Family businesses have unique challenges and opportunities for growth.
Family businesses represent an important and growing part of the economy. Globally, more than 30% of large companies are family-owned. The number of family businesses in emerging markets with revenues exceeding $1 billion is growing rapidly, and family businesses will remain a vibrant force in mature markets.
In comparison with nonfamily businesses, family businesses exhibit different behaviors and performance. There are also clear distinctions between family businesses from developed and developing markets. Because of their tendency to take a longer-term and less risk-seeking perspective, family businesses from developed markets show greater resilience. Those hailing from developing markets exhibit greater growth ambitions and pursue global leadership.
Family businesses share many strategic and operational concerns with nonfamily businesses. At the same time, they face unique challenges—largely at the intersection of the family and the business. What is the appropriate governance structure and what role should the family play in the future of the business? How should the company manage succession planning, generational transitions, and capability development? How does it attract the best nonfamily talent? How should the value created by the business be shared among the family? How can growth be funded without diluting family control?
At some point all successful family businesses reach a moment of truth. The thriving business—built on a magical combination of ambitious vision, entrepreneurship, decisiveness, and a bit of luck—outgrows its less-than-formal approach to governance. It becomes clear that a more rigorous approach is needed to sustain the organization's success into the future. But how?
The most successful efforts to formalize family business governance respect the magic that drove the initial phase of success and seek to formalize it. Many elements contribute to the magic, but these five are among the most important:
A clear vision for the company’s mission lies at the heart of every successful family business. The leader uses this vision as the starting point for the business’s strategy—which is often not formally articulated—and lives and breathes it while overseeing every step and minute detail of the business’s development.
Because most family-owned businesses are private companies, they do not need to worry about impressing investors with short-term performance. Their long-term perspective is measured in generations, not months or years. This distinction positions them to make bold bets in deciding whether to grow their existing business lines or expand into new ventures.
Family members maintain a firm grip when managing the business and are empowered to make decisions that promote the company’s long-term interests. Because they are unencumbered by organizational layers and bureaucratic processes, family businesses maintain the agility to react swiftly and effectively to changing conditions.
A founder’s entrepreneurial spirit provides the basis for the culture of a successful family business. Employees—whether family members or other professionals—work directly with the founder and are motivated to build the business by performing at a high level.
Over time, many family businesses form bonds with their employees that go beyond the usual employer-employee relationship. Moreover, employees are often further motivated to stay for the long term because they can pursue personalized career paths and share in the company’s success. The family business, in turn, benefits from its loyal employees’ experience and dedication.
A Dialogue on Family Business in Mature and Emerging Markets