confusion on where they would like the business to be or where they would like to go, or what they would like the business to represent. They are visibly concerned when one family member starts showing more interest in the business, working longer hours, bringing innovative ideas and venturing the company into new businesses sometimes without the other family members’ knowledge. Concerns are raised even higher when spouses and children get introduced to the business at different levels, usually starting on a casual, part-time level but soon getting permanent roles envied by siblings and cousins.  Alarm bells go when family members start getting banks knocking on their door, and when creditors start phoning family members on outstanding payments.

Confusion and crisis go hand in hand more so in an economic and business environment which are prone to over-trading and the lack of understanding that cash derived from sales is not a measure of wealth and cannot be spent or invested without proper cash and treasury management.

A sad picture of family business indeed which calls for courage and determination for these issues to be addressed. There are a few philosophical and practical questions that expect a reply. Let us start with the philosophical questions first. Do family members (both those involved in the business or the others that are co-owners but distant from the business) ask the question: do I see myself in the business any longer? What do I want out of life? Is it worthwhile sticking to the business for the sake of my children? Am I prepared to admit that there are others that are capable more than me in driving the business forward?

On a practical level, are family members understanding what a business is all about, the importance of vision, strategy and values; the difference between being a shareholder, a director or a manager, and that these determine various levels of authority and responsibility; the need for change as business, industry and markets are fast changing and business models become irrelevant or obsolete; that business today is managed both as an art (creativity, intuition, entrepreneurial flair, leadership), as well as a science (management, finance and accounting).

Where do we start to rectify the problem? There is a need for a mature, objective and professional view by an outsider of the present state of affairs, opening the road towards reflection and discernment. There is the need for effective communication managed patiently and prudently amongst shareholders. There are openings in appropriate (and proportionally feasible) corporate governance structures and systems, but these must be introduced slowly but firmly. Beyond all this, plan for an exit clause which provides a breather for those family members who are seriously thinking of leaving.

About the author(s)

Joseph F.X. Zahra is a Malta based economist with over thirty five years of corporate leadership and business consultancy experience.