Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
It is said that family businesses must see beyond the grave. Over the last few decades there has been a renewed interest in this form of business organisation for a variety of reasons. Families have had to become more self‐reliant. Corporate careers are no longer so attractive to the younger generation. People are encouraged to become more entrepreneurial and innovative. But family businesses are also seen as being different in a positive way. For example, they take a long‐term point of view, they act more ethically because the family name is at stake, and they adopt a “patient money” approach. As a result, family businesses are increasingly seen as a model for the future rather than as a relic of the past. They have become a legitimate area of study in their own right. Many university centres of family business have been set up, especially in the USA. Although the book is based on research undertaken in Australia, the messages and lessons it contains are eminently generalisable. Ken Moores is from the Centre for Family Business at Bond University and Mary Barrett is from Griffith University. The research of the authors is complemented by commentary from Leon and Katie Danco, two of the USA's foremost family business experts. The combination works well.
The book consists of seven chapters that follow a simple, structured approach. In addition there is an appendix on the research methodology used that will be of value to students. The introduction and conclusion sections of each chapter link well with preceding and succeeding chapters, which helps greatly in maintaining the themes of the book in a seamless way. The authors base their approach on Handy's (1994) statement in The Empty Raincoat that modern managers are having to cope with paradoxes that cannot be resolved, but can only be managed. The book explores paradoxes in family businesses and how their owners can manage them. The overarching paradox for family businesses is that they are like any other businesses, except that they are different.
The first chapter demonstrates that family business makes a substantial economic contribution to developed nations. Nor are family businesses limited to small firms – some large corporates have a major family influence. The working definition adopted for the book is: “A grouping of persons related by blood or marriage (the family) who control a business enterprise through ownership, or who possess the capacity to control the governing body of the business. The enterprise may be comprised of one or more legal entities” (p.124).
The themes of organisational life cycles, business and family uncertainty, and how CEOs must learn how to cope with these are examined in chapter 2. To the normal organisational lifecycle and uncertainty of a business there is an additional factor – the family. The overlap between business and family is the crucial characteristic of a family business. The values and beliefs commonly shared by family members introduce a strong cultural and emotional dimension that often clashes with purely rational, economic demands.
To learn how to run a family business, the potential CEO must first of all learn general business (chapter 3). There is support here for the view that this means acquiring a formal tertiary education, leaving home and ultimately gaining business experience outside the family business. The paradox is going outside to bring skills inside. The threat is that the trainee never comes back. However, working in another business can have its downside, such as being seen as a competitor in that business and being the object of jealousy on returning to the family business. By going outside learners become more credible businesspersons, not only to the family and others, but to themselves as well. Spending time outside the firm for women family business owners meant that the settings in which they had learned their original general skills were often very different from their current business. As an additional twist, women CEOs often started in the family business in a supporting role. This meant that their skills were sometimes not recognised even by themselves until the opportunity, or necessity, to run the business arose.
The next stage in development is learning our business (chapter 4). The paradox here arises from the question of how one maintains a sense of sameness that allows the owners and customers alike to see the “same” family business, even in a rapidly changing world. The learning priority is that values such as responsibility, privilege, even a “noble duty” must be perpetuated. This often results in “strategic conservatism” of family businesses, especially in the area of debt. At the early stage of the business growth cycle, family firms tend to be reluctant to borrow funds. But second‐generation CEOs must be more open to borrowing if the business is to grow. It is the failure to learn the art of “strategic conservatism” that causes many family firms to decline in their second generation. Learning our business means appreciating what is special about this business. This involves perpetuating both personal and business values. As the firm grows the values must be “continued differently”.
Traditions are accepted, but the younger generation must be free to interpret them in the light of new developments. Two learning pathways are suggested to cope with the paradox of continuing differently. One is to maintain the broad management philosophy of previous generations rather than the detail of their strategies. The second is to recognise the special market value of a family business. Many customers and suppliers perceive family firms as a closely‐knit, stable entity sharing a common, respected culture. Intimate relationships make for speedy decision‐making. This supports agency theorists' views that reduction in agency costs leads to family firms outperforming non‐family firms. The downside of learning our business is the dilemma of moving under‐performing family members out of the business and bringing outsiders into the firm. This pressure on the CEO to professionalise the business is a manifestation of the firm's movement along the firm's life‐cycle curve.
Chapter 5 deals with the issue of learning to lead our business. The nature of leadership is briefly covered, touching on autocratic, participative, contingent, transaction and transformational approaches. The paradox of leading the family business is informal informality. The practical qualities of leadership demanded are the ability to create a sense of loyalty in family and outside staff alike. The leader must learn perspicacity to manage the whole gamut of internal and external complexities facing the firm. But, in addition, the family business CEO must master the demands of being both a transactional leader and a transformational leader.
Chapter 6 deals with learning to let go our business. This involves the crucial area of succession. The learning priority here is prescience, i.e. knowing when and how to let go. The paradox is that the leader must plan what will happen when he/she is no longer there. The leader must lead in order to let go. If the business is going to stay in the family, questions arise as to how the successor should be appointed and how the retirement of the incumbent CEO should be managed. In the business lifecycle, the firm may have moved from the growth “entrepreneurial” stage to the mature “administrative” phase. To avoid moving into the decline stage the founder, or more probably a successor, will often have to reorganize the firm and develop a new value of its future. Succession is seldom easy for founders who are closely attached to their business. They are the business and the business is them. Recommended pathways are to develop a defined timeline for retirement, create management development systems and stick to the plan. Leon Danco comments that “for most business owners, the retirement process seems like a cross between euthanasia and castration. It's something that the average business owner is never going to look at willingly”. Pathways through the paradox of leading to let go entails accepting the move from leader to willing outcast through preparing and sticking to a succession plan. A new role for the retired CEO can be that of an “ambassador” or “governor” to the business. Although not stated in the book, the process is made easier if the CEO has something to retire to, such as a hobby, rather than just retiring from the business.
Chapter 7 deals with “Profiles and patterns that work”. Based on Adizes' four stage model of the firm life cycle, the authors found that family businesses generally show increasing levels of sophistication in management systems as firms develop. The contradictions between the family nature of the business and the “business” nature of the business are enduring ones. Families change over time just as businesses do and follow a parallel lifecycle. Pathways to manage the paradoxes are given in the form of a simple table on page 147. Although complex, the authors explain that the family business milieu is not random or chaotic. Using the business life cycle provides a mechanism for coming to grips with the diversity of approaches to leading a family firm. The book concludes with a summary of the five basic but essential learning tasks for leaders of family firms to enhance their chance of success.
Accessibility and a comprehensive approach make this book a welcome addition to the emerging literature on family business which will be very useful for advisors and practitioners as well as academics and students.
Handy, C. (1994), The Empty Raincoat, Hutchinson, London.