Family Business Management Topics 1-3

Are all family firms private and small?

No - 1/3 of fortune 500 are family controlled

Extended Family Business

Multiple family owners (some are involved in firm’s management)

Family of origin/orientation

family you are born into

Family of attachment

What are the 4 dimensions of family involvement?

ownership, governance, management, generational involvement

What does a family-first firm prioritize?

Family relationships and well-being; nepotism is the basic HR principle; kept alive by sunk costs

What does a business-first firm prioritize?

Business logic; merit-based HR; higher financial performance but higher failure risk

What does a business-family-first firm prioritize?

Balancing both; nepotism attenuated by business logic; holistic succession

What is an immature firm?

No dominant logic; small, niche, informal; succession driven by social norms

What are the 5 family resources/capabilities?

Financial, human, social, organizational, process capital

What is familiness?

The unique bundle of resources and capabilities arising from family involvement in the firm (human, financial, social capital). Source of competitive advantage.

Stewardship

treating the business as something to protect and pass to future generations rather than exploit for short term gain

Bounded Rationality

decision making that is rational but limited by emotions, information, and cognitive constraints - emotions are part of this, not separate from it

What is a glass ceiling in family business context?

The invisible barrier non-family managers face where they cannot rise to the top because senior positions are reserved for family members

What % of family firms survive to 2nd generation, 3rd, and 4th?

30%, 12%, 4%

Family business CEO average tenure vs. S&P 500

18 years vs 18 months-3 years

What % of U.S. GDP do family businesses generate?

49%

What are the 3 entities in the three-circle model?

Ownership, management, and family

What is the focus of each entity in the 3 circle model?

• Ownership = dividends

• Management = operational optimization

• Family = Family needs

What determines complexity in the three-circle model?

Number of individuals in overlapping areas

What is the evolutionary view of the three-circle model?

sees family business complexity as dynamic over time, evolving from spousal team to sibling team to extended family

2×2 matrix of family business types

Maps businesses on two axes (Business logic and family logic), 4 types: family first, business first, business-family-first, and immature firms

VRIN model

resources only give lasting competitive advantages if valuable, rare, inimitable, and non-substitutable

Nepotism vs. Altruism

Nepotism gives roles to family to keep power and control, altruism gives roles out of genuine care for the person even at a cost to yourself

Primary, secondary, and tertiary appraisal

Primary is initial emotional response to event, then secondary is evaluating how to cope, and tertiary is ongoing awareness, regulation and expression of the emotion

Two conditions needed for reduced owner manager conflict

family members bust be present at BOTH ownership and management levels, and family must have harmonious, benevolent relationships

What is the purpose of each entity in the three-circle model?

• Ownership = preserve/increase wealth

• Management = firm survival

• Family = family stability

What does bivalent mean in family business?

same characteristic can be both a strength and a weakness depending on the context

Why is altruism bivalent?

Positive when car and support for family members creates loyalty and commitment, negative when leads to nepotism, free riding, and agency costs

What is the strategy of each entity in the three-circle model?

• Ownership = portfolio diversification

• Management = firm competitiveness

• Family = stewardship

What is the performance measure of each entity in the three-circle model?

• Ownership = ROI

• Management = productivity

• Family = cohesiveness

What is the emotional component of each entity?

• Ownership = speculative

• Management = completion/aggression

• Family = submission and love

What is the ownership role?

Defining long-term vision and key strategic decisions

What is the management role?

Planning, organizing, leading, controlling day to day operations

What is the family role?

Depends on position, nurturing, cheerleading, truth telling, passing values

What are business-oriented goals?

Maximizing profit, growing business, fulfilling stakeholder responsibilities

What are family-oriented goals?

Meeting family monetary needs, retaining control, ensuring harmony, developing entrepreneurial spirit across generations

What is the hardest challenge for overlapping family members?

Balancing competing goals across different contexts

What are the 6 psychological needs motivating family business identification?

Self-esteem, Continuity, Distinctiveness, Meaning, Self-efficacy, Belonging

Self-esteem

confidence in worth/abilities, enhanced by business reputation

Continuity

Sense of belonging to past, present, future

Distinctiveness

Differentiating oneself from others through the business

Meaning

finding purpose through connection to the business

Self-efficacy

belief in capacity to achieve results and ensure continuity

Belonging

feeling of closeness and importance of maintaining relationships

Bright side of spousal team

Loyalty, solidarity, harmonized interests, limits free riding

Dark side of spousal team

work-family conflict, trust erodes after child-rearing phase ends, compensation conflicts

Bright side of sibling team

companionship, admiration, trust - better in mature firms

Dark side of sibling team

rivalries, involuntary membership, independent goals, hard to cohabit

How does extended family view the firm

As a utilitarian asset; relational ties become contractual, lower emotionality

What are the 3 emotional response patterns?

Physiological, psychological, sociological

What are the 3 appraisal phases?

Primary, secondary, tertiary

What is emotional contagion?

Children learning emotional behavior by observing parents, reflexively reproducing it

Competitive strategy difference between family and non-family businesses

• Family = quality/reputation/long term relationships

• Non-family = price

Management style difference between family and non-fam businesses

• Family = value driven, emotional

• Non-fam = facts driven, rational

Profit allocation difference between family and non-fam businesses

• family = reinvest

• non-fam = distribute to shareholders

Mindset difference between family and non-fam businesses

• Family = generational transfer

• Non-fam = sale/short-term sustainability

5 typical strengths of a family business

• Fewer owner-manager conflicts

• Efficient leadership

• Family resources

• long-term orientation

• culture of commitment

• strong identity/reputation

5 weaknesses of a family business

• family dependence/conflicts

• altruism-driven agency costs

• succession challenges

• resource constraints

• role ambiguity

• declining entrepreneurial orientation

What is the positive and negative side of overlapping ownership/management?

• Positive = lower agency conflict

• Negative = altruism driven agency conflict

What is the positive and negative side of family-influenced culture?

• Positive = commitment and trust

• negative = control distrust and fear

What is the positive and negative side of shared identity?

• Positive = loyalty and mission

• Negative = feeling surveilled, limited individual development

What is the family of orientation?

The family you are born into, focal individual, parents, grandparents, aunts and uncles. Exists regardless of if you are married or have kids

What is the family of procreation?

the family you create, individual, partner, sons/daughters, sons/daughter in laws, grandchildren

Socioemotional Wealth

non-financial aspects of the business that meet the family’s affective needs. Represents the stock of affect-related value that a family derives from its involvement in business (everything the family would emotionally lose if the business was taken away)

5 dimensions of Socioemotional wealth (FIBER)

F- Family control and influence

I - identification of family members with the firm

B - Binding social ties

E - Emotional attachment

R - renewal of family bonds through dynastic succession

socioemotional

how your feelings and emotions are shaped by and expressed through your relationships and social interactions with others

co-preneurship

couples who work together in a jointly owned and operated business (romantic and business partners)

What is the in-law family/family of attachment

only part of kinship linked by affinity not consanguinity (blood). Fragile because it depends entirely on the relationship between the individual and their partner surviving

3 approaches to understanding family

structural, task oriented, transactional

Structural approach to family

defines family based on hierarchy and blood/legal connections - distinguishes nuclear from extended family

Task oriented approach to family

focuses on functionality, how members provide love, support, and care. Each member has specific nurturing and socializing roles.

Transactional approach to family

focuses on quality of relationships, communication, and emotions - what makes a family is the quality of interactions and shared vision

3 principles for sustaining a couple’s relationship

responsive, resolution, maintenance

Responsive principle

responding to each other’s needs, goals, expectations, and emotionsR

Resolution principle

accommodating, coordinating, and collaborating under stress and conflict

Maintenance principle

remaining united by continuing to build affection and commitment

What happens when couples have conflict in the business?

contaminates other family relationships with stress and anxiety

4 toxic behaviors

Criticism, contempt, defensiveness, stonewalling

Criticism

Attacking someone’s character rather than addressing a specific behavior - creates mistrust and fear

Contempt

treating someone as inferior or beneath you - leads to subordination and fear of expressing ideas

Defensiveness

responding to conflict by deflecting blame onto others - creates lack of openness

Stonewalling

shutting down and refusing to engage in conversation - leads to lack of communication and distant relationships

4 roles of a family business leader’s spouse

• Business partner

• Chief emotional officer

• Senior advisor/keeper of family values

• Free agent

Chief emotional officer

maintains alignment between family emotional needs and the business - mediator, moderator, or facilitator

Senior advisor/keeper of family values

helps family members understand the family role in the business and preserves the family legacy and identity

Free agent spouse

one who is not involved or interested in the business - does not alter their family role

Two dimensions of the sibling matrix

Sibling hostility (high/low) and sibling warmth (high/low)

4 types of sibling relationships

• Hostile

• Affect-intense

• Uninvolved

• Harmonious

Hostile sibling relationship

High hostility, low warmth - rivalry, conflict, damaged self esteem

Affect intense sibling relationship

high hostility and high warmth - conflicts shift to personal level, very difficult to manage in business

Uninvolved sibling relationship

low hostility and low warmth - low interest and commitment, unlikely to pursue successful business partnership

Harmonious sibling relationship

High warmth, low hostility - high satisfaction, low conflict, increases self-esteem, best for family business

2 dimensions of parenting styles

Responsiveness (warmth/sensitivity) and Demandingness (control/influence)

4 parenting styles

• Authoritative

• Permissive

• Authoritarian

• Neglectful/Uninvolved

Authoritative Parenting

high responsiveness and high demandingness - open conversation, supports children’s decisions, develops independence and self reliance. Best for successors

Permissive parenting

high responsiveness, low demandingness - entitled children with unrealistic expectations

Authoritarian parenting

low responsiveness, high demandingness - develops obedient successors who follow rules but have lower self- esteem and less social competence

Neglectful/Uninvolved parenting

low responsive, low demanding - no emotional connection to the business for the children, low interest and low self esteem

How can in-laws negatively affect a family business?

By influencing family members’ goals and expectations or becoming owners without being socialized into family business values - creating friction and conflict at ownership level