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Family business – the debate continues

In the last three months, my travels in the family business world have taken me to events in Trier, Paris and Chicago, so I have covered a lot of ground in the pursuit of learning and sharing new family business knowledge. But I think I have covered some new ground, too. I'm referring to what might be at the root of the polarized perceptions that family business observers hold about what "family business" is and what it stands for.

First to Trier, Germany, in April to join the annual meeting of IFERA (International Family Enterprise Research Academy) at Trier University. This was a real treasure – an intimate meeting of budding researchers and seasoned authors sharing works in progress in an atmosphere of supportive criticism. And one of the sparkling gems there was a review of the field's answer to the age-old dilemma: how do we define a family business? An American, a German and an Australian combined their collective wisdom, arriving at a definition along with a tool to assess the extent to which any business is a family business. What a relief!

They argue that what should be measured is 'familyness' – meaning the family's influence on the business. This is described using three key measures: the extent of power that is held by the family over governance and direction, the extent to which the family's experience over generations of participation in the firm is brought to bear on things, and the extent to which the family's culture impacts on the business's mission, structure and operations. So there is no denying the 'family' in the family business anymore – its influence permeates the enterprise to a greater or lesser extent through the dynamics of power, experience and culture.

Off then to Paris to attend the inaugural conference of our magazine's namesake – Families in Business. Armed with my now clearer-than-ever definition and measures of "familyness-in-business", I was more than a little perturbed to hear the extent to which a non-family chairman in a publicly-quoted but still family controlled company has to 'redefine' his shareholder base in order to avoid or play down 'familyness', and in so doing, minimise the risk of the company being perceived by observers as a family business. Institutional investors and analysts apparently find denial of familyness more comforting (or less bothersome) than an informed understanding and measurement of the factors known to lend strength, continuity and rigor to a well governed family enterprise. Of course, in defense of analysts, they have probably known or heard of badly governed businesses that functioned under a high degree of familyness. But to assume all are the same is to deny that family governance of businesses is a viable alternative to joint stock ownership in the capitalist system. Somewhat depressing!

Thankfully, my spirits were lifted by the arrival of spring in the windy city and the Kellogg Business School's inaugural "Best Practice and New Ideas" conference. A bit of an irony, though, that I went all the way to Chicago to hear about new ideas emerging from Sweden! The latest doctoral research to emerge from the Stockholm School of Economics says that families in business have a series of – literally – inherent advantages over other businesses – emanating from what they inherit: their heirloom.

This can be understood as various forms of 'capital'. Financial capital forms the basis for ongoing long term investment; 'Cultural capital' is what flows through the veins of family members: the instincts, attitudes and values that are inherited; 'Social capital' is the family's contribution to and place in society; and 'symbolic capital' is based on what the family and their enterprise stand for. Successful families in business have an in-bred ability to manage their heirloom, defined as these collective "capitals", which, of course, is absent in outsiders working for the business and non-family businesses. More evidence for familyness, under some conditions, contributing to an unmatchable source of competitive advantage.

The debate continues, of course. Some people are going to continue to think of family business as a lesser form of enterprise, assuming that familyness is a bad thing. Sadly, this in turn had led some families to feel the need to modify their identity – by denying or playing down their own familyness in order not to risk upsetting those who influence the investing and working worlds. Even more perturbing is the fact that some business families actually seem to believe it, too.

Family business discourse needs a new narrative. Hopefully, each edition of Families in Business provides a balanced account of what is going on, and some alternative possibilities for interpretation of the phenomenon of family enterprise. What do you think?

It certainly gives me something to think about as the air miles mount up. 

Barbara Murray, ed note, Comment
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