Mod001093 family businesses 050415

MOD001093MOD001093
ENTREPRENEURSHIP ANDENTREPRENEURSHIP AND
INNOVATION:INNOVATION:
FAMILY BUSINESSESFAMILY BUSINESSES
Prof.Stephen OngProf.Stephen Ong
BSc(Hons)Econs (LSE), MBA (Bradford)BSc(Hons)Econs (LSE), MBA (Bradford)
Visiting Professor, Shenzhen UniversityVisiting Professor, Shenzhen University
Academic Fellow, Entrepreneurship & Innovation,Academic Fellow, Entrepreneurship & Innovation,
The Lord Ashcroft International Business School, AngliaThe Lord Ashcroft International Business School, Anglia
Ruskin University Cambridge UKRuskin University Cambridge UK
MBA ANGLIA RUSKIN UNIVERSITYMBA ANGLIA RUSKIN UNIVERSITY

Today’s OverviewToday’s Overview

LEARNING OBJECTIVESLEARNING OBJECTIVES
 To assess the economicTo assess the economic
significance of family-run firms.significance of family-run firms.
 To appraise critically the specialTo appraise critically the special
attributes of these firmsattributes of these firms
 To review the empirical evidenceTo review the empirical evidence
of the taxonomy of family firmsof the taxonomy of family firms

Video : “I’ll Show Them Who’sVideo : “I’ll Show Them Who’s
Boss”Boss”
Sir Gerry & a Family BusinessSir Gerry & a Family Business
“Take your holidays, don't get
submerged in detail; you
rarely need more than eight
hours a day to do the job.”
Sir Gerry Robinson, Corporate RaiderSir Gerry Robinson, Corporate Raider
https://www.youtube.com/watchhttps://www.youtube.com/watch
?v=BIbXOn5zjko?v=BIbXOn5zjko

ROLE OFROLE OF
FAMILY FIRMSFAMILY FIRMS

The 3 Generations of the LuckyThe 3 Generations of the Lucky
Sperm Club ( The Economist 2014)Sperm Club ( The Economist 2014)
"I don't believe in"I don't believe in
dynastic wealth …dynastic wealth …
those who grow upthose who grow up
in wealthyin wealthy
circumstances arecircumstances are
members of themembers of the
lucky sperm club.“lucky sperm club.“
Warren Buffet, 2006Warren Buffet, 2006

Global Family BusinessesGlobal Family Businesses
(2014)(2014)

ContributionsContributions
 Two-thirds of private firms are family ownedTwo-thirds of private firms are family owned
 Family firms in the USA (Shanker and Astrachan,Family firms in the USA (Shanker and Astrachan,
1996):1996):
 Generate between 12 and 59 per cent of the gross national productGenerate between 12 and 59 per cent of the gross national product
 Generate between 19 and 78 per cent of new jobs createdGenerate between 19 and 78 per cent of new jobs created
 Employ between 15 and 59 per cent of the workforceEmploy between 15 and 59 per cent of the workforce
 Family firms over-represented in rural areasFamily firms over-represented in rural areas
(Westhead and Cowling, 1998)(Westhead and Cowling, 1998)
 3030 perper cent transferred to second generation familycent transferred to second generation family
ownership and only 13 per cent survived to thirdownership and only 13 per cent survived to third
generation (Ward, 1987)generation (Ward, 1987)
 Impact on local economic development and socialImpact on local economic development and social
cohesioncohesion

Family Firm AgendasFamily Firm Agendas
 Some family firms do not solely focus onSome family firms do not solely focus on
‘business agendas’‘business agendas’ (i.e. profit maximisation)(i.e. profit maximisation)
 Some owners of family firms may place moreSome owners of family firms may place more
emphasis onemphasis on ‘family agendas’ and broader‘family agendas’ and broader
‘social agendas’‘social agendas’ (i.e. social cohesion, protection(i.e. social cohesion, protection
of a local culture and/or a minority language,of a local culture and/or a minority language,
employment of local people, utilisation of localemployment of local people, utilisation of local
suppliers, etc.)suppliers, etc.)
 To protect ‘family agendas’, the family ownersTo protect ‘family agendas’, the family owners
may focus on non-financial objectives (Zahramay focus on non-financial objectives (Zahra etet
al.al., 2004) to the detriment of firm development, 2004) to the detriment of firm development

Enterprise SustainabilityEnterprise Sustainability
 Private family firm development is anPrivate family firm development is an
importantimportant enterprise sustainability issueenterprise sustainability issue
(Westhead, 2003)(Westhead, 2003)
 Family firm sustainabilityFamily firm sustainability calls for continuedcalls for continued
entrepreneurship, continued familyentrepreneurship, continued family
involvement and professional managementinvolvement and professional management
(Johannisson and Huse, 2000)(Johannisson and Huse, 2000)
 Viable firm must host all three aspects andViable firm must host all three aspects and
deal with thedeal with the tensions betweentensions between
entrepreneurialism, paternalism andentrepreneurialism, paternalism and
managerialismmanagerialism??

Policy DebatePolicy Debate
 Practitioners may target assistance to superiorPractitioners may target assistance to superior
performing family firms to maximise investmentperforming family firms to maximise investment
returns and/orreturns and/or
 Practitioners may encourage poorer performingPractitioners may encourage poorer performing
family firms to professionalise and to focus onfamily firms to professionalise and to focus on
financial performancefinancial performance
 Should policy-makers modify the fiscal regimeShould policy-makers modify the fiscal regime
(inheritance and capital gains tax) and/or provide(inheritance and capital gains tax) and/or provide
support to encourage the development of privatesupport to encourage the development of private
family firms?family firms?
 Family firm owners concerned that capital taxes can putFamily firm owners concerned that capital taxes can put
at risk the inter-generational transfer of firmsat risk the inter-generational transfer of firms

Unique Group of FirmsUnique Group of Firms
 BusinessBusiness is ais a performance-based systemperformance-based system
 FamilyFamily is ais a relationship-based systemrelationship-based system (Ward,(Ward,
1987)1987)
 Family firms are a unique group of establishedFamily firms are a unique group of established
businessesbusinesses
 The involvement of family members in theThe involvement of family members in the
ownershipownership andand managementmanagement of the firm, and theof the firm, and the
intertwining of family and business objectivesintertwining of family and business objectives
 Company objectives may be influenced by theCompany objectives may be influenced by the
three interdependent sub-systems of family,three interdependent sub-systems of family,
ownership and management (Hoy andVerser,ownership and management (Hoy andVerser,
1994)1994)

Theoretical InsightsTheoretical Insights
 Agency theoryAgency theory: ownership and management are viewed: ownership and management are viewed
as dimensions of aas dimensions of a performance-based systemperformance-based system wherewhere
rational economic objectives (profit maximisation) arerational economic objectives (profit maximisation) are
assumedassumed
 Family can be viewed as a part of aFamily can be viewed as a part of a relationship-basedrelationship-based
systemsystem. Reported behaviour may not be economically. Reported behaviour may not be economically
rational because non-financial objectives prevailrational because non-financial objectives prevail
 To protect ‘family agendas’, the family owners andTo protect ‘family agendas’, the family owners and
managers may focus on non-financial objectives.Thismanagers may focus on non-financial objectives.This
behaviour may retard the financial performance of thebehaviour may retard the financial performance of the
firmfirm
 Stewardship theoryStewardship theory: insights surrounding the: insights surrounding the
ownership and management of firms that focus on non-ownership and management of firms that focus on non-

Family Firm AssetsFamily Firm Assets
 Family involvement and objectives can be aFamily involvement and objectives can be a
source of both strengths and weakness forsource of both strengths and weakness for
family firmsfamily firms
 Family firm strengths:Family firm strengths:
 Experience and knowledgeExperience and knowledge
 Family resources (employ family members)Family resources (employ family members)
 Stability and longevityStability and longevity
 Contacts and trust relationshipsContacts and trust relationships
 Familial ties provide loyalty and trustFamilial ties provide loyalty and trust
between family owners, employees andbetween family owners, employees and
customers and may be the key to success incustomers and may be the key to success in
some family firms (Chrismansome family firms (Chrisman et al.et al., 2003b), 2003b)

Family Firm LiabilitiesFamily Firm Liabilities
 Family firm owners may trade firm profitability forFamily firm owners may trade firm profitability for
other benefitsother benefits
 To ensure ‘independence’ and ‘family agendas’:To ensure ‘independence’ and ‘family agendas’:
 Reluctance to sell equity to ‘outsiders’Reluctance to sell equity to ‘outsiders’
 An aversion to debt which may constrain growthAn aversion to debt which may constrain growth
potentialpotential
 Reluctance to adopt a performance-related systemReluctance to adopt a performance-related system
 Key managerial positions held by ‘kinship relations’Key managerial positions held by ‘kinship relations’
 Reluctance to use external professional expertiseReluctance to use external professional expertise
which may question ‘family agendas’ and ‘familywhich may question ‘family agendas’ and ‘family
management’management’
 Firm performance retarded because of placingFirm performance retarded because of placing
family objectives over business objectives (Birleyfamily objectives over business objectives (Birley etet
al.al., 1999), 1999)

Family Firm DefinitionsFamily Firm Definitions
Westhead and Cowling (1998)Westhead and Cowling (1998)
 Definition 1:The company was perceived by the Chief
Executive/Managing Director/Chairman to be a family
business
 Definition 2: More than 50 per cent of ordinary voting
shares were owned by members of the largest single
family group related by blood or marriage
 Definition 3: More than 50 per cent of ordinary voting
shares were owned by members of the largest single
family group related by blood or marriage and the
company was perceived by the Chief
Executive/Managing Director/Chairman to be a family
business

DefinitionsDefinitions
 Definition 4:Definition 4: More than 50 per cent of ordinary voting sharesMore than 50 per cent of ordinary voting shares
were owned by members of the largest single family groupwere owned by members of the largest single family group
related by blood or marriage, the company was perceivedrelated by blood or marriage, the company was perceived
by the Chief Executive/Managing Director/Chairman to be aby the Chief Executive/Managing Director/Chairman to be a
family business and one or more of the management teamfamily business and one or more of the management team
was drawn from the largest family group who owned thewas drawn from the largest family group who owned the
companycompany
 Definition 5:Definition 5: More than 50 per cent of ordinary voting sharesMore than 50 per cent of ordinary voting shares
were owned by members of the largest single family groupwere owned by members of the largest single family group
related by blood or marriage, the company was perceivedrelated by blood or marriage, the company was perceived
by the Chief Executive/Managing Director/Chairman to be aby the Chief Executive/Managing Director/Chairman to be a
family business and 51 per cent or more of the managementfamily business and 51 per cent or more of the management
team were drawn from the largest family group who ownedteam were drawn from the largest family group who owned
the companythe company

 Definition 6:Definition 6: More than 50 per cent of ordinary votingMore than 50 per cent of ordinary voting
shares were owned by members of the largest single familyshares were owned by members of the largest single family
group related by blood or marriage, the company wasgroup related by blood or marriage, the company was
perceived by the Chief Executive/Managingperceived by the Chief Executive/Managing
Director/Chairman to be a family business, one or more ofDirector/Chairman to be a family business, one or more of
the management team were drawn from the largest familythe management team were drawn from the largest family
group who owned the company and the company wasgroup who owned the company and the company was
owned by second generation or more family membersowned by second generation or more family members
 Definition 7:Definition 7: More than 50 per cent of ordinary votingMore than 50 per cent of ordinary voting
shares were owned by members of the largest single familyshares were owned by members of the largest single family
group related by blood or marriage, the company wasgroup related by blood or marriage, the company was
perceived by the Chief Executive/Managingperceived by the Chief Executive/Managing
Director/Chairman to be a family business, 51 per cent orDirector/Chairman to be a family business, 51 per cent or
more of the management team were drawn from themore of the management team were drawn from the
largest family group who owned the company and thelargest family group who owned the company and the
company was owned by second generation or more familycompany was owned by second generation or more family
membersmembers
Definitions (Continued)Definitions (Continued)

Scale of Family Firms in theScale of Family Firms in the
UKUK
Table 7.1 Numbers of surveyed family and non-family unquotedTable 7.1 Numbers of surveyed family and non-family unquoted
companiesin the United Kingdomcompaniesin the United Kingdom
SourceSource: Westhead and Cowling (1998): Westhead and Cowling (1998)

Family Firm ProfileFamily Firm Profile
Westhead and Cowling (1998): UK EvidenceWesthead and Cowling (1998): UK Evidence
 Older firms: smaller in employment and salesOlder firms: smaller in employment and sales
revenues sizerevenues size
 Over-represented sectors: agriculture, forestry andOver-represented sectors: agriculture, forestry and
fishing; distribution, hotels and cateringfishing; distribution, hotels and catering
 Under-represented sectors: banking, finance andUnder-represented sectors: banking, finance and
business servicesbusiness services
 Over-represented locations: rural areas (less thanOver-represented locations: rural areas (less than
10,000 people); East Midlands of England10,000 people); East Midlands of England
 Under-represented location: South East of EnglandUnder-represented location: South East of England
 Need to control forNeed to control for age, industry, rural and standardage, industry, rural and standard
region when comparing family and non-family firmsregion when comparing family and non-family firms

ATTRIBUTES OFATTRIBUTES OF

Management StructureManagement Structure
WestheadWesthead et al.et al. (2001): UK Evidence(2001): UK Evidence
 Definition 3 selected; 73 family firms matched with 73Definition 3 selected; 73 family firms matched with 73
non-family firms (age, industry, rural and standardnon-family firms (age, industry, rural and standard
region)region)
 Family CEOs in family firms employed longer thanFamily CEOs in family firms employed longer than
'outside' CEOs employed in family firms (16 compared'outside' CEOs employed in family firms (16 compared
with 8 years)with 8 years)
 Directors owned more ordinary voting shares in familyDirectors owned more ordinary voting shares in family
than non-family firms (93 per cent compared withthan non-family firms (93 per cent compared with
82 per cent)82 per cent)
 Family firms less likely than non-family firms to employFamily firms less likely than non-family firms to employ
a non-executive director (NED) who can providea non-executive director (NED) who can provide
resources and advice (9 per cent compared withresources and advice (9 per cent compared with
19 per cent)19 per cent)
 Management structure may retard firm performanceManagement structure may retard firm performance

““Family businesses simplyFamily businesses simply
Don’t Grow”Don’t Grow” (Ward, J.L. 1997)(Ward, J.L. 1997)

Survey : Life Expectancy ofSurvey : Life Expectancy of
Family FirmsFamily Firms (Ward 1988)(Ward 1988)

Business Planning & FamilyBusiness Planning & Family
FirmsFirms (Ward 1988)(Ward 1988)

StrategyStrategy
Westhead (1997): UK EvidenceWesthead (1997): UK Evidence
 Definition 3 selected; 73 family firms matchedDefinition 3 selected; 73 family firms matched
with 73 non-family firms (age, industry, ruralwith 73 non-family firms (age, industry, rural
and standard region)and standard region)
 14 strategic factors (based upon 37 strategic14 strategic factors (based upon 37 strategic
variables) were examinedvariables) were examined
 Univariate and multivariate statisticalUnivariate and multivariate statistical
analysisanalysis
 SeveralSeveral similaritiessimilarities between family and non-between family and non-
family companiesfamily companies
 Firm performance may be shaped byFirm performance may be shaped by keykey
differencesdifferences

Strategy: Family FirmsStrategy: Family Firms
 External financingExternal financing: frequently explore: frequently explore
for new sources of fundsfor new sources of funds
 External independenceExternal independence: actively: actively
attempt to minimise our dependence onattempt to minimise our dependence on
any single supplierany single supplier
 PlanningPlanning: use formalised management: use formalised management
information systems to supportinformation systems to support
decision-makingdecision-making
 AdvertisingAdvertising: use frequent advertising: use frequent advertising

Family FirmsFamily Firms
 TechnologyTechnology: actively further refine: actively further refine
a technology developed by othersa technology developed by others
 Product/serviceProduct/service: use product or: use product or
process patent and/or copyrights toprocess patent and/or copyrights to
provide a competitive advantage;provide a competitive advantage;
offer a wider range ofoffer a wider range of
products/servicesproducts/services
 QualityQuality: offer products/services of: offer products/services of
superior qualitysuperior quality

Strategy: Non-Family FirmsStrategy: Non-Family Firms
 External independenceExternal independence: actively attempt to: actively attempt to
minimise our dependence on any singleminimise our dependence on any single
customercustomer
 Long-term financeLong-term finance: emphasise immediate: emphasise immediate
profitability; emphasise long-term capitalprofitability; emphasise long-term capital
investmentsinvestments
 ManagementManagement: promote managers based on: promote managers based on
their specific skills, knowledge andtheir specific skills, knowledge and
competencecompetence
 Alertness/opportunity recognitionAlertness/opportunity recognition: actively: actively
attempt to predict competitors moves;attempt to predict competitors moves;
actively attempt to predict industry trendsactively attempt to predict industry trends

Non-Family FirmsNon-Family Firms
 AdvertisingAdvertising: use advertising that: use advertising that
differentiates our products/servicesdifferentiates our products/services
from those of our competitionfrom those of our competition
 TechnologyTechnology: actively use technology: actively use technology
developed by others; actively improvedeveloped by others; actively improve
our existing technologyour existing technology
 QualityQuality: emphasise the building of: emphasise the building of
company image and reputation withincompany image and reputation within
our industryour industry

Superior Family Firm PerformanceSuperior Family Firm Performance
 FFamily firmsamily firms might be expected tomight be expected to
perform betterperform better than non-family firms:than non-family firms:
 Avoidance of strategies focusing on short-Avoidance of strategies focusing on short-
term gainsterm gains
 An ethos of mutual trust between workersAn ethos of mutual trust between workers
and family managersand family managers
 More investments in employees andMore investments in employees and
management training and/or researchmanagement training and/or research
 Family firms assets (see earlier slide)Family firms assets (see earlier slide)

Weaker Family Firm PerformanceWeaker Family Firm Performance
 FFamily firmsamily firms might be expected tomight be expected to under-performunder-perform::
 Lack of commitment in family firms to profit maximisationLack of commitment in family firms to profit maximisation
 Family issues take priority over short-term financialFamily issues take priority over short-term financial
performance objectivesperformance objectives
 To ensure family ownership and control, family firm ownersTo ensure family ownership and control, family firm owners
may be unwilling to finance firm growth utilising resourcesmay be unwilling to finance firm growth utilising resources
gained by the sale of equity to ‘outsiders’gained by the sale of equity to ‘outsiders’
 Family firms favour the use of family members in managerialFamily firms favour the use of family members in managerial
positions and this may reduce the quality of managementpositions and this may reduce the quality of management
 Family firms may be more difficult to manage because of theFamily firms may be more difficult to manage because of the
need to satisfy business and family 'agendasneed to satisfy business and family 'agendas’’
 Are family firms associated with any compensatingAre family firms associated with any compensating
advantages? (see earlier slides)advantages? (see earlier slides)

Family Firm PerformanceFamily Firm Performance
 Family firm performance studies provideFamily firm performance studies provide
inconsistent evidenceinconsistent evidence
 Some studies detect family firms performSome studies detect family firms perform
worseworse than non-family firms, whilst othersthan non-family firms, whilst others
detectdetect superiorsuperior family firm performancefamily firm performance
 ‘‘Hard’ performance: sales, jobs, profitabilityHard’ performance: sales, jobs, profitability
 Also need to consider non-financialAlso need to consider non-financial
performanceperformance
 Need ‘matched sample’ analysis and/orNeed ‘matched sample’ analysis and/or
multivariate analysismultivariate analysis

Firm Size and PerformanceFirm Size and Performance
Performance variablePerformance variable Family firmFamily firm Non-family firmNon-family firm
MeanMean MeanMean
Gross sales revenue, 1991 (£’000s)Gross sales revenue, 1991 (£’000s) 28002800 15511551
Gross sales revenue, 1994 (£’000s)Gross sales revenue, 1994 (£’000s) 35913591 19571957
Absolute change in gross salesAbsolute change in gross sales 791791 406406
revenue, 1991revenue, 1991––1994 (£’000s)1994 (£’000s)
Percentage change in gross salesPercentage change in gross sales 27.327.3 55.255.2
revenue, 1991revenue, 1991––19941994
Number employed, 1991Number employed, 1991 20.820.8 18.918.9
Number employed, 1994Number employed, 1994 23.223.2 22.022.0
Absolute change in numberAbsolute change in number 2.42.4 3.13.1
employed, 1991employed, 1991––19941994

Performance variablePerformance variable Family firmFamily firm Non-family firmNon-family firm
MeanMean MeanMean
Percentage change in numberPercentage change in number 16.916.9 19.419.4
employed, 1991employed, 1991––19941994
Weighted performance score (a)Weighted performance score (a) 12.412.4 12.212.2
Student’s ‘Student’s ‘tt’ statistics were not significant at the 0.05 level’ statistics were not significant at the 0.05 level
(one-tailed tests)(one-tailed tests)
(a)(a) Calculated for each company relating to the ‘importance’Calculated for each company relating to the ‘importance’
and ‘satisfaction’ respondents reported with regard to sixand ‘satisfaction’ respondents reported with regard to six
performance indicators (Naman and Slevin, 1993)performance indicators (Naman and Slevin, 1993)
Firm Size and PerformanceFirm Size and Performance

Employment Change in Family FirmsEmployment Change in Family Firms
VariableVariable Family firmFamily firm Non-family firmNon-family firm
((nn = 72)= 72) ((nn = 71)= 71)
Number of companies reportingNumber of companies reporting 2323 1515
employment lossesemployment losses
no change in employment sizeno change in employment size
employment gainsemployment gains

Employment: 5 Largest GrowersEmployment: 5 Largest Growers
VariableVariable Family firmFamily firm Non-familyNon-family
firmfirm
Job loss in firms reporting lossesJob loss in firms reporting losses 140140 101101
Job gains in firms reporting gainsJob gains in firms reporting gains 313313 323323
Job gains by 5 largest growersJob gains by 5 largest growers 226226 181181
% of total jobs by 5 largest% of total jobs by 5 largest 7272 5656
employment growersemployment growers

Ownership and PerformanceOwnership and Performance
Westhead and Howorth (2006a): UK EvidenceWesthead and Howorth (2006a): UK Evidence
 Firms associated with high levels of familyFirms associated with high levels of family
ownership and management were not significantlyownership and management were not significantly
associated with weaker firm sales and employmentassociated with weaker firm sales and employment
 Firms with larger teams of directors and managersFirms with larger teams of directors and managers
reported significantly higher levels of absolutereported significantly higher levels of absolute
growth in sales revenuesgrowth in sales revenues
 Firms with CEOs drawn from the dominant familyFirms with CEOs drawn from the dominant family
group owning the businesses were less likely to begroup owning the businesses were less likely to be
exportersexporters
 Multi-generation firms were not found to reportMulti-generation firms were not found to report
significantly poorer sales and employmentsignificantly poorer sales and employment

Family Firms and ObjectivesFamily Firms and Objectives
Westhead and Howorth (2006a): UK EvidenceWesthead and Howorth (2006a): UK Evidence
 Family firms’ ownership and management structure were foundFamily firms’ ownership and management structure were found
to be associated with a focus on specific non-financialto be associated with a focus on specific non-financial
objectives (i.e. ‘family agendas’)objectives (i.e. ‘family agendas’)
 Closely held and managed family firms were more likely to citeClosely held and managed family firms were more likely to cite
that ‘voting shares are not sold outside the family’that ‘voting shares are not sold outside the family’
 Family managed firms were more likely to report theFamily managed firms were more likely to report the
following non-financial objectives: ‘to pass thefollowing non-financial objectives: ‘to pass the
business on to the next generation’ and ‘providingbusiness on to the next generation’ and ‘providing
employment to family members is one of the goals ofemployment to family members is one of the goals of
the business’the business’
 First generation firms and firms with low proportions ofFirst generation firms and firms with low proportions of
managers being family members were less likely to report thatmanagers being family members were less likely to report that
‘family objectives have priority over business objectives’‘family objectives have priority over business objectives’

TYPES OFTYPES OF

Figure 7.1 Conceptualised ‘types’ of family firmsFigure 7.1 Conceptualised ‘types’ of family firms(a)(a)
Notes: (a) Empirical types of family firms are reported in brackets; C1 = ‘cousin consortium family firms’; C2 = ‘large open family firms’;Notes: (a) Empirical types of family firms are reported in brackets; C1 = ‘cousin consortium family firms’; C2 = ‘large open family firms’;
C3 = ‘entrenched average family firms’; C4 = ‘multi-generational open family firms’; C5 = ‘professional family firms’; C6 = ‘average family firms’;C3 = ‘entrenched average family firms’; C4 = ‘multi-generational open family firms’; C5 = ‘professional family firms’; C6 = ‘average family firms’;
C7 = ‘multi-generational average family firms’.C7 = ‘multi-generational average family firms’.
SourceSource: Westhead and Howorth (2007, Table 1).: Westhead and Howorth (2007, Table 1).

Conceptualised TypesConceptualised Types
Westhead and Howorth (2007)Westhead and Howorth (2007)
 ‘‘Average family firms’Average family firms’ emphasise family objectivesemphasise family objectives
and have closely-held family ownership and familyand have closely-held family ownership and family
managementmanagement
 ‘‘Professional family firms’Professional family firms’ report a mix of familyreport a mix of family
and non-family objectives, but emphasise familyand non-family objectives, but emphasise family
objectives.They have closely-held family ownershipobjectives.They have closely-held family ownership
and management dominated by non-familyand management dominated by non-family
membersmembers
 ‘‘Cousin consortium family firms’Cousin consortium family firms’ report a mix ofreport a mix of
family and non-family objectives.They have dilutedfamily and non-family objectives.They have diluted
ownership within the family and managementownership within the family and management
dominated by family membersdominated by family members

(Continued)(Continued)
 ‘‘Professional cousin consortium family firms’Professional cousin consortium family firms’ havehave
diluted ownership within the family anddiluted ownership within the family and
management dominated by non-family members.management dominated by non-family members.
They place more emphasis on financial objectivesThey place more emphasis on financial objectives
thanthan ‘cousin consortium family firms’‘cousin consortium family firms’, and they place, and they place
less emphasis on family objectivesless emphasis on family objectives
 ‘‘Transitional family firms’Transitional family firms’ report both family andreport both family and
non-family objectives, but they place greaternon-family objectives, but they place greater
emphasis on financial objectives.They have dilutedemphasis on financial objectives.They have diluted
ownership outside the family but family membersownership outside the family but family members
dominate management.These firms are transitionaldominate management.These firms are transitional
because the management is expected to movebecause the management is expected to move
towards less family dominancetowards less family dominance

 ‘‘Open family firms’Open family firms’ focus on financialfocus on financial
objectives.They have dilutedobjectives.They have diluted
ownership outside the family andownership outside the family and
non-family management isnon-family management is
dominant. Due to separateddominant. Due to separated
company ownership and control, thecompany ownership and control, the
latter firms may report agency issueslatter firms may report agency issues
(Continued)(Continued)

Empirical TaxonomyEmpirical Taxonomy
Westhead and Howorth (2007): UKWesthead and Howorth (2007): UK
EvidenceEvidence Cousin consortium family firms (n = 9)Cousin consortium family firms (n = 9): Cluster 1 firms with: Cluster 1 firms with
diluted family shareholdings. Placed less emphasis on familydiluted family shareholdings. Placed less emphasis on family
management as an objective and more emphasis on themanagement as an objective and more emphasis on the
status of the firm. Firms did not markedly differ from thestatus of the firm. Firms did not markedly differ from the
respective averages with regard to the proportion of familyrespective averages with regard to the proportion of family
ownership or management and the importance of otherownership or management and the importance of other
objectivesobjectives
 Large open family firms (n = 3)Large open family firms (n = 3): Cluster 2 firms had larger: Cluster 2 firms had larger
boards of directors and management teams, more outsideboards of directors and management teams, more outside
(non-family) representation on the board and management(non-family) representation on the board and management
team, and less family ownership.These firms were moreteam, and less family ownership.These firms were more
likely to have employed a NED.They reported a mix oflikely to have employed a NED.They reported a mix of
family and financial objectives. Greater emphasis was placedfamily and financial objectives. Greater emphasis was placed
on family wealth and lifestyle, independent ownership andon family wealth and lifestyle, independent ownership and
increasing market value, whilst less emphasis was placed onincreasing market value, whilst less emphasis was placed on
long-term securitylong-term security

Empirical Taxonomy (Continued)Empirical Taxonomy (Continued)
 Entrenched average family firms (n = 19)Entrenched average family firms (n = 19): Cluster 3: Cluster 3
family owned and controlled firms. Firms did not differfamily owned and controlled firms. Firms did not differ
from the respective averages with regard to theirfrom the respective averages with regard to their
emphasis on family objectives. Placed less emphasis onemphasis on family objectives. Placed less emphasis on
non-family objectives such as increasing market value,non-family objectives such as increasing market value,
business survival, reputation, independence andbusiness survival, reputation, independence and
employee job security. Firms generally reported highemployee job security. Firms generally reported high
proportions of family managersproportions of family managers
 Multi-generation open family firms (n = 36)Multi-generation open family firms (n = 36): Cluster 4: Cluster 4
firms had diluted ownership and control and they werefirms had diluted ownership and control and they were
more likely to be multi-generation firms. Familymore likely to be multi-generation firms. Family
members generally owned a smaller percentage ofmembers generally owned a smaller percentage of
shares. Firms had more directors and managers; with ashares. Firms had more directors and managers; with a
smaller percentage of them being family members. Asmaller percentage of them being family members. A
NED was generally employed. Less emphasis wasNED was generally employed. Less emphasis was

 Professional family firms (n = 26)Professional family firms (n = 26): Cluster 5 firms: Cluster 5 firms
were closely-held family firms associated withwere closely-held family firms associated with
more non-family management. Less emphasis wasmore non-family management. Less emphasis was
placed on inter-generational succession objectives,placed on inter-generational succession objectives,
the survival of the business, employee job securitythe survival of the business, employee job security
or independent ownershipor independent ownership
 Average family firms (n = 115)Average family firms (n = 115): Cluster 6 firms were: Cluster 6 firms were
family owned and controlled, and they focused onfamily owned and controlled, and they focused on
family objectives. None of the variables werefamily objectives. None of the variables were
markedly different from the respective globalmarkedly different from the respective global
means.They were ‘average’ (or stereotypical)means.They were ‘average’ (or stereotypical)
family firmsfamily firms
Empirical TaxonomyEmpirical Taxonomy

 Multi-generation average family firms (n =Multi-generation average family firms (n =
29)29): Cluster 7 multi-generation family firms: Cluster 7 multi-generation family firms
that focused on family lifestyle and inter-that focused on family lifestyle and inter-
generational ownership transfer objectives.generational ownership transfer objectives.
Family ownership and management wereFamily ownership and management were
not markedly different from the respectivenot markedly different from the respective
global means. Independent ownership wasglobal means. Independent ownership was
generally emphasised but less importancegenerally emphasised but less importance
was given to increasing market valuewas given to increasing market value
Empirical Taxonomy (Continued)Empirical Taxonomy (Continued)

ImplicationsImplications
 Need to encourage enterprise sustainability and aNeed to encourage enterprise sustainability and a
diverse pool of entrepreneursdiverse pool of entrepreneurs
 Assets and liabilities of family firms need to beAssets and liabilities of family firms need to be
appreciatedappreciated
 No consistent evidence to suggest family firmsNo consistent evidence to suggest family firms
report superior (or weaker) levels of firmreport superior (or weaker) levels of firm
 Macro and/or micro schemes to assist family firmMacro and/or micro schemes to assist family firm
survival and development?survival and development?
 Family firms are not a homogeneous entityFamily firms are not a homogeneous entity
 ‘‘Blanket support’ or ‘customised’ support to eachBlanket support’ or ‘customised’ support to each
‘type’ of family firm?‘type’ of family firm?

50
ConclusionConclusion
““It’s nothing personal …It’s nothing personal …
It’s strictly business.”It’s strictly business.”
Michael Corleone in ‘The Godfather’Michael Corleone in ‘The Godfather’

Further ReadingFurther Reading
 Westhead, P., McElwee, G. & Wright, M. (2011)Westhead, P., McElwee, G. & Wright, M. (2011)
Entrepreneurship: Perspectives and Cases , FT Press,Entrepreneurship: Perspectives and Cases , FT Press,
LondonLondon
 Deakins, D and Freel, M. (2012) “Entrepreneurship
and Small Firms” 6th ed. McGraw Hill, London
 Birley, S. & Musyka, D. (2000) Mastering
Entrepreneurship, FT Prentice Hall
 Kets deVries, M. (1996) “Family business: human
dilemmas in the family firm text and cases” London :
InternationalThomson Business Press.
 Ward, J –
 The Economist (2014) Family Businesses : Special
Report
 Video case study – Sir Gerry Robinson

Mod001093 family businesses 050415

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