Family-Owned Businesses

A family-owned business may be defined as any business in which two or more family
members are involved and the majority of ownership or control lies within a family.
Family-owned businesses may be the oldest form of business organization. Farms were
an early form of family business in which what we think of today as the private life and
work life were intertwined. In urban settings it was once normal for a shopkeeper or
doctor to live in the same building in which he or she worked and family members often
helped with the business as needed.

Since the early 1980s the academic study of family business as a distinct and important
category of commerce has developed. Today family owned businesses are recognized
as important and dynamic participants in the world economy. According to the U.S.
Bureau of the Census, about 90 percent of American businesses are family-owned or
controlled. Ranging in size from two-person partnerships to Fortune 500 firms, these
businesses account for half of the nation's employment and half of her Gross National
Product. Family businesses may have some advantages over other business entities in
their focus on the long term, their commitment to quality (which is often associated with
the family name), and their care and concern for employees. But family businesses also
face a unique set of management challenges stemming from the overlap of family and
business issues.

“Family business is a firm which has been closely identified with at least two

generations of a family and when this link has had a mutual influence on company

policy and on the interests and objectives of the family.” — R. G. Donnelley

“Family businesses are those where policy and decision are subject to significant

influence by one or more family units. This influence is exercised through ownership

and sometime through the participation of family members in management. It is the

interaction between two sets of organizations, family and business, that establishes the
basic character of the family business and defines its uniqueness.” — P. Davis

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Characteristics:
The definitions of family business given above indicate the following
characteristics of family business:
a. A group of people belonging to one or more families run one business enterprise.

b. Position in family business is influenced by the relationship the family members enjoy
among themselves.

c. Family exercises control over business in the form of ownership or in the form of
management of the firm where family members are employed on key positions.

d. Family exercises the influence on the firm’s policy direction in the mutual interest of
family and business.

e. The succession of family business goes to the next generation.

f. Family business in India is largely caste-related.

g. Every caste enjoys a dominant culture which gets duly reflected in their family
businesses also.

In India, there are many highly successful family businesses which are operating for
more than 100 years and not only in India but all over the world. The list includes:

1. Tata Group – Founded in 1868 by Jamsetji Tata

2. TVS Group – Founded in 1911 by T V Sundaram Iyengar

3. Aditya Birla Group – Founded in 1857 by Shiv Narayan Birla

4. Kiroloskar Group – Founded in 1911 by Laxmanrao Kirloskar

5. Godrej Group – Founded in 1897 by Ardeshir Godrej and Pirojsha Burjorji Godrej

6. Shapoorji Pallonji – Founded in 1865 by Pallonji Mistry

7. Reliance Group – Founded in 1966 by Dhirubhai Ambani

Advantageous of Family Business

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Knowing the following advantages of being in a family-owned and -run firm can help
business owners maximize each one of their family-owned businesses:

• Commitment and unified leadership

• Stability
• Trust and authenticity
• Flexibility and versatility
• Vision and long-term goals
• Decrease costs and expenditures
• Next-generation ingenuity

Commitment and unified leadership

It is natural that all family members demonstrate and share a level of commitment to the
firm since the core of any family business is a shared business vision and identity. That
dedication is hard to find, much less replicate, in any other non-family business
organization. Because the family firm’s vision is as consistent as it is cohesive, it opens
more opportunities for business development and the business’ continued success.
It also results in a more unified leadership and promotes solidarity in and among all the
family members running the firm. This can be seen as a sense of loyalty is imbued
down to the organization’s other staff members and/or employees.
f there are disagreements between family members, a family-owned and -run by
business has the unique advantage of getting things done, resolving conflict, and
moving towards realizing a common goal without the burden of office politics.
Stability
Family-owned and -run businesses can achieve, maintain, and elevate a sense of
business stability in its leadership and overall organizational structure and culture.

Trust and authenticity

Essential to all business organizations, trust is a unique and very evident in most
successful family-owned and -run firms. Because trust is a given, with inherent trust
among family members, the business’s leadership can talk, discuss, and disagree more
openly and freely. As the business’s leadership employs a greater sense of trust, staff
members/employees are allowed to enjoy a freer space for authenticity that can result in
brilliant business ideas. When effectively harnessed, authenticity and the culture of trust
can make way for professional growth and the firm’s overall development.

Flexibility and versatility

Most often, the firm’s leadership that is comprised of members of the same family or
clan are willing to take on several different roles and workloads simultaneously to make
sure the company succeeds.

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Because of this flexibility and willingness to give more than what is expected, it drives
continued success, enrichment and a better understanding of the industry. This includes
the job or jobs that are to be done, the employees under the firm, the customers
targeted, as well as the present reality and future endeavors of the whole organization.
This understanding can help family members formulate better ideas for the
creation/development of products and services that the company offers to its
customers/clientele.

Vision and long-term goals

Family-owned and -run businesses place importance on hitting business goals and the
overall company vision in a long-term period rather than a short-term period.
This long-term perspective, when properly molded and intelligently utilized, allows for
creative decision-making and strategy development. The pressure is not to come up
with reports and strategies for investors every quarter. Rather the focus is to utilize
resources to projects that are perceived to not only benefit the family-owned and -run
company in the present all the way into the future.

Decrease costs and expenditures

Family members are willing to contribute their own financial resources when starting
new sub-ventures for the business organization or when there are financial difficulties.
This decreases costs and expenditures while strengthening financial capability for the
business. This desire to make sure long-term success is inherent as part-owners.

Next-generation ingenuity
A family business can include the next generation of members in the business’
leadership and work- and knowledge-force, increasing competitive edge over other non-
family firms and gaining access to their youth.
Family businesses have a convenient and fast transition of leadership within
generations of the same family or clan. This convenience in transition could, in turn,
maintain long-term business policies that are already in place or complete those goals
successfully.

Challenges and disadvantage

Of course, advantages come with drawbacks Prepare for the challenges that the
business might have to face, such as:

• family conflict
• unstructured/undefined leadership
• challenges in succession
• nepotism and family-oriented authoritarian leadership

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Taking into account the advantage of starting or running a family-owned or -run firm, as
these will enlighten and help demonstrate better management abilities in the continued
success of the business.

ISSUES IN FAMILY BUSINESSES

A family business can be described as an interaction between two separate but

connected systems—the business and the family—with uncertain boundaries and
different rules. Graphically, this concept can be presented as two intersecting circles.
Family businesses may include numerous combinations of family members in various
business roles, including husbands and wives, parents and children, extended families,
and multiple generations playing the roles of stockholders, board members, working
partners, advisors, and employees. Conflicts often arise due to the overlap of these
roles. The ways in which individuals typically communicate within a family, for example,
may be inappropriate in business situations. Likewise, personal concerns or rivalries
may carry over into the work place to the detriment of the firm. In order to succeed, a
family business must keep lines of communication open, make use of strategic planning
tools, and engage the assistance of outside advisors as needed.

Family versus Non-family Employees

There are a number of common issues that most family businesses face at one time or
another. Attracting and retaining non-family employees can be problematic because
such employees may find it difficult to deal with family conflicts on the job, limited
opportunities for advancement, and the special treatment sometimes accorded family
members. In addition, some family members may resent outsiders being brought into
the firm and purposely make things unpleasant for non-family employees. But outsiders
can provide a stabilizing force in a family business by offering a fair and impartial
perspective on business issues. Family business leaders can conduct exit interviews
with departing non-family employees to determine the cause of turnover and develop a
course of action to prevent it.

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Employment Qualifications

Many family businesses also have trouble determining guidelines and qualifications for
family members hoping to participate in the business. Some companies try to limit the
participation of people with certain relationships to the family, such as in-laws, in order
to minimize the potential for conflicts. Family businesses often face pressure to hire
relatives or close friends who may lack the talent or skill to make a useful contribution to
the business. Once hired, such people can be difficult to fire, even if they cost the
company money or reduce the motivation of other employees by exhibiting a poor
attitude. A strict policy of only hiring people with legitimate qualifications to fill existing
openings can help a company avoid such problems, but only if the policy is applied
without exception. If a company is forced to hire a less-than-desirable employee,
analysts suggest providing special training to develop a useful talent, enlisting the help
of a non-family employee in training and supervising, and assigning special projects that
minimize negative contact with other employees.

Salaries and Compensation

Another challenge frequently encountered by family businesses involves paying salaries

to and dividing the profits among the family members who participate in the firm. In
order to grow, a small business must be able to use a relatively large percentage of
profits for expansion. But some family members, especially those who are owners but
not employees of the company, may not see the value of expenditures that reduce the
amount of current dividends they receive. This is a source of conflict for many family
firms and an added level of difficulty in making the necessary investments into the
business for continued success. To ensure that salaries are distributed fairly among
family and non-family employees, business leaders should match them to industry
guidelines for each job description. When additional compensation is needed to reward
certain employees for their contributions to the company, fringe benefits or equity
distributions can be used.

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Succession

Another important issue relating to family businesses is succession—determining who

will take over leadership and/or ownership of the company when the current generation
retires or dies. The key to avoiding conflicts about who will take over a business is
having a well-defined plan in place. A family retreat, or a meeting on neutral ground
without distractions or interruptions, can be an ideal setting to open discussions on
family goals and future plans, the timing of expected transitions, and the preparation of
the current generation for stepping down and the future generation for taking over.
When succession is postponed, older relatives who remain involved in the family firm
may develop a preference for maintaining the status quo. These people may resist
change and refuse to take risks, even though such an attitude can inhibit business
growth. The business leaders should take steps to gradually remove these relatives
from the daily operations of the firm, including encouraging them to become involved in
outside activities, arranging for them to sell some of their stock or convert it to preferred
shares, or possibly restructuring the company to dilute their influence.

Family business leaders can take a number of steps in order to avoid becoming caught
up in these common pitfalls. Having a clear statement of goals, an organized plan to
accomplish the goals, a defined hierarchy for decision-making, an established plan for
succession, and strong lines of communication will help to prevent many possible
problems from arising. All family members involved in the business must understand
that their rights and responsibilities are different at home and at work. While family
relationships and goals take precedence at home, the success of the business comes
first at work.

When emotion intrudes upon work relationships, something that happens in all
businesses from time to time, and the inevitable conflicts between family members
arise, the manager must intervene and make the objective decisions necessary to
protect the interests of the firm. Rather than taking sides in a dispute, the manager must
make it clear to all employees that personal disagreements will not be allowed to
interfere with work. This approach should discourage employees from jockeying for
position or playing politics. The business leader may also find it useful to have regular

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 meetings with family members, and to put all business agreements and policy
guidelines in writing.

Is succession planning a big issue?

Succession Planning is a big issue today for the following reasons:

• Increase in wealth and also increase in the number of HNIs and UHNIs. There is a
noticeable increase in wealthy Indians and with wealth comes a serious requirement to
plan the succession so that the wealth is preserved and not destroyed.

• Most of the business houses are often exposed to local and overseas liabilities owing to
their borrowings or trade related activities. This compels them to plan for asset
protection trust in good times when the creation of such a trust and transfer of the
assets to such a trust is not perceived as a fraudulent transfer. This requires an early
and matured planning.

• Wealthy Indians have assets in India and overseas. Today the succession planning is
not required only for Indian based assets; it is also important and imperative in the
global context.

• The Indians living in USA or the NRI community or persons of Indian origin living in USA
and inheriting assets in India are potentially exposed to global taxation and have to plan
for their estate and succession accordingly.

• Nuclear families have a need for succession planning and services around succession
planning as people want to know how to do their Will and whom to appoint as the
Executor and with whom to keep the safe custody of Will.

• There is a possibility of the introduction of Estate Duty again and if this happens all
concerned will have to do the succession planning in a proper way to ensure smooth
succession which is economical as well.
•

How do families in India plan and manage succession?

The practice and philosophy is different for each family depending upon size of the
family, the family wealth, their needs and the nature of business or professional activity.
There is no uniform practice on this.

Most of the families are happy and content to do their Wills and to declare their wishes
on inheritance in their Wills. The families with substantial wealth or special needs or for
asset protection from creditors in worst case scenario prefer to prepare their Trusts and
do the planning accordingly.

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Increasingly families are looking for a mixed structure which encompasses Will and
Trust both to plan the succession for themselves and their next generations.

Large business houses as well as large families are increasing taking professional help
to write the Family Constitution and to put right legal structures in place so that one
member or one set of family members are not in a position to create any
embarrassment or legal disputes or disadvantageous situation for the family.

One such example is where shareholding of the company is with multiple family
members. To check any mischief it is an increasing trend that instead of holding the
shares in individual names, who may transfer the shareholdings, either the
shareholdings are kept in a Trust or some kind of escrow mechanism so that the other
family members may have the right of first refusal in the event of sale of shares by one
family member or one branch of family. All these are serious issues and increasingly the
professional help is sought by families to balance such conflicts or potential disputes.

Succession Planning

Succession planning involves deciding who will lead the company in the next
generation. Unfortunately, less than one-third of family-owned businesses survive the
transition from the first generation of ownership to the second, and only 13 percent of
family businesses remain in the family over 60 years. Problems making the transition
can occur for any number of reasons: 1) the business was no longer viable; 2) the next
generation did not wish to continue the business, or 3) the new leadership was not
prepared for the burden of full operational control. Lack of planning, however, is by far
the most common underlying reason for a company to fail in the generational transition.
At any given time, a full 40 percent of American firms are facing the succession issue,
yet relatively few make succession plans. Business owners may be reluctant to face the
issue because they do not want to relinquish control, feel their successor is not ready,
have few interests outside the business, or wish to maintain the sense of identity they
have for so long gotten from their work.

But it is vital that the succession process be carefully planned before it becomes
necessary due to the owner's illness or death. Family businesses are advised to follow a
five-stage process in planning for succession: initiation, selection, education, finance
preparation, and transition.

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 • In the initiation phase, possible successors are introduced
to the business and guided through a variety of work
experiences of increasing responsibility.
• In the selection phase, a successor is chosen and a
schedule is developed for the transition. Analysts almost
unanimously recommend that the successor be a single
individual and not a group of siblings or cousins. To some
degree, by selecting a group, the existing leadership is
merely postponing the decision or leaving it to the next
generation to sort out.
• During the education phase, the business owner gradually
hands over the reins to the successor, one task at a time, so
that he or she may learn the requirements of the position.
• Finance preparation involves making arrangements so that
the departing management team can withdraw funds
enough to retire. The more time is used in preparing for the
financial implications of this transition the more likely a
business will be able to avoid being burdened in the
process.
• In the transition phase, the business changes hands—the
business owner removes himself or herself from the daily
operations of the firm. This final stage can be the most
difficult, as many entrepreneurs experience great difficulty in
letting go of the family business. It helps when the business
owner establishes outside interests, creates a sound
financial base for retirement, and gains confidence in the
abilities of the successor.

THE PLANNING PROCESS

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Strategic planning—centering around both business and family goals—is vital to
successful family businesses. In fact, planning may be more crucial to family
businesses than to other types of business entities, because in many cases families
have a majority of their assets tied up in the business. Since much conflict arises due to
a disparity between family and business goals, planning is required to align these goals
and formulate a strategy for reaching them. The ideal plan will allow the company to
balance family and business needs to everyone's advantage.

Family Planning

In family planning, all interested members of the family get together to develop a
mission statement that describes why they are committed to the business. In allowing
family members to share their goals, needs, priorities, strengths, weaknesses, and
ability to contribute, family planning helps create a unified vision of the company that will
guide future dealings.

A special meeting called a family retreat or family council can guide the communication
process and encourage involvement by providing family members with a venue to voice
their opinions and plan for the future in a structured way. By participating in the family
retreat, children can gain a better understanding of the opportunities in the business,
learn about managing resources, and inherit values and traditions. It also provides an
opportunity for conflicts to be discussed and settled. Topics brought to family councils
can include: rules for joining the business, treatment of family members working and not
working in the business, role of in-laws, evaluations and pay scales, stock ownership,
ways to provide financial security for the senior generation, training and development of
the junior generation, the company's image in the community, philanthropy,
opportunities for new businesses, and diverse interests among family members.
Leadership of the family council can be on a rotating basis, or an outside family
business consultant may be hired as a facilitator.

Business Planning

Business planning begins with the long-term goals and objectives the family holds for
themselves and for the business. The business leaders then integrate these goals into

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the business strategy. In business planning, management analyzes the strengths and
weaknesses of the company in relation to its environment, including its organizational
structure, culture, and resources. The next stage involves identifying opportunities for
the company to pursue, given its strengths, and threats for the company to manage,
given its weaknesses. Finally, the planning process concludes with the creation of a
mission statement, a set of objectives, and a set of general strategies and specific
action steps to meet the objectives and support the mission. This process is often
overseen by a board of directors, an advisory board, or professional advisors.

Four Rules for Conflict Resolution in a Family Business

Sports trainer Greg Anderson, famously remarked “The law of win/win states - let’s not
do it your way or my way; let’s do it the best way”. Strangely enough, not only do his
words ring true in the art of family business management; they may also just be the
perfect advice for navigating the conflicts that accompany running a family business!

Historically, managing conflicts in a family business, especially in India, has always

been weighed with a peculiar set of complexities. Ensuring a balance between reaching
mutually satisfactory business-related solutions, and gratifying family relationships
against the backdrop of a strong age and cultural bias, is a difficult task in itself. In
recent times, the complexities have deepened, with increasing incidents of conflicts in
the wake of sibling rivalries, perceived notions of preferential treatment among family
members, efforts of the older generation to retain control, inclusion of younger
generations in the family business at a very early age, initiation of wives and daughters
to the family business and the recognition of meritocracy, to name a few! This coupled
with regulations like the Insolvency and Bankruptcy Code 2016, stricter enforcement of
provisions under the Companies Act, 2013 and the Securities Exchange Board of India,
1999 and the looming threat of a potential reintroduction of ‘estate duty’ in India, have
made re-strategizing the internal management of their businesses, the need of the hour.

The good news, is that while these complexities are certainly fodder for conflict between
family members, strategizing a robust resolution mechanism early on, makes conflicts

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avoidable, and more importantly controllable, should a conflict arise. In fact, most
conflicts that families face, are predictable and universal. An understanding from the
outset, that friction and difference of opinion are inevitable in every family dynamic,
reduces the likelihood of relationships crumbling over trivial issues, and makes the effort
towards conflict resolution, that much more effective. An approach to conflict resolution
must be both, pre-emptive as well as solution oriented. Here are 4 rules to reduce and
resolve conflicts in family businesses.

Rule 1: Strategize today

The need and aspiration of every family is different – there is no one size that fits all!
This makes it essential for each family to have a tailor-made plan to manage their
business and succession objectives. Sound planning at an early stage provides a road
map for avoidance as well as resolution of conflict amongst family members, which in a
codified format, can serve as a concrete mechanism for solving most conflicts.

A plan tailored to the requirement of the family should provide a unified goal to the
family and should cover assignment of authority to various family members to execute
specific tasks within agreed timelines, a basis for holding such members accountable,
allocation of roles and responsibilities, budgets, deadlines, a decision-making process
and a framework for review. While it is not required for the decisions of the family to be
taken by majority vote or even unanimously, it is important for the family to clearly
identify the leader(s) and decision maker(s), unanimously. Use of private trust
structures, family arrangements, family constitutions, shareholders agreements, etc. are
some of the increasingly popular tools for codifying family and business management.

Rule 2: Separation of ‘Family’ and ‘Business’

The common perception is that the success of a family business depends entirely on
the effective merging of family interests with business interests. However, this approach
may not always translate when applied in the context of resolving conflicts. This is
because every family operates within a unique ecosystem, making it difficult to theorize
a boiler-plate solution for all possible conflicts. Conversely, handling a conflict in a
business or corporate setting is highly standardized and is generally conducted in strict
accordance with the corporate’s regulations, system of accountability and hierarchy.

For example, two family members who share the same values, may foster different
operational visions for the family business. In such a situation, a corporate resolution
mechanism should not be used to settle a family conflict; and similarly, personal
sentiments should not dominate what otherwise should be a rationale business
decision. An open dialogue to debate the matter within the family should be facilitated,

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as well as a separate meeting with persons having corporate know-how, to unanimously
arrive at a decision.

Rule 3: Adapt, Evolve, Thrive

While the causes of family conflicts may differ, all elements of any conflict invariably find
their root in the basic vulnerabilities of humanity – ego, needs, emotion, ambition,
power, perception and personal values. It therefore becomes extremely important for all
family members to periodically convene and with the absence of suzerainty, to
dispassionately and autonomously analyze what the current and future requirements of
the family and the business are. Oftentimes, promoters/patriarchs who have founded
the family business, are (rightfully) emotionally attached to what is their brainchild;
sometimes to an extent where they are unable to recognize constructive solutions in the
face of conflict, which may trigger a reaction of self-preservation. through dominance or
oppression, which can damage relationships.

In India, it is a cultural norm to demonstrate respect by not vocalizing disagreements.

While this approach may serve its purpose in a familial setting, it is dangerous to
employ while running a business. Younger generations are now well educated, flexible,
vociferous and exposed to global work cultures. Inclusion of the younger generation in
the business from an early stage, may infuse fresh perspective, as well as facilitate their
learning process It would also convey trust in them and serve as a forum to groom them
in line with the family’s goals and values.

Rule 4: Negotiate the Conflict

Some of the biggest family conglomerates in India, like the Ambani family, the Birla
family and the Bajaj family have seen a split or division in their families after 3
generations, primarily over issues of ownership. Understandably, whenever news of
such division took the public by surprise, it was the value of the business that took the
greatest hit.
Such precedents raise questions as to the efficacy of conflict management strategies;
can such a situation even be resolved? Regardless of the result, efforts towards conflict
resolution can and should always be made. Some successful strategies used in the past
have been - collaborating with family members to reach mutual consensus, reaching a
compromise between differing parties, setting up a stopgap solution, mediation by such
individual(s) who are esteemed and respected by all the differing parties, using coercion
based on rank and expertise, or conceding to the opposing parties as a gesture of
goodwill and to preserve relationships. Each strategy serves a different purpose, and
must be chosen in consideration of the immediate as well as long term requirements of

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the family and business.
On the other hand, if division is unavoidable, is all really lost? The hard reality is that
sometimes, despite the best intention and effort of all parties, even the most close-knit,
family-business unit may see an inconceivable end. Yet, here too, if managed with the
right spirit and tools, an end does not have to mean the end of a family or a business
dynasty! It is the mindset of the parties entering a conflict, that determines the ultimate
result. Take for instance, the Ambani brothers split . an indictment of an unfortunate split
that was nevertheless managed well; with each brother being placated with a piece of
the empire. Today, as a consequence of the split, the brothers have diversified and
grown their individual businesses, and together, they influence virtually every
conceivable industry and sector in India. If a reconciliation were to ever happen, they
would be an unstoppable force!

Manage Change Better in Your Family Enterprise

A generation ago, the president of a manufacturing company reassigned his brother-in-law, a

plant manager, to two distinct and distant locations within a two-year period. Soon thereafter, his
facility was sold and the president offered his brother-in-law a position with considerably less
responsibility — so much so, that the man retired early. While it happened 50 years ago, the
man’s four children remember their uncle’s life-changing decisions vividly. Today their families
harbor resentment and do not mix well with the rest of the larger family.

Whether transitioning to new business, changing governance leadership, managing the

aftermath of a long-anticipated liquidity event, or moving from centralized family leadership to
governance that includes more voices, business families must learn to anticipate and
confidently handle change. Change management principles are not new, yet there are special
considerations when applying them to a business family.

We think of change in a family enterprise as falling into two broad categories:

• Natural change, or that which is inevitable, such as the departure of senior-generation

members and the rise of next-generation as owners and leaders
• Planned/intentional change, purposely initiated changes such as adding independent
directors to the board or transitioning from family managing the business to owning it
(nose in, fingers out)

In the sections below, we discuss both types of change along with providing a change
management perspective, tactical advice, and examples for thoughtfully and effectively dealing
with change in your family enterprise.

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The Challenge of Change
Change involves both situational and psychological dimensions, or what can be thought of as
external and internal aspects. The external components of change, which are easy to observe,
may happen quickly, such as the installation of a new board of directors or the passing of an
influential senior-generation member. However, the internal psychological dimensions are more
subtle and take much longer to accept and adapt to, such as the negative feelings among family
members who have reluctantly given up governance roles to new independent directors or
mourning the loss of a family leader. So it’s critical to deal with change in both dimensions,
especially the harder, more psychological ones.

Not surprisingly, some families adapt to change more easily, while others are more rigid and
less accepting of change and more resistant to its implications. Take, for example, the arrival of
a new spouse into the family. This event causes hardly a ripple in some families, but can be
highly turbulent in others, regardless of the personality or intentions of the new family member.

While many families struggle with change, it can be even more challenging and complex in
business families because of the interrelatedness of family, business and ownership. Change in
any one of the three systems will inevitably result in shifts, often unexpected, in the other two.

The earlier example of the president changing his brother-in-law’s location in the business and
the impact in the family a generation later points to the importance of understanding change in
its full context, including anticipating and addressing resistance to change.

Understand Resistance to Address Resistance

Resistance can be seen as a natural reaction to any significant transition. William Bridges
describes transition as involving three stages: an ending, a neutral zone, and a new beginning.1
Most people focus on the ending and new beginning, but not the middle, failing to understand
the challenges of this neutral zone, where the past situation is in the rear-view mirror but the
new one hasn’t yet taken hold. Most humans aren’t comfortable with ambiguity, so this middle
zone can be a place of concern and confusion, leading naturally to resistance (though it can
also be a period that facilitates creativity and innovation). Placing change in this context can
help you understand and accept resistance on your part or that of others, and develop
thoughtful, strategic tactics for addressing the challenge of change.

A change manager tries to understand resistance, learn from it and take active steps to address
it. It’s not healthy, nor useful, to simply wish it away or label it as someone else’s problem.
Resistance is usually an important source of information. Business owners resist adding
independent directors for several reasons; a common one is because of a perceived loss of
control. By understanding this source of resistance, more attention can be given to specific
ways the owners can influence and benefit the business even if they don’t all hold positions on
the board. Addressing resistance as a positive will lead to better transition management for the
business family.

Tactics and Mechanisms for Addressing Change

Below are several tactics and mechanisms for addressing change effectively:

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 • Involvement: Get more of the family involved, listen to what they have to say and
engage them in understanding and managing the change.
• Education: Provide education for all family members about the change in
question and its purpose and broader context.
• Compelling purpose: Communicate the change in the context of the overall
compelling purpose of the family and make it relevant for all individuals and
groups affected before the change happens.
• Task force or pilot group: Create a small group of family members and others to
lead the change, or pilot it within a smaller part of the organization before
implementing it more widely.
• Champion model: Harness the abilities of an individual or group of family
members who are passionate about a change.
• Parallel planning: Plan for both the business and family simultaneously with
attention to understanding how change on one dimension affects the other.
• Skill development: Use the change as a motivation to gain new capabilities,
whether related to management, governance, or other areas.
• Consultant: Retain an outside consultant to help formulate, communicate and implement
challenging change.
• Trimming the tree: Create opportunities for family members to gracefully exit as owners
if they do not want to be included in changes desired by the majority.
• Generation skipping: Shift the family unity and continuity focus of attention from the
generation of the family members who have experienced long periods of unresolved
conflict to their children and in so doing bypass a deadlock.
• Lay the groundwork: Put in place policies and fair practices early before they are needed
so that unpopular family role changes in the business will be perceived as fair and not
personal – as in the case of the President and his brother-in-law described above, the
detailed performance evaluation of any individual working in the business cannot be
made available to a spouse or his children, but the steps followed in a fair process can
be fully communicated.

Let's consider several of these tactics in the context of two examples drawn from real family
business situations.

A New Board of Directors (planned change)

The Jensen family, owners of a large Midwestern manufacturing business, planned to bring on a
new, more formal board of directors and used several interrelated tactics to ensure a smooth,
collaborative process. Leaders recognized that family members, owners, and managers might
be nervous about the change — such as questioning whether the new directors would represent
the family well — and resistant to it.

To prepare, they used a series of meetings to help educate and involve the family regarding the
upcoming change before it happened. Leaders representing the family (including a family
champion), owners, and executives spoke about the compelling purpose of the family
(continued unity as the family grows and becomes more complex) and helped the owners
understand they could remove the board in part or whole in the future, if necessary.

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The family worked with a consultant to create a task force of family members and non-family
managers responsible for recruiting new board members, developing a system for selecting
these members and evaluating their ongoing performance. Multiple family members got
involved in the change, and the comprehensive preparation resulted in a more professional
board from which the family benefited significantly.

Transition from Second to Third Generation (natural change)

The Rodriguez family faced a shift between generations as second-generation members
approached the end of their roles as executives, directors, and owners of the family’s growing
West Coast real estate business. In anticipation of the change, members of both the second
and third generations had worked on parallel planning to develop a purpose and vision for the
future of the business and family, developing clear roles and responsibilities to fill in the
enterprise.

Rather than making changes overnight, third-generation members were moved into new
business and governance roles with increasing involvement over time—along with guidance and
mentorship from the earlier generation. The family also sought education about performance
evaluation and compensation and developed a transparent, fair, merit-based system that
encouraged third-generation members to excel as a team. The family worked with an
outside consultant to help rising leaders understand their strengths and develop new skills to
fulfill their business and governance roles.

Because of the family’s hard work, the second generation was able to let go more easily and the
third generation felt supported in their new responsibilities, with ongoing mentorship
and involvement from their predecessors.

Embrace Change
Change doesn’t always have to be a threat. It can be a positive opportunity to create
understanding, trust, and capability. That doesn’t mean managing it will be easy; utilizing
mutually reinforcing tactics requires thoughtfulness and planning.

In closing, consider the truths below when anticipating or while in the midst of changes in your
family enterprise:

• First create understanding: People can’t — or don’t want to — change when they don’t
understand the change.
• Expect resistance: Resistance is part of the change process. Work with it, not against it.
• Think internal and external: Understand and address the situational and psychological
aspects of the change process to be successful.
• Patience is a virtue: Sustainable change requires purpose, planning, and patience. It
won’t happen overnight.
• Be proactive: Manage change through effective planning and effective change tactics.

Taking all the ideas here to heart will help you manage — and benefit from — change even
more effectively in your family enterprise.

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Women’s Issues in the family business

According to Martin's study (2001), in all cases contemplated in which there was a son or a
daughter who was a potential successor, the daughter was ignored. This may be because
women have traditionally played many subtle roles – spouse, mother, mother-in-law and family
leader – and these roles related to the family rather than to the business sphere made women
believe they were not suitable for leadership and that their responsibilities were mainly domestic
(Jimenez, 2009). This different way of treating sons and daughters meant that, at home, parents
would speak more with sons about the business during meal time, and sons visited the business
more often (Dumas, 1998),
whereas the socialization of women was more focused
on home and family life (Jimenez, 2009).

However, overlooking the potential of daughters for family business leadership might mean not
having the best successor for the business, and therefore it can affect the continuity and
success of the business. So it is not only an unfair situation for daughters but it can also be
prejudicial for the business (Wang, 2010).

As Higginson (2008) point out, women are now pursuing professional careers by creating their
own firms and joining family businesses. It also means that the way to look at the succession
process will change because, as Harveston et al. (1997) point out, women owners tend to focus
more carefully on succession planning.

To assist in our understanding of why more daughters do not become successors in family
firms, it is instructive to look at the experiences of those who have become successors. Studies
show that daughters usually enter the business because of a crisis, such as an illness or death
in the family (Barnes, 1988; Dumas, 1992; Salganicoff, 1990), but even in those cases they are
sometimes bypassed by insider male substitutes, such as an uncle or son-in-law (Royer,
Simons, Boyd, & Rafferty, 2008).

If daughters do get to manage their family business, they experience some of the same issues
that sons face: dealing with the ambiguities of combining family and business roles (Dumas,
1992; Hollander & Bukowitz, 1990). Also, the “Daddy's Little Girl” role directs daughters to
“please father” and precludes them from acting as strong and independent managers in
business (Dumas, 1998). Compared with sons, this problem of ambiguity becomes more
complicated when daughters are not seen as future successors. Sons have been socialized to
expect this position, and when surrounding nonfamily employees also understand this
eventuality (Dumas, 1992), daughters tend to be “invisible successors” (p. 37). If they attempt to
assert themselves and assume a position of top management, they are seen as violating the
family hierarchy. Daughters find this a uniquely difficult position, since they view themselves as
“protectors of family unity” (Hollander & Bukowitz, 1990, p. 146) and try to avoid conflict, so their
succession process is impeded.

The choice of family firm successors is influenced by cultural norms, which vary substantially
around the world (Daspite, Holt, Chrisman, & Long, 2016; Schenkel et al., 2016). According

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to Daspite et al. (2016), the use of predetermined familial connections (e.g. birth order, blood
relation) and gender-related factors – which are either shaped by culture norms – affect the
early phase of the succession process. Parents shape perceptions of their children regarding
the succession of the family firm (Schröder, Schmitt-Rodermund, & Arnaud, 2011; Schröder &
Schmitt-Rodermund, 2013). Therefore, a two-way communication is especially important for
potential female successors who, at a young age, may benefit from relationships with others
(family members and employees) when that serve to minimize cultural or tradition-based
opposition to their choosing as successors (Daspite et al., 2016). Moreover, being exposed to
the family firm may allow potential female successors to develop a well-rounded perception of
the firm and ultimately make an informed decision on the desirability of succession, from an
early age (Daspite et al., 2016).

Gender roles and stereotypes existing in society have contributed to the ongoing discrimination
against women. Women have traditionally been responsible for domestic issues and taking care
of family, so a professional career usually took second place. Even if they were directly involved
in the family firm, they did not receive recognition for their contribution, either in the shape of a
formal position in the company or a salary (Salganicoff, 1990), and if a salary was earned it was
lower than the men's (Rowe & Hong, 2000).

In a study of couples who were co-owners of family firms, Marshack (1994) found that traditional
gender stereotypes were clearly reflected in the type of tasks each partner assumed within the
family and the firm. The wives mainly did accounting and secretarial work, as well as most
household tasks, while the husbands were mainly responsible for equipment maintenance and
the negotiation of contracts.

Tasks reserved for women, such as secretarial, accounting, HR management and marketing,
were considered of less significance, but as García-Álvarez, López-Sintas, and Gonzalvo
(2002) point out, some of them now have increasing importance to business growth.

The woman is also the “nurturer of the next generation” because she transmits the values of
both family and firm to the children (Dugan et al., 2011). In other words, mothers teach their
children to love the company.

Finally, gender may influence all the factors that contribute to attitude. As the literature
indicates, males may view themselves as potential successors, which can have an impact on
their attitude toward working in the family business. On the contrary, females may not see
themselves in this manner and, therefore, they may have negative or indifferent attitudes toward
joining the family business as an executive. To change this attitude, Williams, Zorn, Russell
Crook, and Combs (2013) encourage parents to prepare their daughters and sons to either stay
in the family business or follow a different path. They consider this conversation should start
when the children (potential heirs) are young so they can see the business in relation to other
opportunities. To encourage incumbents to think on their daughters as potential heirs, they give
examples of positive results when appointing women.

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Despite the barriers some women have around joining the firm, developing an interest in the
firm and/or in leadership is mainly as a consequence of one or more of the following factors:
their brothers are not strong leaders, they have no family responsibilities (no husband, no
children), their parents ask them to join the firm (Iannarelli, 1992), or all family members are
invited to join with different levels of responsibility.

Disadvantages of working in family businesses

Vera and Dean (2005) identified some disadvantages related to working in the family business:
not having a personal life, long working hours, no private life away from family, work
disagreements among family members continuing outside the workplace, difficulties when
parent and daughter do not share the same idea, and being constantly compared with the
previous leader's management style. The difficulty in achieving work life balance is one of the
disadvantages of working in the family business, but, surprisingly, not all the literature considers
it that way, as it will be shown when the positive aspects are described.

Another disadvantage mentioned by Constantinidis and Nelson (2009) is that, mainly due to
their sex, women often feel that they experience difficulties in relation to employees, customers
and suppliers, and feel they have to prove their competence before they receive the respect and
confidence of stakeholders.

Positive aspects

The contributions of studies regarding positive aspects for women in family businesses are
explained in the following sections. These positive aspects are related to women's
complementary skills and relationships, the idea of developing a professional career and its
implications regarding pride and satisfaction, and the possibility to balance work life.

Complementary skills and capacities

In her study on 14 daughter successors, Humphreys (2013) found that skill and commitment
override gender in those successors’ selections. Also, women often have other skills – such as
placing more importance on human and social values (their value system partly explaining their
so called “feminine” style of management) – that are not only based on traditional indicators,
such as profit, sales, and return on investments, but also on the social contribution toward
quality of work life, customer satisfaction, and their own personal growth (Lee-Gosselin & Grisé,
1990).

Research indicates that females communicate and solve problems differently from males; they
prioritize life experiences differently than their male counterparts, and are socialized differently
within both family and business systems (Danes, Haberman, & McTavish, 2005). Their
communication skills make communicating with their mentoring fathers easier and help to avoid
conflicts. They tend to not only worry about the business but also about their parents. All these
characteristics can make the succession process easier. On the other hand, the desire to avoid

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conflict and the fear of upsetting parents discussing succession issues can make the process
difficult (Hollander & Bukowitz, 1990).

Women are more transformational leaders than men, meaning they are charismatic, persuasive
and able to intellectually stimulate others.

Vera and Dean (2005) make the point that compared with men; women are less distrustful and
directive, and more conciliatory, attentive, supportive, flexible, balanced, collaborative, and
caring. They also take more time to make decisions, seek more information on other's opinions,
and attend to both the well-being of the business and of the family.

Pyromalis, Vozikis, Kalkanteras, Rogdaki, and Sigalas (2004) found that women seem to
outperform men on the “satisfaction with the succession” dimension, while men seem to
outperform women on the “effectiveness of the succession” dimension. For Pyromalis et al.
(2004), these findings justify those who claim that men and women possess complementary
competencies and skills.

An article by Cruz, Justo, and De Castro (2012) stated that employing family members improved
the performance of the firm in women-led businesses, probably because women are able to
better handle the conflict between simultaneously pursuing socio-emotional and financial
goals. Amore, Garofalo, and Minichilli (2014) studied the change in profitability after CEO
succession by comparing male-male and male-female transitions in Italian family firms and they
confirm that the profitability effect of female CEO transitions is increasing in the proportion of
female directors on the board. However, the positive effect of female interactions on profitability
is reduced when the family firm is located in geographic areas characterized by gender
prejudices and when the firm is large (Amore et al., 2014).

Developing a professional career

The need (perhaps due to fatal events or health problems) tends to increase the likelihood that
parents will consider daughters to work in the family business (Dumas, 1992). In this
regard, Murphy and Lambrechts (2015) suggest that the involvement of the next generation in
the family business not only influences but also alters their careers. According to these authors,
through the activity of helping, the next generation explores the arena of the family business,
which has significant consequences on career decision making. Accordingly, family business
owners should be conscious that children draw conclusions from parents’ behavior regarding
parental succession preferences (Schröder et al., 2011). The potential of female successors in
securing the survival of the family firm should not be undervalued by family business owners,
and they should foster their daughters as competent successors from early on instead of taking
them into account only after a critical incident forces the family to do so (Schröder et al., 2011).

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This situation can not only be an opportunity for women to have more flexible schedules and
increase job satisfaction, but also a source of pride when they help the family or fill a position
nobody wants (Dumas, 1992; Salganicoff, 1990). Vera and Dean (2005) found the following
advantages of working in family businesses: a desire to make their parents’ business grow,
pride in carrying on the family tradition, comfort of the workplace, shared family values, more
time with family, and work schedule flexibility.

When women own or manage family businesses, they are happy to cultivate the structural
network for their firm, as well as introducing their daughters to the various contacts, such as
different forums, chamber of commerce, banks, partners or suppliers (Higginson, 2008).

Family businesses can be an option when developing a professional career for women of the
family who are of childbearing age, taking into account that this variable has been identified as a
real obstacle in the processes of the selection of personnel in small and medium firms when the
candidate is a woman (Woodhams & Lupton, 2006). Nevertheless, it can also be seen as an
obstacle from the predecessor's point of view.

Work life balance

The results of various surveys show that even if 90% of women business owners work full time,
they are still responsible for household tasks and bringing up children. It is normal for them to
perform simultaneously the roles of mother and business manager.

As Francis (1999) says, no one, female or male, can do it all and women should not have to be
superwomen in order to obtain what men have always had: a career and a family. There are
specific obstacles that women in family businesses face. Some women fell as though they
cannot take advantage of family leave or child care, even though they are provided for within the
company's written policies, with not all females, and very few males, accessing family leave
(Francis, 1999). To sum up, daughters want their father's approval and to be given as much
responsibility and as many opportunities in the business as their brothers, without sacrificing the
flexibility to raise a family (Constantinidis & Nelson, 2009; Otten-Pappas, 2013). And,
as Kirkwood (2009) suggests, family businesses can provide daughters with more balance and
job security to attend to child rearing, parental care or other personal needs.

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