Reinventing the Family Firm - Chapter 1

DEFINING THE FAMILY BUSINESS PORTFOLIO FIRM

salaries, and succession, and there may be fundamental differences of view over risk appetite and entrepreneurial endeavors. For example: How much might be reinvested in the established firm, and how much in new ventures? Establishing and maintaining strong family values is closely linked to these strategic decisions as they provide the underlying guide, while formal governance procedures are helpful to create the forums necessary for difficult decisions where there may be genuine and sincerely held differences of view. This is especially the case as the number of family owners grows and small informal decision-making groups become unrepresentative and inappropriate. Such formal entities include a family assembly, a family council, and so on. Family offices may be established to undertake some of the administrative chores as a family grows. Chapter 3 discusses governance for families in business. “Family-owned businesses: The backbone in many economies” The role of the family is always central, and the family may represent a resource for particular inputs. For example, there may be competences and/or industries where the family has particular expertise – manufacturing, finance, medical, shipping, real estate, and so on. In turn, the enterprises can create employment opportunities for family members, enhancing the links between the owning family and its businesses. In the case of a portfolio of businesses, there is typically a more diverse array of career options. The role of an owner is significant in its own right, and comes with many commitments and responsibilities. Family members may feel that they are custodians, which has a completely different scale and time horizon to being a salaried executive, or a stock-holder in a publicly listed firm, where the interests are more short term. Where a family or families hold ownership control over the company in question, the family decides on the composition of the firm’s board of directors, as well as the appointment of the firm’s management, including the CEO. The CEO, as well as other members of senior management, will typically come from the owning family. The owning family controls the firm’s strategy, including levels of investing as well as dividend payouts. It might be appropriate to state here that many of today’s so-called cutting-edge management practices in family businesses are very impressive (see, for instance, Baron & Lachenauer (2021) or May & Bartels (2017)). The field does indeed seem to have advanced dramatically from what was proposed by Poutziouris et al. (2006), for instance. As previously noted, Akhter has found that there seems to be a strong relationship between family-owned business portfolios and portfolio

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