FAMILY-OWNED BUSINESSES ARE DETERMINED TO MAINTAIN OWNERSHIP AND CONTROL OF THEIR COMPANIES, ACCORDING TO NEW BABSON RESEARCH

Latest STEP survey results show that family businesses hold 90 percent equity, are intentional about legacy, yet see need for external leadership

Page Content 1

Family businesses continue to maintain high levels of ownership and control of their companies, according to research by the Successful Transgenerational Entrepreneurship Practices (STEP) Project at Babson College.

While this holds true, at 90 percent, these same family enterprises are beginning to welcome non-family involvement.

  • Fifty percent of the top management teams now include non-family members.
  • Survey findings suggest an evolving recognition by family owners of the value that external leadership can contribute in shaping the future.

Also, family businesses manage the decision-making process in two ways.

  • A minority hold formal family meetings while a majority prefer informal meetings to discuss business-related family issues.
  • Entrepreneurial research indicates that both types of engagements have a part to play in developing the entrepreneurial potential of younger family members.

    Family business owners want to be successful − but not at the expense of sustaining good family relationships.

  • Nearly all survey respondents reported that family members are proud and loyal to the company.
  • Ninety-two percent report that family members are proud to be part of the business.

While less than half of the family businesses surveyed have a strong orientation toward entrepreneurship, family businesses were found to be highly competitive in their business actions and strategies.

  • Every year, 71 percent focus on the introduction of new product lines.
  • Sixty-two percent also made dramatic changes in products or services in the last year.

Finally, 76 percent expect to appoint a male CEO, while only 24 percent indicated that they will appoint a woman.

“Families are the dominant form of business organization worldwide and play a leading role in both social and economic wealth creation,” commented Matt Allen, the STEP Project’s Academic Director, and Faculty Director for the Institute for Family Entrepreneurship at Babson. “Our survey validates the growing need for owners to develop and pass on entrepreneurial mindsets that will build new practices and solutions for the next generation.”

Methodology

The STEP Project survey, conducted in 2013 through February 2015 in partnership with research scholars at 35 institutions, assessed family business practices and solutions in Europe, Latin America, Asia, North America, and Africa. More than 1,056 surveys were completed by 686 family businesses. Experienced family business leaders participated in the STEP survey.

  • Thirty-five percent are currently CEOs
  • Forty percent are members of the board
  • Forty-five percent are members of the top management team
  • Seventeen percent are founders    

Several areas of interest were explored, including transgenerational entrepreneurship, entrepreneurial orientation, family resources, family involvement, family lifecycles, business environment, culture, and performance.

Key Findings

Ownership and Control

One of the most important factors influencing entrepreneurial potential is the ability of family businesses to maintain control across generations.

  • STEP found that families control, on average, 91.7 percent of equity in their businesses and 91.3 percent of voting rights.

Board of Directors

Governance tends to be less formal and less structured. STEP argues for a more formalized approach that brings fresh ideas and new expertise into the decision-making process, while removing or at least reducing the emotional element from management decisions.

  • Thirty-five percent of family businesses surveyed do not have a board of directors.
  • The 65 percent of family businesses that do average five seats on their boards, three are occupied by family members, and more than one generation is represented.

Leadership

STEP suggests that family businesses learn to balance the benefits of maintaining control (for example by including a family member as CEO) with the benefits of installing the most qualified leader for the business.

  • Average size of top management team is between five and six individuals - three to four are not family members.
  • Fifty-one percent of families plan on appointing a member of their family as the next CEO.
  • Only nine percent indicate they will search for an outside CEO.
  • Forty percent are undecided.
  • Sixteen percent currently have more than one CEO operating in co-leadership positions
  • Seventy-six percent expect to appoint a male CEO, while 24 percent indicate they will appoint a woman.

Family Meetings

STEP promotes family meetings as a venue to gather, educate, and negotiate issues and decisions that potentially influence business performance.

  • Thirty-one percent of family businesses use formal family meetings (five to 15 times annually) to deal with family issues.
  • Fifty-nine percent rely on more informal family meetings.
  • Many families develop a set of rules or a protocol to outline specific policies regarding family governance and interactions between family members. A more formal version is described as a family constitution.
  • Nineteen percent of families consistently use a family constitution.
  • Twenty-one percent rely on a family protocol.

Entrepreneurship Orientation

Less than half of the family businesses surveyed have a strong orientation toward entrepreneurship. Still, family businesses were found to be highly competitive in their business actions and strategies.

  • Every year, 71 percent focus on the introduction of new product lines.
  • Sixty-two percent also made dramatic changes in products or services in the last year.

Operating Environment

Competitive or fast-moving industries require an aggressive approach to doing business.

  • Fifty-two percent feel they are operating in an intense market environment.
  • Fifty-three percent believe their clients/customers regularly demand new products and services.
  • Sixty-four percent see continuous change in the external marketplace.
  • Seventy-seven percent describe their competitive environment as intense.

Key Resources

Access to resources − financial capital, social capital, physical assets, and human capital – plays a critical role in the transgenerational potential of family businesses.

  • Sixty percent rank human capital as their most important resource;
  • Twenty-six percent financial capital;
  • Nine percent physical assets; and
  • Five percent social capital.

The survey assessed how easily businesses or business models could be copied by competitors.

  • Sixty-one percent report that it would be difficult for competitors to copy their most important resource.
  • Fifty-nine percent claim it would take competitors a long period of time to replicate their most important resource.
  • Fifty percent also believe it would be very costly for competitors to replicate their key resource.

Family Relationships

STEP found that families perceive significant non-financial benefits from their businesses; and that they are often held to be as or more important than financial benefits.

  • Seventy-nine percent are satisfied that they can depend on help from their family when something is troubling them.
  • Fifty-nine percent are satisfied with the way their family discusses and shares problems.
  • Seventy-four percent are satisfied with the way their family supports them in decisions to take on new activities or directions.
  • Sixty-nine percent are satisfied with how their family expresses affection and responds to emotions.
  • Seventy-two percent are satisfied with the way their family spends time together.
  • Ninety-two percent report that family members are proud to be part of the business with 94 percent who feel great loyalty to the business.
  • Eighty-eight percent report that family members are willing to put extra effort into making sure the business is successful.

About The STEP Project (Successful Transgenerational Entrepreneurship Practices)

Founded in 2005 by Babson College in collaboration with six academic affiliates in Europe, the STEP Project is a global applied research initiative that explores the entrepreneurial process within business families and generates solutions that have immediate application for family leaders. The visionary institutions that founded the project include Babson College (USA), ESADE (Spain), HEC (France), Jönköping International Business School (Sweden), Universita Bocconi (Italy), Universitat St. Gallen (Switzerland), and Universitat Witten/Herdecke (Germany).

About Babson College

Babson College is the educator, convener, and thought leader for Entrepreneurship of All Kinds​​​​​​​​​​​®​​​​​​​​​​​. The top-ranked College for entrepreneurship education, Babson is a dynamic living and learning laboratory where students, faculty, and staff work together to address the real-world problems of business and society. We prepare the entrepreneurial leaders our world needs most: those with strong functional knowledge and the skills and vision to navigate change, accommodate ambiguity, surmount complexity, and motivate teams in a common purpose to make a difference in the world, and have an impact on organizations of all sizes and types. As we have for nearly a half-century, Babson continues to advance Entrepreneurial Thought and Action​​​​​​®​​​​​​​​​​​​​​ as the most positive force on the planet for generating 


By Barbara Spies Blair, blairb@babson.edu, 781-239-4621 | 10/07/2015 08:28