Opportunities & Exposures: Industry
Towering Patriarchs
Allison W. Pearson and Michael D. Ensley
10/01/2005

What causes some family businesses to thrive while others, riven by epic feuds, suffer a seemingly inevitable demise at the hands of dissident family members? We set out to explore the paradox of the family business.

We conducted a study comparing data on the behavioral dynamics of 224 management teams. We examined 44 parental teams wherein at least one parent and one child were officers, founders, equity stakeholders or actively involved in strategic decision making. We also examined 78 teams of family business owners that consisted of more dispersed relatives, such as siblings, aunts, uncles and cousins. As a basis of comparison, we included 102 management teams from nonfamily firms wherein the owners were not related.

The 224 management teams all came from high-growth new ventures in a variety of industries. To ensure an equal playing field, we primarily chose firms less than seven years old with average annual revenue growth rates in excess of 1,200 percent. All were successful, young businesses. But we made some surprising discoveries: Family firms consisting of parents and children outperformed those consisting of more distal family relations and even those consisting of nonfamily managers. When we explored how well these top teams managed 1) agreement on the strategic direction of the firm; 2) conflict among team members; 3) cohesion among management team members; and 4) belief and confidence in the decisions of the management team, it became clear that parent-child management teams offered the best dynamics for future success. (The complete study was published in the May issue of Entrepreneurship Theory & Practice.)

The parent-led management teams exhibited more confidence in their abilities, greater cohesion among members, a clear consensus on the strategic direction of the firm and less detrimental interpersonal squabbling than both the nonfamily and  the distant-family management teams. In fact, the “cousin consortia” management teams demonstrated the poorest social dynamics. These loosely constructed family teams reported the lowest levels of confidence in their abilities and in cohesion among members. They also demonstrated less agreement regarding their strategic direction and reported the highest levels of destructive personal conflict.

The obvious question is: Why? The presence of a parent in the business may create a stronger leadership effect; family values and their resulting social structures have been in place and acted on by family members for many years, often beginning early in life. The parental leadership of functional families, their norms, behaviors and work ethic serve to create the mind-set and programming needed for family members to continue contributing to the business plan.

Asymmetrical Ambitions
In contrast, the management teams with greater familial distance appeared to lack strong central leadership. These dispersed-family teams, consisting of cousins, siblings and stepsiblings, include members raised in their own unique nuclear families. Although related, they have their own agendas, ideas and issues. When kinship distance increases and family members become more dispersed, core family values and strong ties associated with a more closely knit social group may become diluted. These multiple identities and agendas diminish and confuse the focus and direction of the family business and cause greater stress, conflict and infighting among family members.

“WE ARE
especially careful
. . . . We don’t want our family wrecked by our business   disputes.”
Family members and employees of family firms confirmed our findings. Employees of a distally related family construction firm admitted to “not knowing who to align with this week” when trying to make business decisions, as feuding cousins attempted to gain control of the company once run by the family patriarch. The dilemma facing employees, in this case, highlights the competition and confusion that results from the leadership vacuum that may exist in the absence of clear direction from the powerful-patriarch model of family business.

Alternately, one offspring from a parent-controlled firm, a senior vice president, explained, “Dad listens carefully, questions and considers most of our ideas. He even adopts a few of them. But we know he ultimately makes the final decision.” The company leadership was thus clearly established, as were the norms of involvement in business decision making by family members.

The parent-led teams’ ability to manage destructive conflict more effectively was also evident. One parent-owner of a Midwestern freight company described the motivation behind the family’s interactions: “We are especially careful with conflict. After all, we spend birthdays, holidays, dinners and family reunions together. We don’t want our family wrecked by our business disputes.”


Allison Pearson is a professor at Mississippi State. Michael Ensley is an associate professor at Rensselaer Polytechnic Institute.