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Where Family Businesses are Particularly Vulnerable

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Research at the center and at Arthur Andersen survey1 (.pdf 178Kb) *Acrobat reveals surprising aspects about family businesses:

  • 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:

 

chart

 

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.

Take Away

Family Businesses have additional problems in implementing innovative change: these can be attacked in a methodical way.

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