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Why Focus on Family Business?



What are Family Businesses?


Family businesses play a non-negligible role in the economy although they are extremely various according to their size or their listing. EDHEC Family Business Center has adopted the European Commission's definition to describe family businesses.

A firm, of any size, is a family business, if:

  1. The majority of decision making rights are the possession of the natural person(s) who established the firm, or in the possession of the natural person(s) who has/have acquired the share capital of the firm, or in the possession of their spouses, parent, child or children's direct heirs.
  2. The majority of decision-making rights are indirect or direct.
  3. At least one representative of the family or kin is formally involved in the governance of the firm.
  4. Listed companies meet the definition of family enterprise if the person who established or acquired the firm (share capital) or their families or descendants possess 25 per cent of the decision-making rights mandated by their share capital.

Why are Family Businesses Different?

Despite being the most common form of ownership structure - 85% of companies within the OECD are family-owned - very little research focus has been given to the specific challenges and strengths of family-owned businesses.

Whilst each family business is unique, they often share a common set of characteristics which set them apart from other companies:
 
  • A high-level of complexity with a predominantly long-term and values-based outlook. This often results in a focus on company longevity over quarterly financial targets and a commitment to investing in company growth over the distribution of dividends.
  • A desire to achieve company success in order to transmit the business to the next generation. Family businesses must also face a range of challenges linked to succession planning and the inter-generational transfer of company control.
  • At times family businesses face difficulties associated with aligning family ownership interests with the strategic goals of the business.
  • Families need to work hard to define and achieve common goals and resolve conflicts which may impact on business governance and management. Defining clearly the role of each family members can also be a challenge.

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