Reinventing the Family Firm - Chapter 1

DEFINING THE FAMILY BUSINESS PORTFOLIO FIRM

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Defining the Family Business Portfolio Firm

Introduction A family business can be defined as when a family owns a significant share and can influence important decisions, such as the selection of chairperson as well as the CEO, important business investment and/or exit decisions, debt policies, as well as decisions on dividends. Family firms are by far the most dominant form of corporation in the world. They are prevalent especially in countries where the law allows for private ownership. It is estimated that 70% to 90% of all firms worldwide are family firms (Zellweger, 2017, p. 24). The contribution of these firms to GNP is estimated to be as high as 60% in many advanced economies, including the United States and Switzerland (Astrachan & Shanker, 2006). The percentage of employment provided by family firms within national economies also tends to be high, more than 50%. Further, family firms represent more than 85% of the world’s companies. In the U.K. alone, more than half of those employed in the private sector (Clark, 2021) come from the family business sector. For the purposes of this book, the term “business families” is used for families of heritage firms, while families who own portfolio businesses are labeled “families in business.” According to John Davis a leading authority on family business, and with a doctorate from Harvard Business School, another term increasingly used for this latter category of owners is “enterprising families” (Davis & Lombard, 2019, p.27). There are at least two overriding challenges facing owning families who wish to maintain sustained business success:

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Achieving strong business performance and

Ensuring family harmony. There are many reasons for declining performance and business failure in family enterprises. These include family conflicts over matters such as roles,

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