Managing Leadership^®

Family-owned businesses get a bad rap from managers and, often, from outside “professional” observers. The reasons are typically that the family members, especially after the first generation, either make for bad managers themselves or are felt by hired professional managers to be inconsistent and difficult people to work for, often inappropriately and arbitrarily interfering in the managers’ work.

The truth, however, is that family-owned businesses present us with the classic example of corporate direction that is in tune with owners, and managers who are held accountable for adhering to that direction. Whether or not owners and managers are the same, and whatever you may think about the business skills of those in either capacity, such businesses tend to have two very important advantages.

One is that strategic direction is in the hands of the people to whom it rightfully belongs. The other is that management is inescapably accountable to owners. Together, these establish the fiduciary integrity of the entire owner/management system – regardless of how the actual enterprise turns out.

There are two problems that bedevil family-owned businesses, however. One is the professionalism and discipline these owners display in either or both capacities of manager and director. On the one hand, it is perfectly within the rights of owners to drive their own businesses into the ground, and hired professional managers have no right to attempt to oust family members from the board even if they think that’s what the latter are doing. On the other, one suspects that most owners really would rather not do that. Accordingly, efforts to fill what sometimes seems to be privileged arrogance with real ability are usually to be welcomed by all concerned. Another problem is the issue of succession, and the related concern of how to prepare succeeding generations for it.

These are important issues. According to a recent BusinessWeek article, family-owned businesses generate fully half of the US’s GDP, and more than half of its employment. Fortunately, as the same article reports, academia is beginning to turn its attention to this subject in increasingly systematic, and even ingenious, ways. For example, an undergraduate class highlighted in the article for specifically addressing family business issues requires that only students enrol who can bring a parent or other family member involved in the business to each class session. This interesting approach helps in promising and effective ways to confront a number of issues, from management skills in both founders and successors, to successor employment and transition issues.

The family business – for all its strengths and weaknesses – is the very model of corporate governance in practice around the world today. It is of value to all of us to note how large a role they continue to play in all of our economies, and how many of them successfully negotiate critical areas that, it must be said, the rest of us aren’t so skilled at ourselves.