Managing The Family/Business Interface

Tuesday 4 March, 2008

by MGI Boyd

The organisational structure of family business is different to that of non-family businesses. The owner is part of a family and has a duty towards the welfare of the business and the family. This dual role can lead to conflict.

 A Family Business Constitution, Code of Conduct, or Charter is a document that specifies relationships between the family and the business, and sets out guidelines for resolution of issues and how the business is to be managed by the family.

This Constitution reflects family and business values, and formalises procedures and relationships between family members and business. This document also defines policies, expectations, rights and responsibilities of family members to anticipate and at least minimise, if not avoid, potential conflict (Jaffe, 1991).

Bork et al. (1996) highlighted the potential for ambiguity and conflict created by the absence of boundaries between family and business. Nevertheless, almost 60% of owners indicate that they do NOT have a process for handling conflicting family and business issues (63% for 1st, 57% for second, and 42% for third to fifth generation family businesses). Of the 40% that have such a process, only 28.2% have it documented.

This low percentage is consistent with that of our 2003 and 1997 Surveys, further highlighting owners' resistance to going through the process of clarifying family and business related issues.

Family first or business first?

One of the major challenges for families in business is to find a balance or equilibrium that enables them to manage their businesses effectively without creating family conflict. To ascertain whether the business is part of the family's lifestyle, the owners of family businesses are often asked the question: "Does the family or the business take precedence in the family's value system?"

In this Survey, a majority of owners (72.5%) indicate that, in the event of conflict involving family relationships, business objectives are given the highest priority, indicating the adoption by them of a business first policy approach.
Whilst such a policy is understandable, Lievens (2005) cautions that, if applied inflexibly, it could lead to certain family members identifying less with, and eventually becoming alienated from, the business.

Source:ceoonline.com