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   amily-owned
businesses are prevalent throughout the world, accounting for 80
to 90 per cent of all businesses. They are the dominant form of
private enterprise and create the vast majority of the wealth generated
worldwide.
Although many believe family businesses are most likely to exist
in Asian cultures, they are prevalent in developed economies. For
example, in the United States they account for 70 per cent of all
businesses, 50 per cent of gross domestic product and 50 per cent
of the labour force.
Perhaps most surprisingly, 35 per cent of the Fortune 500 companies
are family owned. Therefore, many lessons in strategic thinking
can be derived from understanding how such businesses operate.
Recently we gave a presentation to a group of Asian chief executive
officers in Bangkok at a forum which focused on the issue of strategy
in a family-owned business. A co-speaker was Kelin Gersick, author
of the book Generation To Generation: Life Cycles Of The Family
Business. In both his book and his presentation he discussed
a number of issues critically important to the successful management
of family businesses over the long term.
Family-owned businesses are special, according to Mr Gersick, because
they have unique characteristics. They are value-driven by a family
dream. There is someone in that family who has created a clear business
concept he or she wants to see fulfilled. These people have distant
horizons, always looking to the long term.
The members also have a high degree of trust and commitment because
they fully understand what they are trying to create.
Family-owned businesses are also more complex systems because they
involve many different types of interest groups each attempting
to influence the direction of the business takes but often without
regard for economic consequences.
Such companies, at times, have a set of conflicting norms, which
must be reconciled in order to have continued success. For example,
they are always trying to reconcile tradition and change; the legacy
they want to establish versus the need for continued entrepreneurship;
the values they want to endure versus the need for performance;
and finally, the intimacy family-owned businesses seek versus the
need for a public view of their operations.
Successful family-owned businesses are facing a host of new changes.
For example, they see themselves as part of a global economy confronted
by competitors with more sophisticated management support systems;
and the next generation, who are beginning to take over the operations,
have matured and developed with an international perspective.
These businesses also find themselves caught up by the changes in
the role of women in the family who are now well educated and capable
of managing the enterprise. This change is often at odds with old
perceptions of the role of women. The family is also being confronted
with the politics of private ownership and the new inheritance laws
being implemented
Mr. Gersick does not believe the assumption that there is an incompatibility
between family control and professional management. However, he
believes the next generation of leaders must anticipate and manage
family dynamics in all aspects of the system in which they are involved.
What then are the issues that are important to ensure the future
success of a family-owned business? Mr. Gersick approaches this
from three different viewpoints: ownership of the business; the
family; and business operations.
From the ownership side of the business, there must be clear transfer
plans which allow the business title to be transferred to a new
generation of owners. There must also be clear succession plans
which allow the continuation of the leadership function and contingency
plans to deal with unforeseen ownership issues.
From the business point, the family must have a clear strategic
plan which describes the business it is trying to create. This strategy
must be consistent with the family values and consistent with the
realities of the market place. There must also be career development
plans for key executives who are not family members.
From a family perspective, Mr. Gersick recommends the establishment
of a family council which does not replace the role of outside directors
but supplements their effort with a mechanism through which family
needs can be met. This council deals with issues such as the articulation
and transfer of family values across generations; entry and exit
policies for family members; liquidity needs and benefits; security
and educational needs, and philanthropy.
Mr. Gersick's research on family-owned businesses has been supported
by studies such as the one conducted by Robert Kleiman. For example,
from 1976 to March 1997 the stocks of the 209 largest family businesses
in the US had an average annual return of 16.6 per cent a year,
compared with 14 per cent for the companies in the Standard and
Poor's 500.
Mr. Kleiman believes this success is derived from the long-term
perspective these businesses take and the fact their owner/managers
have much of their own net worth tied up in the company.
However, if you intend to invest in these businesses make certain
the directors of the company comprise at least 50 per cent of people
outside the family. Also ensure these companies have a clear plan
of succession.
These
studies have supported our own experience in working with family
businesses. They are successful because they are able to
manage the dynamics of a family business while managing the complexities
of a business operating in a modern global economy. 
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