Family Business

Carole Howorth, Nick Robinson

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781315440309
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

Family businesses are the most common business form in the world, ranging from the millions of small local businesses to giants such as Walmart. This book showcases the crucial contribution that family businesses make to the world economy and informs students of the existing and potential research in this area.

Drawing upon global academic research and case studies, theories of family businesses are explained and prevailing myths and assumptions are tested. Features including exercises linked to case studies develop skills in applying theories in practice.

This concise textbook is essential reading for students of family business and useful additional reading for those interested in entrepreneurship more broadly.

1 What’s so special about family business?

Family businesses are the most prevalent form of business and in many countries they represent at least two thirds of all businesses. As you join us in learning about family businesses, we would like you to stop and think about whether you have any preconceptions. Some people believe that family businesses are all traditional ‘mom and pop’ type businesses, or they are all small firms; some may believe that family businesses are always embroiled in conflict whereas others perceive them to be havens of harmony. The reality is that family businesses vary and include some of the biggest companies in the world as well as the local corner shop; you will always be able to find one that matches your own stereotype but there will be many more that do not. Your preconceptions will probably be based on your own experience or stories that are more newsworthy because they present extreme cases. We would ask you to put aside any preconceptions that you might have and learn with us as we review the evidence and research on family businesses to provide you with new insights, understanding and recommendations.

In this introductory chapter, we will look at the prevalence of family businesses and introduce some of the issues that will be examined in later chapters. We will be considering some thorny questions. Are family businesses better or worse than non-family businesses? Do family owners care more about their business? Are families in business a hotbed for entrepreneurship? Or are they a hotbed for conflict? Do non-family employees have as good career prospects as in an enterprise with no blood ties? Is the image of family business as positive as other types of firms? Do they have the same capacity to innovate? Are their prospects hampered by having to involve less able workers simply because they are family?

Each chapter will introduce two or three relevant theories and provide explanations of how they can be applied to provide a better understanding of real issues. In Chapter 2, we explain why we agree that there is ‘nothing so practical as a good theory’ (Lewin, 1943). Overall, our interest is in understanding how we can manage family businesses better to ensure that this significant sector of the economy makes a positive contribution to society. In this first chapter, we have the following learning objectives.

Learning objectives

Knowledge of the prevalence and variation of family businesses

Understanding the value and breadth of insights from family business research

Introduction to key terms and concepts in family business

A day in the life: family business in Anytown¹

Have you ever considered how many family businesses you engage with in your daily life? Let me tell you about my morning in Anytown, which for me is a small town in the north of England.

As I open my eyes first thing in the morning, it feels very cosy in my Harrison Spinks bed. Harrison Spinks is a fifth-generation family business that has been making mattresses for over 170 years. I have some lovely new sheets and pillowcases that I bought from Boundary Mill, a factory outlet founded by the Bannister family 30 years ago who have now expanded to four stores, a hotel, golf course, and outdoor pursuits centre. I am looking forward to the day I have booked at their spa next week. I go outside to collect my pint of milk, which has been delivered by James, our local milkman. James is part of a family who have been farming in the area for over 200 years. His brother runs the dairy herd while his sister has developed a very successful cheese-making business. His parents have branched out into local property and they own a couple of petrol stations and rent out some cottages in the village. They also own the town’s cinema, which they rent out to a community management company for a peppercorn rent. I pour the milk onto my Jordans breakfast cereal. Jordans was founded in 1855 and the family continue to own nearly 40% of the company, as well as heading up the board of directors. In 2003 Bill and Deb Jordan bought Pensthorpe Natural Park, which became the home of BBC’s Springwatch programme for three years from 2008.

A cup of Yorkshire tea from Taylors does the trick in waking me up. Bettys and Taylors was founded in 1919 when a Swiss confectioner arrived in Yorkshire, married a local girl and opened his first Bettys tea room in the spa town of Harrogate. Fourth generation descendants, the Wild family, ensure that Bettys and Taylors teas and coffees are all ethically sourced, and they work closely with tea and coffee producers overseas. I was impressed to discover that a recent project working with tea growers aimed to plant one million trees in Kenya. Popping a slice of bread into the toaster, I notice that it is from Roberts Bakery, who have introduced new packaging and a new logo: their strapline is that they are ‘the next generation family bakery’. The packaging states ‘As a family business we’ve been challenging traditions and shaking up baking since 1887’. I like the creative mix of tradition and innovation that they manage to achieve in their branding. Sometimes it is assumed that family food businesses are more about tradition than innovation.

I get my news online these days, long gone are the days when I would call in at the local newsagent to pick up a newspaper. Sadly, the shop has closed down; the couple who ran it have retired to the seaside. However, the Murdoch family and NewsCorp seem to have survived the shift to digital news. While I am eating breakfast, I do a little online shopping. I check out H&M, Zara, and Uniqlo. Interesting that some of the world’s largest fashion brands are family-owned companies but, unlike the food companies, they rarely use their family ownership in their branding.

Much as I would like to use public transport, my office is out of town and so it is easier to drive. I got a new car last month from JCT600. The car dealership was founded in 1946 by Edward Tordoff. His son Jack Tordoff took over the business and renamed it after his Mercedes 600 car, which had the registration plate JCT600. Now run by the fourth generation of the Tordoff family, with 2000 employees it is one of the largest car retailers in the UK. I put on my old Berghaus jacket as it looks like rain. Interesting that the Rubin family who own Pentland Brands and therefore Berghaus are relatively unknown compared with all their brands.

As I round a corner on the drive to work, I get stuck behind a queue of cars, all crawling along behind a JCB digger. Whilst I admire the Bamford family and their iconic diggers, I really do not want to meet one on the way to work. In frustration, I turn off into the local supermarket to fill up with petrol and buy something for lunch. ASDA is one of the big four supermarket chains in the UK; until recently, it was owned by Walmart. Walmart is one of the biggest companies in the world, and although its shares are publicly traded, it is believed that the Walton family own about half of the shares, making them one of the wealthiest families in the USA and the world.

As I browse the supermarket shelves, I note many family business brands. I select some bread from Warburtons and some cheese from Butlers Farmhouse Cheeses, with a Mars bar for an extra boost of energy. Warburtons was founded in the 1870s when Ellen Warburton started baking bread to sell in their family’s grocer’s shop in Lancashire. The company has grown to employ 4,500 people, and is managed by fifth generation cousins Jonathan, Brett, and Ross Warburton. Butlers is headed up by Gillian Hall, but her sons are taking on increasing responsibility in preparation for succession, allowing her to develop other interests outside the business. The Mars family are another of the world’s wealthiest families. I used to think the Mars bar had something to do with space travel and didn’t realise that there was actually a family called Mars. This is probably because in the past the Mars family were famous for being extremely secretive, avoiding any media and tightly controlling the release of any company information.

I’m looking forward to dinner tonight, when we will be treating ourselves to a meal at a local pub. It used to be part of a family business that started out as a brewery 200 years ago and shifted to just owning and managing pubs and hotels about 10 years ago, following a succession. There was a period of buying back shares to consolidate the family ownership and ambitious expansion plans, but, sadly, the decline in the industry meant that high levels of debt were unaffordable and the family business went into administration last year. The portfolio was broken up and sold off by the receivers. Our local pub is now part of a national chain.

Exemplifying family business issues

Throughout our day, we engage with many family businesses whether we realise it or not. The examples in the short piece above are all family businesses and highlight some of the issues that we will explore in this book. As we see in Anytown, family businesses come in all shapes and sizes, and include enormous multi-national companies, portfolios of interconnected firms, and small local businesses. Family businesses occur in all industries, including high technology, manufacturing, extractive and heavy industries, but they are more prevalent in agriculture, food, and retail sectors. They include some iconic brands, but we do not always know that they are family owned, as family businesses vary in whether they emphasise family ownership in their marketing. For some, family ownership is believed to enhance their brand, as family businesses are perceived to be trustworthy and reliable. Others play down their family ownership because it might be seen as too traditional and not fitting their product or service image. Pentland Brands own a portfolio of high street brands, including Berghaus, Speedo, Ellesse, and others, but it is rarely noticed that the Rubin family are the ultimate owners of the companies through the Pentland Group structure. Others hide their family ownership due to concerns about not displaying their wealth. Not all family businesses carry the name of the owning family. Marketing is just one issue that highlights why we should not generalise to family businesses and assume they are all alike; this will be a recurring theme in our book.

Family business is not a new phenomenon. The origins of entrepreneurship are in the family. As far back as the hunter-gatherer period, individual family members would trade the products of their particular skills with other families. The need to provide for your family resulted in innovative and inventive ways of making goods and services to make money. As towns and communities grew, businesses expanded, and family firms started to sell their products or services further afield. Entrepreneurship is at the heart of family business and family firms appear extremely resilient in developed economies. An important question is whether this resilience is due to the backwardness of entrepreneurial models, or an intrinsic efficiency. Business historians up until the late 20th century viewed family business negatively, as stifling innovation. Pulitzer Prize-winning historian Alfred Chandler argued strongly that family business – or ‘personal capitalism’ – acted as a barrier to innovation (Handler, 1990). This view still persists in some quarters, but is heavily critiqued in more recent historical studies of family businesses (see Colli, Howorth and Rose, 2013).

The key characteristic that makes family businesses distinct from non-family businesses is the intertwining and influence of family relationships. Gordon and Nicholson (2008: 2) suggest that ‘family firms have the capacity to outperform non-family comparators, but at the same time they are at risk to family hazards that can overspill or engulf them’. Family businesses are owned by husbands, wives, mothers, fathers, brothers, sisters, cousins, aunts, uncles, and grandparents. In some cases, shares are owned by all these at the same time, bringing a huge complexity of relationships. Families are all about relationships, characterised by emotional ties, attachments, and beliefs. Businesses, however, are expected to be rational economic systems that emphasise efficiency. For families, love, nurture, forgiveness, and protection of the vulnerable are the norm. Also common in families are sibling rivalries, generational conflicts, hurts, arguments, and factions. Families might argue amongst themselves but stand together against any outsiders. Where love and attachments are brought into the family business, they can engender commitment, strong value systems and positive attitudes. Protection of the vulnerable might entail providing a job for a family member who is unable to get one elsewhere. The family might be a powerful force, within the business and in the community. However, conflict and nepotism might be damaging for the business. As we explore the fascinating world of family businesses, it is important to recognise that family ownership can have both positive and negative implications. This is known as the bivalent nature of family business characteristics, and will be explored more in Chapter 2.

The family businesses in Anytown were of many different sizes, and some of them have shares that are publicly traded. If the Jordans family own 40% of the shares, can they still be defined as a family business? What about Walmart, which is one of the world’s largest companies? In Chapter 3 we will examine what defines a family business, and discover that there are differences of opinion. Some would argue that a family business is any business where the family has significant influence; others argue that family businesses have to be majority owned by members of the same family. As we explore the variation in definitions in Chapter 3, we will build your skills in critically analysing research studies, looking behind the headline results to understand what is really going on. Chapter 3 also highlights that family businesses vary in their ownership and management structures, with degrees of family and non-family ownership and management, as well as variation in the extent to which they emphasise family or business objectives.

Like any business, family businesses need good governance, but the intertwining of family and business systems brings added complexity relative to non-family businesses. Warburtons is managed by three fifth-generation cousins (i.e., a cousin consortium) but ownership extends to other cousins and siblings. The cousins have partners and children, some of whom are adults. The business has a board of directors that includes family and non-family members. Is the employment of a junior family member an issue for the family or the business? Whose responsibility is it to select the next CEO? Is it better if the CEO is a family member or not? Chapter 4 provides insight into the tricky issue of governing the family business. We identify structures and processes for corporate and family governance. We highlight that professionalisation is not a once-and-for-all threshold but a process that occurs in waves over many years.

Anytown provides examples illuminating the outstanding longevity of some family businesses. Continuity and succession are often as important to a family firm as profitability. While some families sell up and cash in on their parents’ efforts, many others strive to maintain and grow the family business for generation after generation. It is not unusual for family businesses to be more than 100 years old, and in various countries there are family businesses that can trace their roots back over 1,000 years. It has been suggested that a long-term view is a particular feature of family businesses compared with other types of organisations. We will examine how longstanding family businesses ensure their continuity through generations, the values they bring to the business, their attitudes, and their ability to survive through good and bad times. Longevity requires entrepreneurial renewal, balancing continuity and discontinuity by building on relevant traditions and strengths, while investing in innovation. Some families develop portfolios of firms that allow a wide range of entrepreneurial activities and opportunities to be pursued. Family members might share their resources, networks, and knowledge to enhance the family’s businesses. Often, we also see collaborations between business families who seem to share a bond or cognitive understanding. The businesses in Anytown have taken different approaches to expansion. Walmart, Jordans, and the retail businesses have expanded internationally. When the Warburton cousins took over the family business, they divested a random portfolio of non-core businesses to focus on building a strong bakery business nationally. The Bannister family have adopted a portfolio approach. Families might expand their businesses locally, nationally, or internationally. They might grow the core business or develop a portfolio of businesses. In Chapter 5 we examine entrepreneurship and expansion in family businesses and see that through history, international trade has flourished through families drawing on their resources and expanding their interests.

A particular characteristic of family businesses is the involvement and influence of family members who do not have a formal role as an employee or owner of the business. In Chapter 2, the three-circle model provides a simple theoretical model that captures the influence of this invisible group, which can have both positive and negative i...