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