FAMILY BUSINESS

Family businesses are enterprises that are owned, managed, and operated by members of the same family. These businesses can span a wide range of industries and sizes, from small local shops to large multinational corporations. Family businesses have been a common form of business organization throughout history and continue to play a significant role in the global economy.

One of the defining features of family businesses is the presence of family members in key positions of ownership, management, or leadership. This involvement of family members can bring unique advantages and challenges to the business. Some of the advantages include:

Commitment and long-term perspective: Family members often have a strong commitment to the business's success and are willing to invest significant time and effort to ensure its long-term viability. They tend to take a more patient and strategic approach, focusing on sustainable growth rather than short-term gains.

Trust and shared values: Family businesses often benefit from a high level of trust and shared values among family members. This can foster a strong sense of unity, loyalty, and dedication to the business's mission and vision.

Flexibility and agility: Family businesses can be more agile in decision-making and implementation due to fewer bureaucratic layers and the ability to make quick decisions within the family circle. This can help them respond more effectively to market changes and opportunities.

Generational continuity: Family businesses often have a long-term perspective that spans multiple generations. This continuity can provide stability and allow the business to develop strong relationships with customers, suppliers, and other stakeholders over time.

However, family businesses also face some unique challenges:

Family dynamics: The presence of family members in the business can introduce complex dynamics, such as conflicts of interest, power struggles, and difficulties separating personal and professional relationships. Balancing family dynamics with business decisions can be a delicate task.

Succession planning: Transitioning leadership from one generation to the next is a critical challenge for family businesses. Planning for succession requires careful consideration of family members' skills, interests, and abilities, as well as the business's long-term needs.

Professionalization and governance: As family businesses grow, there is a need for professionalizing management practices and implementing robust governance structures. This can involve bringing in non-family executives, establishing clear policies and procedures, and implementing formal decision-making processes.

External perception and credibility: Some stakeholders may perceive family businesses as less professional or capable compared to non-family businesses. Overcoming this perception and establishing credibility in the broader business community can be a challenge for family-owned enterprises.

Despite these challenges, many family businesses have thrived and achieved long-term success. They have contributed significantly to job creation, economic growth, and innovation in various industries. With proper planning, effective governance, and a focus on balancing family dynamics with business needs, family businesses can continue to be successful for generations to come.

What is unique in family business or what distinguishes family firms from other types of organisations is the influence of family on the firm. Note that the distinction between family and non-family firm is not a matter of the size of the business , nor whether it is privately or publically held.

Family business has been as common in the Indian economy like elsewhere in the world, it is perceived in a common sense. Various terms like ‘family-owned,’ family controlled,’ ‘family managed,’ ‘business houses,’ and ‘industrial houses’ are used to refer to family business. So what qualifies a family firm as such is the degree to which and the ways through which a family controls its firms.

Thus, the term family business conjures up different meanings to different people. While some view it as traditional business, others consider it as community business, and still othersmean it as home-based business. Family firms deserve an approach to management that takes into consideration what makes them unique: the fact that they are influenced by a particular type of dominant coalition, a family that has a particular goals, preferences, abilities and biases.

Types of Family Business:

It is not easy to distinguish between a family and non-family firms. Scholars have tried to distinguish between the two on the basis of some cut-off level for family involvement in a firm for example in the dimension of ownership or management. .As such, there are various definitions of family business given looking at the different aspects of family business. For the convenience of understanding, all definitions have been broadly classified into two types based on the structure and process involved in family business.

1. Ownership Control These definitions are given based on ownership and/ or management of family business. Majority stake is required to control ownership or a decisive influence on a firm. But it is not a necessary condition because control is possible even without a majority ownership stake. Inpublic limited companies a significant minority ownership may be enough to control strategicdecisions in a firm (such as appointment of Board Members and top management, acquisition, disinvestment, restructuring etc.). An ownership stake of 20 to 25% is sufficient for a share holder to have a decisive influence on strategic decisions.A few such definitions are “Ownership control by the members of a single family.” — Barry “Majority ownership by a single family and direct involvement by at least two members in itsoperation.” — Rosenblatt, de Mik, Anderson, and Johnson.

2. Family Management:Some researchers argue that a broad definition of a family business should incorporate some degree of control over strategic decisions by the family and the intention to leave the businessin the family. Shankar and Astrachan (1996) note that the criteria used to define a family business can include: Percentage of ownership; Voting control; Power over strategic decisions; Involvement of multiple generations; and Active management of family members.Some Scholars argue that firm only qualifies as a family business if it is family managed as well as family owned. “Single family effectively controls firm through the ownership of greater than 50 per cent of the voting shares; a significant portion of the firm’s senior management is drawn from the same family.” — Leach et al. The CEO position may be within the family in small firms. But in large firms it is not the case the CEO may be from outside the family members also

3. .Transgenerational Focus: There is a good deal of literature suggesting that what makes a family firm is its transgenerational focus. That is, the wish to pass the firm on to future family generations separated family firms from non family firms. The transgenerational outlook is indeed important, as it represents a critical feature distinguishing family firms from other types of closely held companies.

Some argue that, regardless of the ownership or management structure, a business can only qualify as a family firm if it has remained under family control beyond the founding generation.Process Definitions:These definitions are based on how the family is involved in the business.

4. Later Generational ControlThe argument that firms held by the founding generation are not family firms is not universally accepted. Many would argue that firms founded with the involvement of family members or firms held by the founding generation with the intent of passing control on to some future generation should qualify as family firms as well.“Family business is a firm which has been closely identified with at least two generations of afamily and when this link has had a mutual influence on company policy and on the interests and objectives of the family.”