The Best Practices From Family Businesses

The term “family business” may conjure up quaint images Mr. Hooper’s Store or a small-town B&B. But more than 30% of large U.S. companies are family-controlled, including global powerhouses and household names like Wal-Mart, Gap, and Ford. Here are core principles for success that family businesses hold dear.


Chances are when you hear the term “family business,” it conjures up quaint images of friendly mom-and-pop establishments straight out of Norman Rockwell–maybe a corner grocery like Mr. Hooper’s Store or a small-town B&B. 

In reality, family businesses are anything but quaint. Family firms make up the majority of companies in the world, with places like the Middle East and Asia being primarily driven by family businesses. More than 30% of large U.S. companies are family-controlled, says Randel Carlock, co-author of When Family Businesses are Best and a family enterprise professor at the INSEAD School of Business in France. They are tech companies, manufacturing, oil, and everything in between–and some are global powerhouses and household names. Wal-Mart, Gap, and Ford are just a few U.S. examples of family-controlled companies, along with India’s Tata Motors. “This is the model for the 21st century,” Carlock says. And many have built up decades worth of collective knowledge about what it means to run a business–any business, big or small.

Here, experts weigh in on best practices of family business that can be applied to any type of business or organization:

Engaging shareholders: Not all shareholders need to be treated like quarterly moneygrubbers. Whether they like it or not, shareholders of a family business are somehow related to the business and care about it for the long haul. Ultimately, this can mean rash decisions are abandoned for a long-term sensibility. “In family businesses, in order to keep shareholders committed to the long run, these shareowners must be treated even more transparently and professionally than shareholders in a management-controlled Fortune 500 company,” says Ernesto Poza, entrepreneurship and family enterprise professor at the Thunderbird School of Management in Glendale, Arizona. In a non-family enterprise, helping shareholders become invested in long-term growth can ease the constant pressure of short-term gains, he adds.

Staying optimistic: Staying positive is easier to accomplish in a family business (unless they’re dysfunctional), but can help any company get through tough times. “Optimism is an important factor when facing a crisis or challenge of any kind,” explains Jane Hilburt-Davis, president of Key Resources, a Cambridge, Mass.-based family-business consultancy. “The majority of family businesses are optimistic about their future and believe that their family business will be controlled by the same family in five years.” Higher morale means employees are more productive and less likely to flee in a downturn.

Being nimble: While family enterprises tend to spend less on some areas of research and development, even the largest family businesses act quickly when competition is coming, points outs Paul Karofsky, founder of Transition Consulting Group, a Framingham, Mass.-based family research firm. The commitment to the relatives (i.e. shareholders) calls for a constant reassessment of the business and helps the leadership team to care deeply about the competition. “Family enterprise stakeholders sleep less and worry more,” he says. This means larger companies can have a leg up by learning how to quickly overcome differences.


Emphasizing long-term values over short-term gains: It’s only natural for family firms to think long-term and work on passing a viable business along to the future generations. Inadvertently wanting the firm to succeed in the long run makes it easier for family enterprises to brush off schemes for short-term gains, says Carlock. For traditional businesses, this same type of desire for corporate longevity could help leaders prioritize new strategies. “You must plan and act for the long-term based on a strategic perspective–families think in generations, not in 90-day windows,” Carlock says.

Maintaining your reputation: “Family owners want to maintain the family’s good name, and the business is a key means to that end,” says Marion McCollom Hampton, Senior Partner, Cambridge Advisors to Family Enterprise. “Most families in business think of their company as a valuable legacy requiring stewardship, rather than primarily as a financial asset.” For traditional companies it can be tough to instill the same sense of pride in a firm’s reputation, but doing so can improve the decision-making process. McCollom Hampton points out that non-family companies are hesitant to invest time in reputation building. “Incentives to really follow through on these platitudes are generally not there,” she adds. 

Creating social ties: Family enterprises are “motivated by a shared family legacy” and fellow employees have an inherent sense of attachment to the firm and each other, says Carlock. “There’s a shared history, [shared] experiences and success,” he says. While it’s difficult to build the same lifelong family ties, companies that focus on creating intercompany bonds via its leadership can create loyal employees who stick around for longer.

[Image: Flickr user Walmart Stores]

About the author

Alina Dizik is a freelance journalist covering anything from management education to entrepreneurs and dining. Her work has appeared in the Wall Street Journal, BusinessWeek and the Financial Times.