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The Family Business
Part Two

See also:
The Family Business -- Part One
The Family Business -- Part Three
The Family Business -- Part Four
The Family Business -- Part Five
The Demise of the Family Business?

          Continuing our summation of the Gallup survey of family-controlled businesses undertaken by the Family Business Network of the Massachusetts Mutual Life Insurance Company (MassMutual), it is first noted that more women are found in senior management positions in family enterprises across the US than are to be found in non-family businesses. However, only 16 percent affirm that a daughter is involved in the business as opposed to one-third (34 percent) reporting a son’s involvement. Brothers are engaged in 26 percent of these businesses as opposed to only 11 percent involvement by sisters. And fathers are involved in 21 percent of family businesses in contrast with mothers’ involvement in only 11 percent.

          Almost three-quarters of fathers (73 percent) and brothers (72 percent) and more than half of sons (56 percent) are identified as part of the key decision-making group within these family businesses. This contrasts sharply with about one-third of mothers (28 percent), sisters (37 percent), and daughters (30 percent). And sons are four times as likely to be identified by the present owners as controlling ownership and governance decisions in the next genera-tion (34 percent versus 8 percent). Similar gender patterns are found in the ownership of equity, and in the assumption of management responsibilities. Significantly, almost equal representation is to be found on the boards of directors of the family business; fathers and mothers (79 percent versus 78 percent), and sisters and brothers (59 percent versus 64 percent). However, while gender-based discrepancies are pronounced, the family business sector still holds greater promise than non-family businesses for an ascendant role for women.

          Two-thirds of the persons owning family businesses (67 percent) grew up in families that owned a business (not necessarily the current family business), one-third (35 percent) were reared in families that have owned businesses for two generations, and one-fifth (23 percent) have been raised in families that have owned businesses for three generations. This kind of social learning is believed to play a key role in the cultivation of future business owners.

          Three-quarters of all family business owners with children emphasize they encourage their progeny to follow in their footsteps; they either "strongly"  (26 percent) or "somewhat strongly"  (46 percent) encourage their offspring’s participation. The principal motivation to encourage their children to be part of the family business is the conviction that it offers a "good business opportunity."  These findings suggest entrepreneurship is likely to be instilled at home at an early age; growing up in a family business appears to foster entrepreneurial activity.

          The dynamics of decision-making in the family enterprise are mixed. Decisions on strategic issues are usually made by a small number of key leaders who reach their decisions through a process of consensus. More than two-thirds of the respondents (68 percent) believe the members of the key decision-making group "always"  trust each other. However, only 43 percent of these family business owners believe the members of the decision-making group always share common goals and objectives, and only 35 percent believe they place the needs of the business over their own considerations. And only 17 percent of the respondents find that the members of the key decision-making group always achieve what they set out to accomplish.

          Decisions about the company’s strategic direction, capital investment, and other major issues are made by only one or two individuals in 37 percent of the businesses surveyed. Three decision makers are found in 24 percent of these firms, and four decision makers are found in 18 percent of these firms. And almost half of the respondents (48 percent) relate that differences are resolved most often by discussing the issue and reaching a consensus; the strategic team tends to be more autocratic than democratic. Finally, the primary goals of these family businesses are to enhance profitability as well as the value of the enterprise. Increasing profitability was ranked by the respondents as either "among the most important"  (32 percent) or a "very important"  (57 percent) goal. Similarly, increasing the value of their enterprise is ranked either "among the most important"  (25 percent) or a "very important"  (54 percent) goal. Less than half of the family business owners find expanding the size of the business (46 percent) or providing liquidity for the shareholders (42 percent) to be "among the most important"  or "very important"  goals.

          With the average tenure of a CEO of four years in a non-family business, the family business enjoys a different growth horizon where the average tenure of a CEO is 24 years. The family business can seek solid improvement over the longer term, in contrast with the public demand for improvement in quarterly intervals. The owners and managers of the family business can focus on increasing value and profitability, not on growth merely for growth’s sake.

          The illuminating and authoritative findings unearthed through this Gallup survey of family-controlled businesses will continue to be the focus of a subsequent column.

Your comments and suggestions for these pages are most welcomed!

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Thomas A. Faulhaber, Editor

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