Family Business

BEDİA CAN

NESLİHAN TONBUL

MGMT 445 FAMILY BUSINESS MANAGEMENT RESEARCH PAPER

21/12/2018

INTRODUCTION

A family business is any business activity that involves two or more members of a family, and the majority of control or ownership is with the family. Usually, decisions in these businesses are influenced by numerous cohorts of a family – associated through adoption or blood or marriage – who have both the capacity to impact the company’s vision and the readiness to utilize this capability to pursue distinctive objectives. Family businesses may likely be the most ancient kind of business firms. Farms used to be an old kind of family occupation through which what is currently thought as the private work and life were entangled. In urban environments, it once appeared normal for an owner of a shop or a doctor to stay in the same house that he/she did business on and members of the family frequently assisted with the trade as required. Since the beginning of the 1980s, the scholarly investigation of family firms as a distinct and crucial form of trade has developed. Presently, businesses owned by families are acknowledged as active and vital participants in the global economy. According to the American Bureau of Census, approximately ninety percent of companies in America are owned or controlled by families (US Census Bureau 3). Sizes were ranging from two-individual organizations to Fortune 500 partnerships; these firms make up for fifty percent of national employment and fifty percent of her Gross National Product. Family firms may possess some benefits over other trades when focusing on the long-term, their concern, and care for workers, and the businesses’ guarantee for quality, which often associates with the name of the family. Equally, family organizations are also faced by a particular set of administration challenges originating from the intersection of business issues and family. Even though this nature of businesses possesses risks, a family business is eventually a functional form of activity as the benefits are higher than the shortcomings and if the next generation is included, the companies will be successful and long-lasting.

Advantages of Family Firms

Stability and commitment

            The family often decides who among them leads the firm and consequently, there is commonly permanency in business leadership, that leads to overall stability in the firm (Soler et al. 65). The leaders usually maintain their position for several years, until life events including death, retirement, or illness cause change of management. Seeing as the family’s survival are on their hands, members of a family organization are more accountable and committed. Eventually, this leads to a superior understanding of the business where they function and also issue them with a sturdier corporate-customer link, that results in better marketing and sales (Soler et al. 66).

            Several studies have been performed to examine the involvement of families in family firms’ management (Pérez-López et al. 82). The studies established that because the legacy of the family is usually the same to the welfare of the firm, members of the family are usually unwilling to surrender their powers to non-family managers, leading to their prolonged terms and superiority. According to the studies, most Spanish family-owned organizations have management placed in the hands of members of a family and are often more stable (Pérez-López et al. 83). In most cases, the stability is achieved through trustworthiness of family managers, identification of manager with the company, and the association between managers and family owners. Thus, the presence of family management of a company means that the family is responsible for the firm’s destiny. The family has different demands; it can develop in any way it desires as it lacks external shareholders. The family business can run its vision without having to seek permission from or engage foreign participants – so it is more flexible and stable.

            Following the interviews conducted by Douglas et al., it appeared that family corporations are long-term learning and have awareness for their futures (371). Previous studies reinforce the finding. The feature of these organizations is linked to probable superior stability: even during stressful periods, family bonds keep their company functional, which can be viewed as an advantage that non-family organizations lack. The balance of enterprises owned by families is a more general standpoint, specifically in the form of revenue and income firmness, has been expressed by several studies (Douglas et al. 372). However, change and stability are at times considered to be existing in an interchange relationship. Unwillingness to transformation could probably limit growth opportunities, that has been highlighted by some research. Another feature of stability that respondents mentioned during the interrogation was a decreased employee fluctuation. The factor is also in agreement with past literature, that cited lesser rotation of workers, reluctance to fire laborers, and a positive atmosphere of employment even during a crisis. A healthier working atmosphere was particularly emphasized (Douglas et al. 372).

            Terms including friendship and trust were regularly mentioned. Whereas they promote a healthier environment for work, they are linked to another benefit of family businesses stated by the respondents of an interview. It was established that family bonds lessen crime and delinquency, as demonstrated by previous studies (Douglas et al. 373). Another factor mentioned to have contributed to family firm stability is the willingness of members of a family to share their expertise and knowledge with other employees. The tendency can be viewed as a superior distribution of information (both tactic and formal learning) in family enterprises. Thus, unlike companies run by non-family staff, family firms experience more commitment and stability due to the participation of members of a household and the impact of family bonds.

Decreased Cost

            Family companies have members of the family giving their resources to making sure that the business succeeds. As a result, the firms have a reduced operating cost in as in periods of need family members would consent to contribute towards the organization’s welfare or having their salaries reduced. The effect is particularly beneficial during tough economic times including during economic depressions where tightening of the belt or personal suffering is crucial for the survival of the business. According to Paul Pounder, a member of a family is better suited to be a CEO as opposed to those who are not members of a family in family organizations due to their lessening of agency charge and establishment of funding to control by family (116). Pounder also mentioned that ownership influences the CEO roles since a family firm might decide who it wants as its CEO. The manner in which the CEO performs, passive or active, has an impact on the performance of the firm. For instance, a family CEO may impact the performance by developing a more extended investment plan, so the firm has an extensive vision, that is beneficial to the firm’s expenditure and continuity. Thus, it is sensible to assume that a relationship exists between the management of a firm by a member of the family and the overall financial performance of the business (Pounder 123).