Posted on August 7th, 2022

Family-owned businesses, FOBs, face the challenge of managing the escapable interactions between family members and business. This is made more difficult when there is the insistence in employing family members under any circumstance. This has led to discussions on familiness at different levels of the FOBs.

Familiness is a construct that refers to the set of resources available to the firm because of family involvement. Resources include human (reputation and experience), organisational (decision-making and learning), and process (relationships and networks). The construct characterises the various interactions among family members in the business that can lead to synergies considered unique to the business, that can either be distinctive (positive) or constrictive (negative). Data from Jamaica show that some FOBs have gained competitive advantage from family involvement, while others are tethering on the fringes, usually resulting in business suboptimisation. In short, involvement of family members will not always lead to value-added outcomes and if not managed, can lead to business suboptimisation.

Distinctive familiness

Distinctive familiness refers to the upsides, or positives, from the input of family involvement. The positive value is said to accrue from resources which are not easily replicated. Familiness is measured at both the collective and individual levels. It is therefore important to disaggregate the contribution of each family member in the business. The reality is that many FOBs do not have a structured and objective system to do this disaggregation, leading to non-contributing family members having a permanent ‘seat’ in the business. Distinctive familiness is fostered by having clear and objective guidelines for the engagement of family members, usually embedded in the family business constitution and other family business governance structures. These guidelines include setting minimum qualification for different positions, having the same rules for family members and non-family members, and maintaining merit-based assessment.

Promotion of distinctive familiness can lead to better working relationship with family and non-family members, increased probability of a structured, seamless and peaceful intergenerational transition, better alignment of competence to the different positions in the firm, and less in-fighting among family members in the business.

Constrictive familiness

The family business literature is replete with cases of the demise of FOBs because of the promotion and encouragement of constrictive familiness. This refers to the negative effects on FOBs because of the involvement of family members. Constrictive familiness is promoted, wittingly and unwittingly, through practices such as hiring because someone is family, promoting a culture of nepotism, having different rules for family versus non-family staff, and using the firm’s resources for personal benefits.

The consequence of constrictive familiness is manifested in outputs such as court battles over estate after the death of the founder, loss of goodwill in the marketplace, disjointed and uncoordinated intergenerational transition, and the loss of competent and reliable non-family members.

Way forward

Rene Van Wyk, a leading researcher on family business, posits that finding an equilibrium between distinctive and constrictive familiness will result in sustained organisational synergy. This is a call to owners and leaders of FOBs in Jamaica to find this equilibrium. It requires some measure of intestinal fortitude, but you can do this.

Source: The Gleaner