MOD001093 MOD001093 ENTREPRENEURSHIP AND ENTREPRENEURSHIP AND

INNOVATION: INNOVATION: FAMILY BUSINESSESFAMILY BUSINESSES

Prof.Stephen OngProf.Stephen OngBSc(Hons)Econs (LSE), MBA (Bradford)BSc(Hons)Econs (LSE), MBA (Bradford)

Visiting Professor, Shenzhen UniversityVisiting Professor, Shenzhen UniversityAcademic Fellow, Entrepreneurship & Innovation,Academic Fellow, Entrepreneurship & Innovation,

The Lord Ashcroft International Business School, Anglia The Lord Ashcroft International Business School, Anglia Ruskin University Cambridge UKRuskin University Cambridge UK

MBA ANGLIA RUSKIN UNIVERSITY MBA ANGLIA RUSKIN UNIVERSITY

Today’s Overview Today’s Overview

LEARNING OBJECTIVESLEARNING OBJECTIVES To assess the economic To assess the economic

significance of family-run firms.significance of family-run firms. To appraise critically the special To appraise critically the special

attributes of these firmsattributes of these firms To review the empirical evidence To review the empirical evidence

of the taxonomy of family firmsof the taxonomy of family firms

Video : “I’ll Show Them Who’s Video : “I’ll Show Them Who’s Boss”Boss”

Sir Gerry & a Family BusinessSir Gerry & a Family Business

“Take your holidays, don't get submerged in detail; you rarely need more than eight hours a day to do the job.”

Sir Gerry Robinson, Corporate RaiderSir Gerry Robinson, Corporate Raider

https://www.youtube.com/watchhttps://www.youtube.com/watch?v=BIbXOn5zjko?v=BIbXOn5zjko

ROLE OF ROLE OF FAMILY FIRMSFAMILY FIRMS

The 3 Generations of the Lucky The 3 Generations of the Lucky Sperm Club ( The Economist 2014)Sperm Club ( The Economist 2014)

"I don't believe in "I don't believe in dynastic wealth … dynastic wealth … those who grow up those who grow up in wealthy in wealthy circumstances are circumstances are members of the members of the lucky sperm club.“ lucky sperm club.“ Warren Buffet, 2006Warren Buffet, 2006

Global Family Businesses Global Family Businesses (2014)(2014)

ContributionsContributions Two-thirds of private firms are family ownedTwo-thirds of private firms are family owned Family firms in the USA (Shanker and Astrachan, Family firms in the USA (Shanker and Astrachan,

1996):1996): Generate between 12 and 59 per cent of the gross national productGenerate between 12 and 59 per cent of the gross national product Generate between 19 and 78 per cent of new jobs createdGenerate between 19 and 78 per cent of new jobs created Employ between 15 and 59 per cent of the workforceEmploy between 15 and 59 per cent of the workforce

Family firms over-represented in rural areas Family firms over-represented in rural areas (Westhead and Cowling, 1998)(Westhead and Cowling, 1998)

30 30 perper cent transferred to second generation family cent transferred to second generation family ownership and only 13 per cent survived to third ownership and only 13 per cent survived to third generation (Ward, 1987)generation (Ward, 1987)

Impact on local economic development and social Impact on local economic development and social cohesioncohesion

Family Firm AgendasFamily Firm Agendas Some family firms do not solely focus on Some family firms do not solely focus on

‘business agendas’ ‘business agendas’ (i.e. profit maximisation)(i.e. profit maximisation) Some owners of family firms may place more Some owners of family firms may place more

emphasis on emphasis on ‘family agendas’ and broader ‘family agendas’ and broader ‘social agendas’ ‘social agendas’ (i.e. social cohesion, protection (i.e. social cohesion, protection of a local culture and/or a minority language, of a local culture and/or a minority language, employment of local people, utilisation of local employment of local people, utilisation of local suppliers, etc.)suppliers, etc.)

To protect ‘family agendas’, the family owners To protect ‘family agendas’, the family owners may focus on non-financial objectives (Zahra may focus on non-financial objectives (Zahra et et al.al., 2004) to the detriment of firm development, 2004) to the detriment of firm development

Enterprise SustainabilityEnterprise Sustainability Private family firm development is an Private family firm development is an

important important enterprise sustainability issueenterprise sustainability issue (Westhead, 2003)(Westhead, 2003)

Family firm sustainability Family firm sustainability calls for continued calls for continued entrepreneurship, continued family entrepreneurship, continued family involvement and professional management involvement and professional management (Johannisson and Huse, 2000)(Johannisson and Huse, 2000)

Viable firm must host all three aspects and Viable firm must host all three aspects and deal with the deal with the tensions between tensions between entrepreneurialism, paternalism and entrepreneurialism, paternalism and managerialismmanagerialism? ?

Policy DebatePolicy Debate Practitioners may target assistance to superior Practitioners may target assistance to superior

performing family firms to maximise investment performing family firms to maximise investment returns and/or returns and/or

Practitioners may encourage poorer performing Practitioners may encourage poorer performing family firms to professionalise and to focus on family firms to professionalise and to focus on financial performancefinancial performance

Should policy-makers modify the fiscal regime Should policy-makers modify the fiscal regime (inheritance and capital gains tax) and/or provide (inheritance and capital gains tax) and/or provide support to encourage the development of private support to encourage the development of private family firms?family firms? Family firm owners concerned that capital taxes can put Family firm owners concerned that capital taxes can put

at risk the inter-generational transfer of firmsat risk the inter-generational transfer of firms

Unique Group of FirmsUnique Group of Firms BusinessBusiness is a is a performance-based systemperformance-based system FamilyFamily is a is a relationship-based systemrelationship-based system (Ward, (Ward,

1987)1987) Family firms are a unique group of established Family firms are a unique group of established

businessesbusinesses The involvement of family members in the The involvement of family members in the

ownershipownership and and managementmanagement of the firm, and the of the firm, and the intertwining of family and business objectivesintertwining of family and business objectives

Company objectives may be influenced by the Company objectives may be influenced by the three interdependent sub-systems of family, three interdependent sub-systems of family, ownership and management (Hoy and Verser, ownership and management (Hoy and Verser, 1994)1994)

Theoretical InsightsTheoretical Insights Agency theoryAgency theory: ownership and management are viewed : ownership and management are viewed

as dimensions of a as dimensions of a performance-based systemperformance-based system where where rational economic objectives (profit maximisation) are rational economic objectives (profit maximisation) are assumedassumed

Family can be viewed as a part of a Family can be viewed as a part of a relationship-based relationship-based systemsystem. Reported behaviour may not be economically . Reported behaviour may not be economically rational because non-financial objectives prevailrational because non-financial objectives prevail

To protect ‘family agendas’, the family owners and To protect ‘family agendas’, the family owners and managers may focus on non-financial objectives. This managers may focus on non-financial objectives. This behaviour may retard the financial performance of the behaviour may retard the financial performance of the firmfirm

Stewardship theoryStewardship theory: insights surrounding the : insights surrounding the ownership and management of firms that focus on non-ownership and management of firms that focus on non-financial company objectivesfinancial company objectives

Family Firm AssetsFamily Firm Assets Family involvement and objectives can be a Family involvement and objectives can be a

source of both strengths and weakness for source of both strengths and weakness for family firmsfamily firms

Family firm strengths:Family firm strengths: Experience and knowledgeExperience and knowledge Family resources (employ family members)Family resources (employ family members) Stability and longevityStability and longevity Contacts and trust relationshipsContacts and trust relationships

Familial ties provide loyalty and trust Familial ties provide loyalty and trust between family owners, employees and between family owners, employees and customers and may be the key to success in customers and may be the key to success in some family firms (Chrisman some family firms (Chrisman et al.et al., 2003b), 2003b)

Family Firm LiabilitiesFamily Firm Liabilities Family firm owners may trade firm profitability for Family firm owners may trade firm profitability for

other benefits other benefits To ensure ‘independence’ and ‘family agendas’:To ensure ‘independence’ and ‘family agendas’:

Reluctance to sell equity to ‘outsiders’Reluctance to sell equity to ‘outsiders’ An aversion to debt which may constrain growth An aversion to debt which may constrain growth

potentialpotential Reluctance to adopt a performance-related systemReluctance to adopt a performance-related system Key managerial positions held by ‘kinship relations’Key managerial positions held by ‘kinship relations’ Reluctance to use external professional expertise Reluctance to use external professional expertise

which may question ‘family agendas’ and ‘family which may question ‘family agendas’ and ‘family management’management’

Firm performance retarded because of placing Firm performance retarded because of placing family objectives over business objectives (Birley family objectives over business objectives (Birley et et al.al., 1999), 1999)

Family Firm DefinitionsFamily Firm Definitions Westhead and Cowling (1998) Westhead and Cowling (1998)

Definition 1: The company was perceived by the Chief Executive/Managing Director/Chairman to be a family business

Definition 2: More than 50 per cent of ordinary voting shares were owned by members of the largest single family group related by blood or marriage

Definition 3: More than 50 per cent of ordinary voting shares were owned by members of the largest single family group related by blood or marriage and the company was perceived by the ChiefExecutive/Managing Director/Chairman to be a family business

DefinitionsDefinitions Definition 4:Definition 4: More than 50 per cent of ordinary voting shares More than 50 per cent of ordinary voting shares

were owned by members of the largest single family group were owned by members of the largest single family group related by blood or marriage, the company was perceived related by blood or marriage, the company was perceived by the Chief Executive/Managing Director/Chairman to be a by the Chief Executive/Managing Director/Chairman to be a family business and one or more of the management team family business and one or more of the management team was drawn from the largest family group who owned the was drawn from the largest family group who owned the companycompany

Definition 5:Definition 5: More than 50 per cent of ordinary voting shares More than 50 per cent of ordinary voting shares were owned by members of the largest single family group were owned by members of the largest single family group related by blood or marriage, the company was perceived related by blood or marriage, the company was perceived by the Chief Executive/Managing Director/Chairman to be a by the Chief Executive/Managing Director/Chairman to be a family business and 51 per cent or more of the management family business and 51 per cent or more of the management team were drawn from the largest family group who owned team were drawn from the largest family group who owned the companythe company

Definition 6:Definition 6: More than 50 per cent of ordinary voting More than 50 per cent of ordinary voting shares were owned by members of the largest single family shares were owned by members of the largest single family group related by blood or marriage, the company was group related by blood or marriage, the company was perceived by the Chief Executive/Managing perceived by the Chief Executive/Managing Director/Chairman to be a family business, one or more of Director/Chairman to be a family business, one or more of the management team were drawn from the largest family the management team were drawn from the largest family group who owned the company and the company was group who owned the company and the company was owned by second generation or more family membersowned by second generation or more family members

Definition 7:Definition 7: More than 50 per cent of ordinary voting More than 50 per cent of ordinary voting shares were owned by members of the largest single family shares were owned by members of the largest single family group related by blood or marriage, the company was group related by blood or marriage, the company was perceived by the Chief Executive/Managing perceived by the Chief Executive/Managing Director/Chairman to be a family business, 51 per cent or Director/Chairman to be a family business, 51 per cent or more of the management team were drawn from the more of the management team were drawn from the largest family group who owned the company and the largest family group who owned the company and the company was owned by second generation or more family company was owned by second generation or more family membersmembers

Definitions (Continued)Definitions (Continued)

Scale of Family Firms in the Scale of Family Firms in the UKUK

Table 7.1 Numbers of surveyed family and non-family unquoted Table 7.1 Numbers of surveyed family and non-family unquoted companiesin the United Kingdomcompaniesin the United KingdomSourceSource: Westhead and Cowling (1998): Westhead and Cowling (1998)

Family Firm ProfileFamily Firm Profile Westhead and Cowling (1998): UK Evidence Westhead and Cowling (1998): UK Evidence

Older firms: smaller in employment and sales Older firms: smaller in employment and sales revenues sizerevenues size

Over-represented sectors: agriculture, forestry and Over-represented sectors: agriculture, forestry and fishing; distribution, hotels and cateringfishing; distribution, hotels and catering

Under-represented sectors: banking, finance and Under-represented sectors: banking, finance and business servicesbusiness services

Over-represented locations: rural areas (less than Over-represented locations: rural areas (less than 10,000 people); East Midlands of England10,000 people); East Midlands of England

Under-represented location: South East of EnglandUnder-represented location: South East of England Need to control forNeed to control for age, industry, rural and standard age, industry, rural and standard

region when comparing family and non-family firms region when comparing family and non-family firms

ATTRIBUTES OF ATTRIBUTES OF FAMILY FIRMSFAMILY FIRMS

Management StructureManagement StructureWesthead Westhead et al.et al. (2001): UK Evidence (2001): UK Evidence

Definition 3 selected; 73 family firms matched with 73 Definition 3 selected; 73 family firms matched with 73 non-family firms (age, industry, rural and standard non-family firms (age, industry, rural and standard region)region)

Family CEOs in family firms employed longer than Family CEOs in family firms employed longer than 'outside' CEOs employed in family firms (16 compared 'outside' CEOs employed in family firms (16 compared with 8 years)with 8 years)

Directors owned more ordinary voting shares in family Directors owned more ordinary voting shares in family than non-family firms (93 per cent compared withthan non-family firms (93 per cent compared with82 per cent)82 per cent)

Family firms less likely than non-family firms to employ Family firms less likely than non-family firms to employ a non-executive director (NED) who can provide a non-executive director (NED) who can provide resources and advice (9 per cent compared withresources and advice (9 per cent compared with19 per cent)19 per cent)

Management structure may retard firm performanceManagement structure may retard firm performance

““Family businesses simply Family businesses simply Don’t Grow” Don’t Grow” (Ward, J.L. 1997)(Ward, J.L. 1997)

Survey : Life Expectancy of Survey : Life Expectancy of Family Firms Family Firms (Ward 1988)(Ward 1988)

Business Planning & Family Business Planning & Family Firms Firms (Ward 1988)(Ward 1988)

StrategyStrategyWesthead (1997): UK EvidenceWesthead (1997): UK Evidence

Definition 3 selected; 73 family firms matched Definition 3 selected; 73 family firms matched with 73 non-family firms (age, industry, rural with 73 non-family firms (age, industry, rural and standard region)and standard region)

14 strategic factors (based upon 37 strategic 14 strategic factors (based upon 37 strategic variables) were examinedvariables) were examined

Univariate and multivariate statistical Univariate and multivariate statistical analysisanalysis

Several Several similaritiessimilarities between family and non- between family and non-family companiesfamily companies

Firm performance may be shaped by Firm performance may be shaped by key key differencesdifferences

Strategy: Family FirmsStrategy: Family Firms External financingExternal financing: frequently explore : frequently explore

for new sources of fundsfor new sources of funds External independenceExternal independence: actively : actively

attempt to minimise our dependence on attempt to minimise our dependence on any single supplierany single supplier

PlanningPlanning: use formalised management : use formalised management information systems to support information systems to support decision-makingdecision-making

AdvertisingAdvertising: use frequent advertising: use frequent advertising

Family FirmsFamily Firms TechnologyTechnology: actively further refine : actively further refine

a technology developed by othersa technology developed by others Product/serviceProduct/service: use product or : use product or

process patent and/or copyrights to process patent and/or copyrights to provide a competitive advantage; provide a competitive advantage; offer a wider range of offer a wider range of products/servicesproducts/services

QualityQuality: offer products/services of : offer products/services of superior qualitysuperior quality

Strategy: Non-Family FirmsStrategy: Non-Family Firms External independenceExternal independence: actively attempt to : actively attempt to

minimise our dependence on any single minimise our dependence on any single customercustomer

Long-term financeLong-term finance: emphasise immediate : emphasise immediate profitability; emphasise long-term capital profitability; emphasise long-term capital investmentsinvestments

ManagementManagement: promote managers based on : promote managers based on their specific skills, knowledge and their specific skills, knowledge and competencecompetence

Alertness/opportunity recognitionAlertness/opportunity recognition: actively : actively attempt to predict competitors moves; attempt to predict competitors moves; actively attempt to predict industry trendsactively attempt to predict industry trends

Non-Family FirmsNon-Family Firms AdvertisingAdvertising: use advertising that : use advertising that

differentiates our products/services differentiates our products/services from those of our competitionfrom those of our competition

TechnologyTechnology: actively use technology : actively use technology developed by others; actively improve developed by others; actively improve our existing technologyour existing technology

QualityQuality: emphasise the building of : emphasise the building of company image and reputation within company image and reputation within our industryour industry

Superior Family Firm PerformanceSuperior Family Firm Performance

FFamily firms amily firms might be expected to might be expected to perform betterperform better than non-family firms: than non-family firms: Avoidance of strategies focusing on short-Avoidance of strategies focusing on short-

term gainsterm gains An ethos of mutual trust between workers An ethos of mutual trust between workers

and family managersand family managers More investments in employees and More investments in employees and

management training and/or researchmanagement training and/or research Family firms assets (see earlier slide)Family firms assets (see earlier slide)

Weaker Family Firm PerformanceWeaker Family Firm Performance FFamily firms amily firms might be expected to might be expected to under-performunder-perform::

Lack of commitment in family firms to profit maximisationLack of commitment in family firms to profit maximisation Family issues take priority over short-term financial Family issues take priority over short-term financial

performance objectivesperformance objectives To ensure family ownership and control, family firm owners To ensure family ownership and control, family firm owners

may be unwilling to finance firm growth utilising resources may be unwilling to finance firm growth utilising resources gained by the sale of equity to ‘outsiders’gained by the sale of equity to ‘outsiders’

Family firms favour the use of family members in managerial Family firms favour the use of family members in managerial positions and this may reduce the quality of managementpositions and this may reduce the quality of management

Family firms may be more difficult to manage because of the Family firms may be more difficult to manage because of the need to satisfy business and family 'agendasneed to satisfy business and family 'agendas’’

Are family firms associated with any compensating Are family firms associated with any compensating advantages? (see earlier slides)advantages? (see earlier slides)

Family Firm PerformanceFamily Firm Performance Family firm performance studies provide Family firm performance studies provide

inconsistent evidenceinconsistent evidence Some studies detect family firms perform Some studies detect family firms perform

worseworse than non-family firms, whilst others than non-family firms, whilst others detect detect superiorsuperior family firm performance family firm performance

‘‘Hard’ performance: sales, jobs, profitabilityHard’ performance: sales, jobs, profitability Also need to consider non-financial Also need to consider non-financial

performanceperformance Need ‘matched sample’ analysis and/or Need ‘matched sample’ analysis and/or

multivariate analysismultivariate analysis

Firm Size and PerformanceFirm Size and PerformanceWesthead and Cowling (1997): UK EvidenceWesthead and Cowling (1997): UK Evidence

Performance variablePerformance variable Family firmFamily firm Non-family firmNon-family firmMeanMean MeanMean

Gross sales revenue, 1991 (£’000s)Gross sales revenue, 1991 (£’000s) 28002800 15511551Gross sales revenue, 1994 (£’000s)Gross sales revenue, 1994 (£’000s) 35913591 19571957Absolute change in gross salesAbsolute change in gross sales 791 791 406 406revenue, 1991revenue, 1991––1994 (£’000s)1994 (£’000s)Percentage change in gross salesPercentage change in gross sales 27.327.3 55.255.2revenue, 1991revenue, 1991––19941994Number employed, 1991Number employed, 1991 20.820.8 18.918.9Number employed, 1994Number employed, 1994 23.223.2 22.022.0Absolute change in numberAbsolute change in number 2.42.4 3.1 3.1employed, 1991employed, 1991––19941994

Performance variablePerformance variable Family firmFamily firm Non-family firmNon-family firmMeanMean MeanMean

Percentage change in numberPercentage change in number 16.916.9 19.419.4employed, 1991employed, 1991––19941994Weighted performance score (a)Weighted performance score (a) 12.412.4 12.212.2

Student’s ‘Student’s ‘tt’ statistics were not significant at the 0.05 level ’ statistics were not significant at the 0.05 level (one-tailed tests)(one-tailed tests)(a)(a) Calculated for each company relating to the ‘importance’Calculated for each company relating to the ‘importance’

and ‘satisfaction’ respondents reported with regard to six and ‘satisfaction’ respondents reported with regard to six performance indicators (Naman and Slevin, 1993)performance indicators (Naman and Slevin, 1993)

Firm Size and PerformanceFirm Size and PerformanceWesthead and Cowling (1997): UK EvidenceWesthead and Cowling (1997): UK Evidence

Employment Change in Family FirmsEmployment Change in Family FirmsWesthead and Cowling (1997): UK EvidenceWesthead and Cowling (1997): UK Evidence

VariableVariable Family firmFamily firm Non-family firmNon-family firm

((n n = 72)= 72) ( (nn = 71) = 71)

Number of companies reportingNumber of companies reporting 2323 1515

employment lossesemployment losses

Number of companies reportingNumber of companies reporting 1919 1818

no change in employment sizeno change in employment size

Number of companies reportingNumber of companies reporting 3030 3838

employment gainsemployment gains

Employment: 5 Largest GrowersEmployment: 5 Largest GrowersWesthead and Cowling (1997): UK EvidenceWesthead and Cowling (1997): UK Evidence

VariableVariable Family firmFamily firm Non-family Non-family firmfirm

Job loss in firms reporting lossesJob loss in firms reporting losses 140140 101101

Job gains in firms reporting gainsJob gains in firms reporting gains 313313 323323

Job gains by 5 largest growersJob gains by 5 largest growers 226226 181181

% of total jobs by 5 largest% of total jobs by 5 largest 72 72 56 56

employment growersemployment growers

Ownership and PerformanceOwnership and PerformanceWesthead and Howorth (2006a): UK EvidenceWesthead and Howorth (2006a): UK Evidence

Firms associated with high levels of family Firms associated with high levels of family ownership and management were not significantly ownership and management were not significantly associated with weaker firm sales and employment associated with weaker firm sales and employment performanceperformance

Firms with larger teams of directors and managers Firms with larger teams of directors and managers reported significantly higher levels of absolute reported significantly higher levels of absolute growth in sales revenuesgrowth in sales revenues

Firms with CEOs drawn from the dominant family Firms with CEOs drawn from the dominant family group owning the businesses were less likely to be group owning the businesses were less likely to be exportersexporters

Multi-generation firms were not found to report Multi-generation firms were not found to report significantly poorer sales and employment significantly poorer sales and employment performanceperformance

Family Firms and ObjectivesFamily Firms and ObjectivesWesthead and Howorth (2006a): UK EvidenceWesthead and Howorth (2006a): UK Evidence

Family firms’ ownership and management structure were found Family firms’ ownership and management structure were found to be associated with a focus on specific non-financial to be associated with a focus on specific non-financial objectives (i.e. ‘family agendas’)objectives (i.e. ‘family agendas’)

Closely held and managed family firms were more likely to cite Closely held and managed family firms were more likely to cite that ‘voting shares are not sold outside the family’that ‘voting shares are not sold outside the family’

Family managed firms were more likely to report the Family managed firms were more likely to report the following non-financial objectives: ‘to pass the following non-financial objectives: ‘to pass the business on to the next generation’ and ‘providing business on to the next generation’ and ‘providing employment to family members is one of the goals of employment to family members is one of the goals of the business’the business’

First generation firms and firms with low proportions of First generation firms and firms with low proportions of managers being family members were less likely to report that managers being family members were less likely to report that ‘family objectives have priority over business objectives’‘family objectives have priority over business objectives’

TYPES OF TYPES OF FAMILY FIRMSFAMILY FIRMS

Figure 7.1 Conceptualised ‘types’ of family firmsFigure 7.1 Conceptualised ‘types’ of family firms(a)(a)

Notes: (a) Empirical types of family firms are reported in brackets; C1 = ‘cousin consortium family firms’; C2 = ‘large open family firms’; Notes: (a) Empirical types of family firms are reported in brackets; C1 = ‘cousin consortium family firms’; C2 = ‘large open family firms’; C3 = ‘entrenched average family firms’; C4 = ‘multi-generational open family firms’; C5 = ‘professional family firms’; C6 = ‘average family firms’; C3 = ‘entrenched average family firms’; C4 = ‘multi-generational open family firms’; C5 = ‘professional family firms’; C6 = ‘average family firms’; C7 = ‘multi-generational average family firms’.C7 = ‘multi-generational average family firms’.SourceSource: Westhead and Howorth (2007, Table 1).: Westhead and Howorth (2007, Table 1).

Conceptualised TypesConceptualised Types Westhead and Howorth (2007) Westhead and Howorth (2007)

‘‘Average family firms’Average family firms’ emphasise family objectives emphasise family objectives and have closely-held family ownership and family and have closely-held family ownership and family managementmanagement

‘‘Professional family firms’Professional family firms’ report a mix of family report a mix of family and non-family objectives, but emphasise family and non-family objectives, but emphasise family objectives. They have closely-held family ownership objectives. They have closely-held family ownership and management dominated by non-family and management dominated by non-family membersmembers

‘‘Cousin consortium family firms’Cousin consortium family firms’ report a mix of report a mix of family and non-family objectives. They have diluted family and non-family objectives. They have diluted ownership within the family and management ownership within the family and management dominated by family membersdominated by family members

Conceptualised Types Conceptualised Types (Continued)(Continued)

‘‘Professional cousin consortium family firms’ Professional cousin consortium family firms’ have have diluted ownership within the family and diluted ownership within the family and management dominated by non-family members. management dominated by non-family members. They place more emphasis on financial objectives They place more emphasis on financial objectives than than ‘cousin consortium family firms’‘cousin consortium family firms’, and they place , and they place less emphasis on family objectivesless emphasis on family objectives

‘‘Transitional family firms’Transitional family firms’ report both family and report both family and non-family objectives, but they place greater non-family objectives, but they place greater emphasis on financial objectives. They have diluted emphasis on financial objectives. They have diluted ownership outside the family but family members ownership outside the family but family members dominate management. These firms are transitional dominate management. These firms are transitional because the management is expected to move because the management is expected to move towards less family dominancetowards less family dominance

‘‘Open family firms’Open family firms’ focus on financial focus on financial objectives. They have diluted objectives. They have diluted ownership outside the family and ownership outside the family and non-family management is non-family management is dominant. Due to separated dominant. Due to separated company ownership and control, the company ownership and control, the latter firms may report agency issueslatter firms may report agency issues

Conceptualised Types Conceptualised Types (Continued)(Continued)

Empirical TaxonomyEmpirical TaxonomyWesthead and Howorth (2007): UK Westhead and Howorth (2007): UK

EvidenceEvidence Cousin consortium family firms (n = 9)Cousin consortium family firms (n = 9): Cluster 1 firms with : Cluster 1 firms with diluted family shareholdings. Placed less emphasis on family diluted family shareholdings. Placed less emphasis on family management as an objective and more emphasis on the management as an objective and more emphasis on the status of the firm. Firms did not markedly differ from the status of the firm. Firms did not markedly differ from the respective averages with regard to the proportion of family respective averages with regard to the proportion of family ownership or management and the importance of other ownership or management and the importance of other objectivesobjectives

Large open family firms (n = 3)Large open family firms (n = 3): Cluster 2 firms had larger : Cluster 2 firms had larger boards of directors and management teams, more outside boards of directors and management teams, more outside (non-family) representation on the board and management (non-family) representation on the board and management team, and less family ownership. These firms were more team, and less family ownership. These firms were more likely to have employed a NED. They reported a mix of likely to have employed a NED. They reported a mix of family and financial objectives. Greater emphasis was placed family and financial objectives. Greater emphasis was placed on family wealth and lifestyle, independent ownership and on family wealth and lifestyle, independent ownership and increasing market value, whilst less emphasis was placed on increasing market value, whilst less emphasis was placed on long-term securitylong-term security

Empirical Taxonomy (Continued)Empirical Taxonomy (Continued) Entrenched average family firms (n = 19)Entrenched average family firms (n = 19): Cluster 3 : Cluster 3

family owned and controlled firms. Firms did not differ family owned and controlled firms. Firms did not differ from the respective averages with regard to their from the respective averages with regard to their emphasis on family objectives. Placed less emphasis on emphasis on family objectives. Placed less emphasis on non-family objectives such as increasing market value, non-family objectives such as increasing market value, business survival, reputation, independence and business survival, reputation, independence and employee job security. Firms generally reported high employee job security. Firms generally reported high proportions of family managersproportions of family managers

Multi-generation open family firms (n = 36)Multi-generation open family firms (n = 36): Cluster 4 : Cluster 4 firms had diluted ownership and control and they were firms had diluted ownership and control and they were more likely to be multi-generation firms. Family more likely to be multi-generation firms. Family members generally owned a smaller percentage of members generally owned a smaller percentage of shares. Firms had more directors and managers; with a shares. Firms had more directors and managers; with a smaller percentage of them being family members. A smaller percentage of them being family members. A NED was generally employed. Less emphasis was NED was generally employed. Less emphasis was placed on family lifestyle objectivesplaced on family lifestyle objectives

Professional family firms (n = 26)Professional family firms (n = 26): Cluster 5 firms : Cluster 5 firms were closely-held family firms associated with were closely-held family firms associated with more non-family management. Less emphasis was more non-family management. Less emphasis was placed on inter-generational succession objectives, placed on inter-generational succession objectives, the survival of the business, employee job security the survival of the business, employee job security or independent ownershipor independent ownership

Average family firms (n = 115)Average family firms (n = 115): Cluster 6 firms were : Cluster 6 firms were family owned and controlled, and they focused on family owned and controlled, and they focused on family objectives. None of the variables were family objectives. None of the variables were markedly different from the respective global markedly different from the respective global means. They were ‘average’ (or stereotypical) means. They were ‘average’ (or stereotypical) family firmsfamily firms

Empirical TaxonomyEmpirical Taxonomy

Multi-generation average family firms (n = Multi-generation average family firms (n = 29)29): Cluster 7 multi-generation family firms : Cluster 7 multi-generation family firms that focused on family lifestyle and inter-that focused on family lifestyle and inter-generational ownership transfer objectives. generational ownership transfer objectives. Family ownership and management were Family ownership and management were not markedly different from the respective not markedly different from the respective global means. Independent ownership was global means. Independent ownership was generally emphasised but less importance generally emphasised but less importance was given to increasing market valuewas given to increasing market value

Empirical Taxonomy (Continued)Empirical Taxonomy (Continued)

ImplicationsImplications Need to encourage enterprise sustainability and a Need to encourage enterprise sustainability and a

diverse pool of entrepreneursdiverse pool of entrepreneurs Assets and liabilities of family firms need to be Assets and liabilities of family firms need to be

appreciatedappreciated No consistent evidence to suggest family firms No consistent evidence to suggest family firms

report superior (or weaker) levels of firm report superior (or weaker) levels of firm performanceperformance

Macro and/or micro schemes to assist family firm Macro and/or micro schemes to assist family firm survival and development?survival and development?

Family firms are not a homogeneous entityFamily firms are not a homogeneous entity ‘‘Blanket support’ or ‘customised’ support to each Blanket support’ or ‘customised’ support to each

‘type’ of family firm?‘type’ of family firm?

50

ConclusionConclusion

““It’s nothing personal …It’s nothing personal …It’s strictly business.” It’s strictly business.”

Michael Corleone in ‘The Godfather’Michael Corleone in ‘The Godfather’

Further ReadingFurther Reading Westhead, P., McElwee, G. & Wright, M. (2011) Westhead, P., McElwee, G. & Wright, M. (2011)

Entrepreneurship: Perspectives and Cases , FT Press, Entrepreneurship: Perspectives and Cases , FT Press, LondonLondon

Deakins, D and Freel, M. (2012) “Entrepreneurship and Small Firms” 6th ed. McGraw Hill, London

Birley, S. & Musyka, D. (2000) Mastering Entrepreneurship, FT Prentice Hall

Kets de Vries, M. (1996) “Family business: human dilemmas in the family firm text and cases” London : International Thomson Business Press.

Ward, J – The Economist (2014) Family Businesses : Special

Report Video case study – Sir Gerry Robinson

QUESTIONS?