Family Business Research Paper

A study carried out on the articles published in Family Business Review from 1988 to 1997, shows that over 70 percent of the academic articles were written by authors in the field of business management (Dyer and Sanchez 1998). In this discipline, family business literature mainly overlaps with studies on entrepreneurship and management issues in small and medium enterprises (SMEs). However, it distinguishes itself from such studies on at least three levels. First of all, family business literature investigates family firms’ evolution from succession to the founding owner up to following stages in which the firm may have become very large and even public but it may still be controlled by one or few families tied by family relationship or solid alliances (Gersick et al. 1997). Second, family business management literature deals with the entrepreneur’s characteristics and entrepreneurship training and developing processes in a peculiar way.

On one hand, these topics are always related to owning families’ characteristics and dynamics, and on the other hand much more attention is devoted to the issue of how to pass on entrepreneurial capabilities rather than on how to start a new venture. Finally, family business literature deals with topics that are not investigated by the streams mentioned previously, such as managing the ownership group, governing the family firms and managing the family–firm relationship.

Family businesses are dynamic systems that include two subsets, the family and the firm, which are characterized by their own evolutionary patterns and are linked to each other by many dynamic relations. Hence a scholar may be considered a scholar at family business when they deal with the whole system: a psychologist interested in parents–children relationships addresses family business issues only when they consider how these relationships’ dynamics impact the way the business operates. A business management scholar interested in strategy deals with family business only when investigating the relationships between the owning families’ structure and evolution and business continuity.

1. Origins And Development Of Family Business

Even if some family business articles appeared in the 1950s, 1960s, and 1970s, only at the beginning of the 1980s was family business born as a field acknowledged by a number of North American scholars and practitioners. A fundamental contribution was made by a management researcher (Richard Beckhard, Management and/organization Behavior Professor at MIT Sloan School of Management for more than 20 years), by a psychology researcher (Harry Levinson, professor at the Psychiatry Department at Harvard Medical School), and by a consultant (Leon Danco, CEO of the Center for Family Business in Cleveland). In the mid-1990s they have been recognized publicly as family business pioneers and interviewed in the 1994 Family Business Review issue (Vol. 2) dedicated to the field’s history; in these interviews they all admit to how difficult it was to make the scientific community accept the existence of family business as a special discipline.

Until then business and family (and related studies) had been dealt with as two separate, autonomous fields: it was difficult to convince scholars in either that it would be useful to get acquainted and cooperate. Moreover, the first studies in family business were case descriptions without any interpretative framework, which made it even more difficult to open a scientific debate. Finally, most family business professionals were practitioners at that time; as such, they were not well respected as researchers by the scientific community. Further, they were not very committed to publishing in order to share their knowledge and experiences with others.

Generally speaking, family firms traditionally have been considered—and not only by academics—as a residual of the past to overcome, beginning from the study by Berle and Means (1932) who considered separation between ownership and control as a fundamental condition of development for modern economies. Not surprisingly, the media were used to dealing with family businesses only to highlight how disputes among family owners or nepotistic behaviors negatively impacted the business.

In 1984 something of decisive importance in the development of family business occurred: a group of North American scholars and practitioners, coordinated by Barbara Hollander, gave rise to the Family Firm Institute (FFI). By means of its various services, FFI has become a special forum for knowledge sharing and development. Particularly, annual conferences and the Family Business Review—founded by Ivan Lansberg in 1988—have been fundamental tools that helped develop theory and practice. In the leading article of the first issue, Lansberg himself provided significant data about how early the stage of the field’s development was: according to a study conducted on the Social Science Citation Index from 1977 to 1987, only 53 articles had been published in the US on family business issues, as compared with the 813 on entrepreneurship.

In 1990, the Family Business Network (FBN) was founded in Europe. Despite its different membership policies (there are more family business members and less professionals), FBN fulfills a similar mission by spreading family business knowledge and fostering a scientific and cultural debate on this topic.

The increasing number of monographic issues on family business published in such reviews as Organizational Dynamics (summer 1983), Business History (October 1993), and Entrepreneurship Theory and Practice (N. 1, 1994) shows that rising attention has been devoted to this new discipline by scholars in other fields as well.

In the US and in other parts of the world, some universities followed the increasing interest on the part of scholars and other stakeholders towards family business. Nowadays more than 100 universities and business schools in the world offer specific research and training programs on family business issues (Aronoff 1998). Most of these programs have been developed in family business centers, which—even if they are often based in management departments— usually get contributions from various disciplines.

Different factors have persuaded individuals and institutions to invest resources in exploring family business. Among these is the diffusion of data about the importance of family businesses in modern economies, evidence that family firms can grow big and cannot just be identified with SMEs, and consciousness of the difficulties for family firms to last beyond the first generation. Depending on the adopted definition, family firms represent from 30 percent to 70 percent of the GDP in the main industrialized countries, and above all, they seem to be the enterprises with the highest rate of growth in employment.

Looking into the future, family business seems to be in a delicate phase. In order to gain importance in the academic context this new discipline needs to be acknowledged from an institutional point of view as well; for this reason, a key challenge—at least in Europe—is to increase the number of universities and business schools that create chairs in family business. Probably this will happen mainly in management departments, as it occurred in the closely related field of entrepreneurship.

Concerning the practitioners’ sphere, the family business field is growing very rapidly, with many advisors coming from a variety of professions and entering the field. The main problem in the near future is the difficulty in defining the minimum standards necessary to qualify people as family business professionals. The FFI is working on a research project that started with identification of four major content areas—Behavioral Science, Finance, Law, and Management Science—and is going on with the definition of fundamentals that competent family business advisors, consultants, and educators should know to work effectively in those subfields.

2. Research Areas And Achieved Results

Family businesses are a composite world including different archetypes. Many authors have proposed classification criteria. According to a widely accepted distinction there are family firms owned and managed either by a single owner or by two or more siblings or by cousins’ teams. A fourth archetype consists of those family firms where equity has been opened up to partners other than the founding family (Corbetta 1995). Usually, changing from one type to the others the company grows in size. But notable exceptions make it impossible to significantly correlate company size with ownership structure. The distinction mentioned here cannot be confused with the generationbased perspective, for example, first generation family enterprises can be controlled either by a single owner or by a sibling partnership or by a cousin consortium.

For every archetype identified, a variety of research topics can be defined, such as:

(a) family structure and management;

(b) ownership structure and management;

(c) company governance;

(d) company management;

(e) relations among family, ownership, governance and management; and

(f ) transitions into another type of family business.

Other general topics of research concern the comparison among different types of family businesses, between family and nonfamily businesses (in terms of values, culture, strategies, and performances), among family enterprises operating in different countries, the relationship between enterprises and consultants, and the role of women.

In terms of necessary competencies, many family business scholars believe that most research topics need interdisciplinary team effort; in particular, re-searchers in management, psychology, and sociology should cooperate to capture the distinctive facets of family business.

2.1 Studies Before The 1980s

The first family business studies mostly concerned founder succession issues, that is either transition from the controlling owner archetype to another or recycling of the same archetype with different actors (Danco 1975). Such studies typically had the following characteristics:

(a) they concerned small and medium sized firms with simple management structures;

(b) they took into consideration only the simplest family situations—one founder, one heir—overlooking more complicated but also more widespread circumstances, for example, those of founding partners’ teams or those where the transition occurs between multiple founders and multiple heirs;

(c) they centered their attention on the two people involved in leadership transition—the founder and the heir—without considering other family and business members;

(d) they almost exclusively dealt with the issue of passing on managerial roles overlooking ownership changes; and

(e) they considered the family as an obstacle to the effective and efficient management of the firm and suggested a clean distinction between family and enterprise as an indispensable condition for business continuity.

Even if many of these studies, which were clearly influenced by some streams of rationalism (Hollander and Elman 1988), have been revisited or even become outdated, they have actually achieved some important results. First of all, they have opened up a new, interesting stream by explicitly recognizing the differences—in terms of roles, goals and needs—and the mutual influence between the family and the business. Moreover, these studies suggested some interpretative frameworks still valid today such as: succession considered as a multiphase process and not an event; the difficulties of this transition coming from the variety of roles—parent, owner, and manager— simultaneously played by the founder; the importance of training for people; the need to consider the firm’s continuity as a fundamental goal to be achieved to be able to consider generational transitions as successful ones.

Many of the first scholars were focused on small and medium sized enterprises, which made them also study managerialization processes in relation to company growth patterns.

2.2 The Subsequent Studies

In the following years the family business field was consolidated; its boundaries were clarified and new topics were identified. In particular, several contributions concerned the following:

(a) the definition of family businesses and their classification, going beyond complete overlapping with small and medium sized enterprises;

(b) the definition of the main dynamic relationships between family and business using interpretative frameworks based on different stages of the firms, people, and families’ life cycles (Davis and Tagiuri 1982, Beckhard and Dyer 1983, Gersick et al. 1997);

(c) succession processes, widening the range of considered situations and variables; and

(d) new topics such as management of extended families, family business governance, and strategy. Concerning the first topic, numerous studies have been focused either on the role and way of implementing family protocols or on the way of functioning of specific bodies like the family council. With regard to the second topic, attention has been centered on the structure and the functioning of boards of directors (Ward 1991, Neubauer and Lank 1998). On the third topic, interesting contributions have been published on internationalization processes and strategic management in general (Ward 1988).

During this period, scholars have reached a greater consensus about the definition of family business and about the classification of different family firms’ archetypes. The field has experienced significant development and has involved scholars from other disciplines (e.g., finance and corporate governance), which has generated new research opportunities.

One very important achievement is that the family is no longer considered an obstacle to the firm’s development. Longitudinal studies of family business cases and quantitative researches definitely have shown that the owning family can be a strong point for the firm as it provides such key factors as long-term orientation, education to entrepreneurship, values, commitment and personal sacrifice, reputation, speed in decision-making, and lower transaction costs (Gallo 1995). Social scientists’ studies are considered an important basis to build up theories and models that can be helpful for family business success in the long run. Theories on family life cycles and adult development have been used to analyze family firms’ stages of development, which are seen as the joint result of family, ownership, and business dynamics (Gersick et al. 1997). Family systems’ theories are used to suggest how to better manage interpersonal relations, communications, and to handle conflicts through their predictable stages in the family business context (Barnes 1988, Kaye 1991). Interpretative models have recently been proposed considering the family just as important as the company as a determinant of family business success; so, both institutions are included in the model at the same level of detail, as purposive social systems transforming resources and constraints into outcomes by interpersonal and resource transactions (Scannel Trent 1999). The same studies have investigated family firms’ diffusion by surveying households instead of companies.

Concerning succession, which is still the hottest topic in family business literature, research findings highlight the need to plan the transition: the importance of successors’ personal development both inside and outside their own family firms; the critical role of the entrepreneur and of their ability to delegate; the importance of communication; and the useful contribution of nonfamily members either as outside directors or as tutors and mentors to the younger generation. Efforts have been made to broaden the focus of research: a variety of situations has been addressed in addition to the ‘simple’ one featuring one entrepreneur with only one heir; ownership transitions and their financial implications have emerged as relevant succession topics besides the classical one concerning company leadership. Efforts have also been made to offer deeper insights on the ‘classical’ issue of succession to the founder. Numerous studies have built upon the existing literature by exploring the complexities that characterize this type of succession as well and that had been overlooked so far. Relationship between founder and the whole organization, and how organizational culture can be created and passed on so as to enable company continuity have been investigated (Schein 1983). The broad range of stakeholders involved besides the founder and the successor involved has been analyzed, highlighting how each of them may resist coping with the generational transition issue and by this means create obstacles to the whole process (Lansberg 1988). The issue of how entrepreneurial attitudes and capabilities can be learnt and taught has been further explored (Aronoff et al. 1996).

Finally, relevant insights have been provided on family business governance, particularly on the structure and the functioning of boards of directors and on their contribution to company development.

2.3 Future Developments

A recent article that appeared in the Family Business Re iew has identified some trends in family business studies (Aronoff 1998). Succession will remain one of the most interesting areas in the broader perspective of generational transition. A new research topic could concern possible roles for retiring entrepreneurs. Generational transitions will increasingly lead to both owners and family managers’ teams; conditions under which such teams can effectively work will be one of the hottest topics in the nearest future. Companies’ strategic context is significantly changing because of the impact of new technologies and globalization. Family businesses’ capability to compete in such a context will make a relevant research topic as well. Another key issue will be the impact of increasing managerial and financial sophistication on both the culture and behaviors of family businesses. The other topics mentioned by Aronoff concern the roles of women, consultants, and educators.

Interesting developments may also come from the increasing focus on big family businesses that characterizes some studies in progress. Certainly this will lead not only to identifying and offering more sophisticated solutions to the already well-known problems of smaller family businesses, but also to investigating different ways to govern and manage large family fortunes in terms of both personal attitudes and necessary skills.

Studies on family businesses’ developmental stages have not yet deeply explored transitions from one stage to another. Relevant insights on this topic could be provided by joint efforts of management and psychology researchers.

Finally, other topics are likely to undergo important developments. We can mention, for instance: comparisons among different archetypes of family firms, among family businesses from different countries, and between family and nonfamily enterprises in terms of resources, strategies, and performances; nonfamily managers’ characteristics and roles; family businesses’ selling processes; and the impact of some variables on family firms’ continuity. Research efforts could also address family values and ownership structures.

Research topics still seem to be driven by both family enterprises and family business professionals, necessary because they are the main sponsors of research projects. On the other hand, the strong link with family businesses is helpful in making the relationship between theory and practice mutually beneficial. Obviously scholars should avoid focusing on short-term needs and commit themselves to identifying long-term research goals and strategies.

3. Methodological Issues

Practitioners, as it was stated before, have played a predominant role in the formation of family business as a discipline. At least until the early 1980s, as a consequence, research methodologies were not emphasized. Even those scholars who have been in the field from the very beginning were much more concerned in defining boundaries and topics rather than in carrying out methodologically acceptable research projects. In the first issue of the Family Business Re iew, in 1988, only 14 percent of articles were research based. Notably, 64 percent of the articles published in the 10th issue of the same review reported qualitative or quantitative research findings (Dyer and Sanchez 1998).

In any case, family business research still has to cope with at least three specific problems. The first and most important one is that family business, as should be evident, requires that contributions be provided by professionals from different disciplines, particularly social sciences such as sociology, psychology, and business management. On one hand, it is not easy that a single person dominates both; at the same time, interdisciplinary collaboration is not well developed, probably because of the high costs of joint research due to the very different starting points in terms of knowledge, languages, and methodologies. On the other hand, since in many fields radical advances come from collaboration between authors in different disciplines and professions, such collaboration should be strongly encouraged.

The second problem concerns information availability. Entrepreneurs and their families are known to be very reserved and protective of their privacy. Moreover, most family businesses do not have to disclose much information about their structure or about their performances. Researchers are trying to overcome this problem by collaborating with institutions such as banks that can provide family business databases or by designing research projects based on primary sources and making use of interviews, questionnaires, and longitudinal case studies.

The third relevant problem regards the specific need of this field to encourage collaboration between scholars and practitioners. Increasing interest in family business among younger Ph.D.’s is definitely improving the quality of research. Some difficulties could arise as young scholars often focus their attention on topics that are not considered particularly relevant by family businesses, which may hinder communication between academics and other stake-holders. In other fields such as entrepreneurship, such incommunicability has led to very disappointing results (Brockhaus 1994).

Finally, given the interdisciplinary nature of the family business field, relevant developments might result from the application of theoretical frameworks and analytical tools developed in other knowledge areas such as the system dynamics approach (which might be useful in explaining the dynamics of the family-business system) or the resource-based view (which might lead to a better understanding of the relationships between the business and the family’s resources and the firm’s performances).

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