Where Family Businesses are Particularly Vulnerable
- CEOs remain 6 times longer in family businesses than in public companies
- 90% of the CEOs are related to the founding family and change is not anticipated in 90% of these cases
- 55% of boards meet only once or twice a year; 20% NEVER meet
- 70% have NO written strategic plan
- 90% rate growth in net profit as the most important financial measure
- 35% of the companies have no debt; another 35% have debt less than 25% of equity
Based on these aspects, family businesses are likely to develop attributes that may be more negatively prevalent in them:
Possible Psychological Reasons:
- Paternalism fosters loyalty, dependence and uni-dimensional thinking.
- Heritage imposes guilt on successors trying new things—dynasty wins over business rationale.
- Past success breeds self-satisfaction and hence denial of new realities.
- Loyalty promoted by paternalism and confidence in past business models generates a homogenous, in-grown management team.
Recommendations to Correct These Attributes—Focused on Externalization:
- Install an independent, challenging board and have it meet!
- Use outsiders in key management roles.
- Find room for some creative, even abrasive people (mix 'out-of-the box' thinkers with problem solvers).
- Compel managers to seek outside stimuli.
Family Businesses have additional problems in implementing innovative change: these can be attacked in a methodical way.