The Family Business -- Part One
The Family Business -- Part Two
The Family Business -- Part Four
The Family Business -- Part Five
The Demise of the Family Business?
Upon completing the Gallup survey of family-controlled businesses undertaken by the Family Business Network of the Massachusetts Mutual Life Insurance Company (MassMutual), an analysis of the composition and structure of the key decision-making groups revealed substantial variations in the way family businesses are managed and directed. The key decision makers had been identified as the "... group of individuals who make key decisions for your firm. These are the individuals who make decisions on the company’s strategic direction, capital investment, hiring and firing of key personnel, and other major steps." This analysis examined the participation of family members in relation to the owners or co-owners along with the number of non-family members participating in decision making. Employing the statistical technique of cluster analysis, this data yields pictures of seven distinct types of family businesses.
Cluster 1: "Parental Oversight" (13 percent of family firms) The manager and co-owner of these businesses is relatively young (average age is 37) and the firms are in transition from one generation to another. Virtually all of these firms are second or third generation; the older generation has relinquished its primary responsibilities, but retains some equity and exercises some oversight. At least one parent and frequently both parents participate in the key decision-making group, with non-family member involvement absent in half the cases. Intergenerational disagreements over capital investment and the strategic direction of the business are more numerous than usual, with only 30 percent of the key decision-making groups reportedly "always" sharing common goals versus 43 percent overall.
Cluster 2: "Looking Ahead" (16 percent of family firms) Owners of these firms have their children involved in the business; while 90 percent intend to pass on ownership to the family, they have not yet relinquished control. Trust strongly spans the generations within these businesses with 76 percent reporting the members of the groups "always" trust each other. In contrast with the Parental Oversight cluster, conflicts among generations over the strategic direction and future of the business has not yet emerged; decisions are reached by consensus (59 percent).
Cluster 3: "Dominant Owner" (12 percent of family firms) The owner is king (89 percent) or queen (11 percent). These are primarily first-generation businesses (59 percent), and are smaller than average; more than half (55 percent) have annual revenues of less than $5.0 million. This is the least likely of all clusters to have a board of directors (65 percent); with no non-family or strong family representation, its function is largely perfunctory.
Cluster 4: "Outside Assistance" (33 percent of family firms) The owner/manager in these companies makes key decisions without much family involvement, but places critical reliance upon a small number of non-family members. In a minority of these firms, the group encompasses a co-generational peer, e.g., a sibling (23 percent), sibling-in-law (10 percent) or extended family member (5 percent). The size of the typical decision-making group is small (the mean is 3.1), smaller than any cluster other than the Dominant Owners, but a majority of these firms (71 percent) have between one and three non-family members in this group.
Cluster 5: "Mom and Pop" (17 percent of family firms) A spousal pair dominates these businesses; many women owners or co-owners have companies conforming with this pattern. The key decision-making is not necessarily limited to the marital pair, with a child participating in one-quarter of the firms; typically, one (39 percent) or two (19 percent) non-family members also participate.
Cluster 6: "The Mega Firm" (4 percent of family firms) Not surprisingly, these are the larger family businesses with an average of 347 full-time employees, five times greater than the average for all firms in the survey. An average of ten people participate in the decision-making group in these companies in contrast with the other clusters with three or four individuals. Non-family members are always involved and four or more participate in the majority of these companies (56 percent), with an average of four outside advisors.
Cluster 7: "The Sibling Team" (6 percent of family firms) Ownership is shared with at least one and usually two siblings in these companies, with a parent also involved in the key decision-making group in 35 percent of the cases. However, no non-family members are involved in 52 percent of these companies, and only one outsider participates with the siblings in 28 percent of these companies. Decisions are reached by consensus in three out of five of these firms; this is the cluster most likely to report that the goals of the business "always" come before individual concerns (43 percent).
Where does your family business fit in this analysis?
These three columns have been based upon research conducted and published by the Family Business Enterprise, Massachusetts Mutual Life Insurance Company, D195, 1295 State Street, Springfield, Massachusetts 01111-0001.
Your comments and suggestions for these pages are most welcomed!
Revised: August 7, 1997 TAF
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