International survey on family businesses

In a major new report on the key concerns facing the world's owner-managers has shown just how much more we need to understand when the family plays a role in the business.

Family businesses are the quiet but powerful champions of the world's economies, yet until now there has been widespread ignorance of what characterises and motivates them. The standard image of the cosy, contented corner shop is no longer an accurate one.

Indeed, most family businesses expect to grow, and thousands develop to become small-to-medium sized enterprises and even stock market giants. Each year they are said to represent a greater proportion of their country's wealth and employment figures.

Yet, the family unity which gives these businesses their initial dynamism is often also the very cause of their fragility. In attempting to balance business pressures with often highly volatile family ones, a high proportion of companies end up not surviving beyond the second generation.

Imagine, for example, the scene when the shop door closes for the night. It is then that the owner-manager might well overhear comments such as "I work hard for the family; isn't it about time I received shares in the company?" or "If he thinks his useless son is joining us at management level, I'm leaving." The owner-manager would be forgiven for then looking at his family over dinner and asking himself "Well, who is going to take over when I retire?"

It is not a startling revelation to say that the demands facing family businesses are quite distinct from other small firms. It is equally obvious that they need independent, specialist advice when sibling rivalry or succession problems stretch family loyalty to the limit - and that the relative lack of this has been one of the main reasons inhibiting their growth and longevity.

Professional advisers have been aware of, and responded to, the problems for some time. Yet, it is only now that a co-ordinated and systematic effort has been made to analyse and understand the family dynamics which drive owner-managed businesses across the world.

During the course of 1999, Grant Thornton, one of the world's leading business and financial advisers, joined forces with academic institutions in 16 countries, and conducted a series of national surveys which could well pave the way for more enlightened government and institutional policies towards the sector.

When well-organised, the alliance between business and academia provides a more substantial and mutually credible front. The commercial rationale underpinning Grant Thornton's existing services for family businesses has served to augment the importance of the academic involvement.

According to Andrew Godfrey, Grant Thornton's PRIMA International Director, it highlights the wider benefits a deeper understanding can provide to the international business community at large. "Any adviser worth his value," he says, "wants to maintain the respect he may have earned - and this starts with listening and learning. It requires hard work to identify the real issues behind the private concerns, get owner-managers to admit them and then provide the appropriate support. In one sense, our academic research is a test of the willingness of governments and the professions to do just this."

The surveys were conducted in most of the European Union, Poland and Switzerland, as well as the USA, Canada and Japan. "The PRIMA International Research Report" on the family in business, published worldwide recently, is a comparative analysis of all the completed surveys, co-ordinated and compiled by Sue Birley, Professor of Entrepreneurship at Imperial College in the University of London. The survey is believed to be the first ever such analysis of family business dynamics to be undertaken jointly by business and academia on a worldwide basis.

The uniqueness of the Grant Thornton international research lies in the fact that it tackles head-on the emotional motives which drive owner-managers. According to Professor Birley, this approach was of fundamental importance. "Owner-managers," she says, "face a constant dilemma wherever they are in the world. As well as being responsible for creating and growing a business, most will have been rearing a family, and all will have responsibilities to their parents. Asking questions on how these competing pressures impact on each other will always raise emotional responses related to individual circumstances."

As well as examining how family and business conflicts are actually resolved, the report therefore pays special attention to finding out which issues cause owner-managers most concern - those that are most likely to keep them awake at night worrying. Although emotional responses tend not to yield neat patterns, they are more effective at reflecting the private concerns which often lie hidden behind the mental detachment the owner-manager needs to maintain in business.

The findings cover a multiplicity of analyses, relating to issues ranging from differing views of family involvement to outside shareholder threats, and from work experience to the dilution of equity. Within national contexts, they are now ripe for further analysis and matching with action plans. The various international comparisons also yield valuable insights which may help businesses in other countries needing to improve the way they conduct cross-border activities.

Interestingly enough, cultural differences only account for a partial pattern of groupings, and on several issues the similarity of responses from individuals in widely differing societies underlines the essentially human element surrounding the taking of business decisions. Personal conflicts, such as divorce, for example, emerges as one of the greatest nightmares worldwide, followed closely by the fear that children may under-perform and that there may be an over-concentration of wealth in the business.

Many findings confirm the judgements of experts, but many others run directly counter to established perceptions. For example, the traditional view, held by many, of the owner-manager going straight into the business from school or higher education was confounded by evidence that the majority has indeed had previous experience in business and the outside world.

Underlining all the individual findings, however, is one aspect, the fundamental significance of which has even taken the researchers by surprise. What exactly do we understand to be a family business? The diversity of views on this issue reflects attitudes which incorporate aspects as different as company size, managerial power and generational involvement. It also muddies the waters of neat working assumptions that responses from a recent command economy like Poland will always differ from those in the highly-developed capitalist USA - or that the collectivist Japanese will think differently from the individualist Swedes.

"If, as the argument goes," she says, "the business provides both wealth and income for the family, many owner-managers would define it as a family business, regardless of the presence of family members. By the same measure, a business is not necessarily regarded as a family one if it is the only source of job for the children of owner-managers operating in a depressed economy. The situation is made even more complex and intriguing by the evidence that the presence of an active founding family is less likely to make the business viewed as a family one than does the actual number of active family members involved."

Professor Birley welcomes the disparities. The real issue at point, she says, is whether the owner takes both family and business considerations into account when making decisions. If so, it is legitimate to say that family and business are inextricably intertwined - and their problems need to be addressed as such.

While the field is open for others to place interpretations on the findings, one thing is undoubtedly true. It is crucial to understand more about the attitudes that shape the views of owner-managers within the context and society in which they live. Despite the numerous businesses which have successfully managed the transition through more than one generation, unaddressed fears are still being pushed underground or - more accurately perhaps - not brought out into the open.

Successful or not, parents the world over are still afraid to hand over management of the business to children who they think are ill-prepared for the responsibility. By the same measure, there are children who are just as frustrated at being forced to wait years while their parents slowly reduce the value of their inheritance through inadequate management.

Paradoxically perhaps, the greatest assistance the PRIMA report affords commercial advisers lies in its concentration on the non-quantifiable - emotions and attitudes. As the compilers assert though, it is the personal aspects which should unlock the rest. If, then, there is only one message to Government, finance houses and the professions, it is that a patient willingness to understand the factors underlying the decisions of owner-managers is more important than demonstrating proficiency in compartmentalised service delivery.

As Grant Thornton's Andrew Godfrey remarks, "it is no use suggesting advice on pension planning when the owner-manager is lying awake at night worrying about potential divorce."

The report is not proposing a counselling service. Its potential contribution is more fundamental and far-reaching. It provides evidence which states that pressures on the owner-manager come from two quite distinct starting points - the family on the one side and the business on the other. Both of these interrelate in a complex manner, only to achieve harmony when they become evenly-balanced. By extension, the report asks those with an interest in the owner-managers' contribution to the economy to help them in a way which ensures the balance is maintained - and the harmony translated into growth.

This same survey has been conducted in Malta over the past few weeks by Grant Thornton in collaboration with the Malta Institute of Management. The results of the survey will be released early next month.