Using and abusing family business research

By Joseph H. Astrachan

Anecdotal evidence should be taken with a grain of salt. Family rules and structures need built-in flexibility.

It is with great admiration that I contribute this article to the anniversary issue of Family Business Magazine. My career in family business began with a study of a family company in 1983, and since that time I have devoted my life to the development of the field. Here are my reflections on the evolution of the science of family business.

The central task of family business management is growing and developing family and business simultaneously. In so doing one must help family and business build upon one another while reducing the forces that lead each to erode the other. The core task of research should be to promote real understanding that leads to actionable information. We are now beginning to see research that gives advice based on what works.

In the early days of family business understanding, we had little more than theory to rely on. Scholars and consultants were generating ideas primarily from limited explorations of only a few family companies. While the ideas and frameworks gave leaders ways to think about their businesses, it was not clear whether what was being suggested was right. “Best practices” research is similar in that practices of successful companies are purportedly relevant for all family businesses. Most such research is not conducted in a rigorous manner and does not specify the conditions under which the “best practices” work. A lack of rigor in research can have profoundly negative results when applied; among other drawbacks, it gives false comfort and allows leaders to avoid deeper challenges.

One of the ideas, or “best practices,” promulgated early in the history of the family business field—and still quite popular today—can be summed up as “Run your family like a family and run your business like a business.” These notions promoted a separation of family and business, developing inflexible rules and structures, and the idea that non-family businesses provide a good model for the management of family companies. To date, there is scant research support for the separationist view and growing support for an integrative view.

Perhaps one of the most frequent recommendations is that one should have a plan for succession of management and ownership. Currently, there has been no research that supports this idea. There is a simple reason for this lack of research support: If you love working with your family, it does not matter how badly the company performs; you will still want to work with your family and be an owner of the business. Conversely, if you cannot stand being around your family, it does not matter how much money the company is making; you will still want “out.” Some recent research suggests the more bonded family members are to one another and the company, the better the company performs and the longer the family business survives. There is some evidence to suggest that family businesses that have active boards, convene family meetings and conduct strategic planning experience more positive successions.

Another common recommendation is that in order to develop successors and family employees, to benefit corporate performance and to ease family relations, family members should spend three or more years working for others before returning to the family company. Again, to date, there is no research yet supporting this commonsense proposal. Other research on family dynamics suggests that children should form adult relationships with their parents, and to the extent that being away from the family business achieves this, then perhaps the idea is valid. However, research on adult development as well as studies of father-son relations in family business suggest that a close relationship between parents and children is heavily age-dependent and not necessarily affected by experiences away from family. For example, offspring in their 20s and 30s are more apt to be willing to learn from parents, whereas next-generation members in their late 30s and 40s are less likely to learn and more likely to have a relationship characterized by conflict with their parents. I suggest that the important issue here is that parents and children should continually work on their relationships, whether in the business or not.

Popular ideas for successor selection hold that (1) strategic planning should come first, followed by (2) a careful review of the talents, experiences and abilities needed by the future leader who will implement the plan, then (3) an examination of the current candidates to create a development plan, and (4) when the needed attributes have been achieved, succession can occur. No research has been conducted on this notion. A contrary view is that for most family firms the future is too difficult to predict; therefore, a leader must be someone who can align stakeholders and motivate people to action.

Many consultants recommend that the senior generation should choose the successor. Again, no research supports this idea. It may be that those who have to live with the decision should have a primary role, as it is their trust and commitment that will be needed to ensure future family business success.

There is also no research on the use of “bridge” leaders—non-family managers who will lead the company and train future successors—but there have been some studies of non-family leaders in general. They suggest that non-family leaders must view caring for and managing family as a critical role, and that the hiring process should be carefully designed to ensure they have this quality. Non-family leaders who take the attitude of “if the family will leave me alone I will make them a ton of money” generally have a very negative experience.

Family structures must be flexible

Family constitutions or protocols—a collection of family “laws” that govern relations between family and business—are thought to be valuable in ensuring family harmony and business success. The research here is mixed. Studies of fair process and related issues indicate that creating policies that not all family members subscribe to may be counterproductive. Widespread family involvement and transparency in policy creation is a key. It appears that family commitment to the business is a better indicator of performance and longevity than policies, and that commitment is built through transparency, education, communication and involvement.

Many commentators implore families to develop rigid structures to manage family business relations. Family councils, family assemblies, committees and the like are often proposed. While some research shows the importance of family meetings, research from the organization theory school suggests that rigid structures can lead to catastrophic failure. It is likely a good idea that when implementing such suggestions, family business leaders make sure the structures have appropriate flexibility to adapt to changing conditions. Research on complex systems shows that organizations, be they family or business, must be able to change quickly in order to survive. The ability to rapidly evolve is, of course, enhanced by communication; commitment; and deep, strong, healthy family relationships.

Boards of directors are widely seen as important for organizational survival. Research supports this idea. However, in private family business rigorous studies linking outsiders on the board to business success have yet to be conducted. For public companies, there has been some clear research showing that approximately two outsiders for every family member is a near-ideal ratio for company performance. In private companies the critical factor may be having board members from whom the CEO will willingly take direction. This view comes from the idea that boards should have a primary role of holding senior leaders accountable. Others have suggested that the board’s primary role is to help shape strategy. Conclusive research has yet to be conducted.

Let me conclude by suggesting that family business leaders should take a skeptical view of suggestions not supported by research. It is unfortunate that much of the research conducted on family business over the last 25 or so years is largely inaccessible to the layperson. Nonetheless, the truly professional family business leader is well advised to either wade through what is available or seek the counsel of those familiar with the body of scholarship. Thankfully the field of family business research has come a long way in a short time. It needs to be nurtured and supported financially and through participation in ongoing studies. Everyone should be concerned, as family business is at the heart of our collective future prosperity and social stability.

Joseph H. Astrachan, Ph.D., is executive director of the Cox Family Enterprise Center and Wachovia Chair of Family Business at the Coles College of Business, Kennesaw State University. He is a former editor of Family Business Review and research chair at Loyola University Chicago Family Business Center (Joe_Astrachan@coles2.kennesaw.edu).

 

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Autumn 2009

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