Understanding the Small Family Business

Systems dept

It is estimated that family businesses comprise between 60 and 90 per cent of all firms inEurope and the United States. This book makes an important contribution to the under-standing of small family firms, bringing together a number of key themes inmanagement/organisation studies.

The contributions in this book explore the relationship between work and the family inthe context of the small business. The contributors demonstrate the complexities of thisrelationship, arguing that it is ambiguous and shaped by contradictory yet complementarydiscourses of control and nurturing. These ambiguities and contradictions are examinedthrough three dominant discourses rational, resource-based and critical which areidentified as shaping the development of family business research over the past thirty years.

Using a variety of theoretical and methodological approaches, including quantitativeand in-depth case analyses, each chapter considers a different feature of small businessorganisation. These include:

strategic change entrepreneurship corporate governance leadership finance training and succession.

Drawing on an international range of studies, this book also points to the future ofresearch in this area, and indicates how support and policy initiatives may be directed inthe future.

Denise E. Fletcher is Principal Lecturer at Nottingham Business School, teachingBusiness Development, Entrepreneurship and Research Methodology in the MBA andMasters programmes. She has also taught on small business and entrepreneurship coursesdelivered in Greece, France, Poland, the Czech Republic and Kenya. In the past ten yearsshe has been working with small companies through a variety of research projectsaddressing business development issues in small firms. Her research interests also extend tofamily firms and her doctoral thesis was on the topic of strategic change issues in the smallfamily business. She has participated extensively in European workshops, conferences andresearch projects, and has published widely in the small business literature.

Understanding the SmallFamily Business

1 Small Firm Formation and Regional Economic DevelopmentEdited by Michael W. Danson

2 Corporate Venture CapitalBridging the equity gap in the small business sectorKevin McNally

3 The Quality BusinessQuality issues and smaller firmsJulian North, Robert A. Blackburn and James Curran

4 Enterprise and CultureColin Gray

5 The Financing of Small BusinessA comparative study of male and female small business ownersLauren Read

6 Small Firms and Network EconomiesMartin Perry

7 Intellectual Property and Innovation Management in Small FirmsEdited by Robert Blackburn

8 Understanding the Small Family BusinessEdited by Denise E. Fletcher

Routledge Studies in Small BusinessEdited by David J. Storey

Understanding theSmall Family Business

Edited by Denise E. Fletcher

London and New York

First published 2002by Routledge11 New Fetter Lane, London EC4P 4EE

Simultaneously published in the USA and Canadaby Routledge29 West 35th Street, New York, NY 10001

Routledge is an imprint of the Taylor & Francis Group

2002 Selection and editorial material, Denise E. Fletcher;individual chapters, the contributors

All rights reserved. No part of this book may be reprinted orreproduced or utilised in any form or by any electronic,mechanical, or other means, now known or hereafterinvented, including photocopying and recording, or in anyinformation storage or retrieval system, without permission inwriting from the publishers.

British Library Cataloguing in Publication DataA catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication DataA catalog record for this book has been requested

ISBN 0415250536

This edition published in the Taylor & Francis e-Library, 2002.

(Print Edition)ISBN 0-203-47212-8 Master e-book ISBN

ISBN 0-0-203-78036-1 (Glassbook Format)

List of illustrations viiNotes on contributors ixForeword by David J. Storey xi

Introduction: family as a discursive resource forunderstanding the small family business 1D E N I S E E . F L E TC H E R

PART I

A rationality discourse in studies of the smallfamily business 17

1 The scale and nature of family businesses 19PAU L W E S T H E A D, M A RC C OW L I N G, DAV I D J. S TO R E Y

A N D C A RO L E H OWO RT H

2 Towards an understanding of strategy processes in smallfamily businesses: a multi-rational perspective 32A N N I K A H A L L

3 Energising entrepreneurship: ideological tensions in themedium-sized family business 46B E N G T J O H A N N I S S O N

PART II

A resource-based discourse in studies of the smallfamily business 59

4 Work-to-family conflict: a comparison of American andAustralian family and non-family business owners 61KO S M A S X . S M Y R N I O S, C L AU D I O A . RO M A N O, G E O RG E A . TA N E W S K I ,

PAU L K A RO F S K Y, RO B E RT M I L L E N A N D M U S TA FA R . Y I L M A Z

Contents

5 Understanding the emotional dynamics of family enterprises 75BA R BA R A M U R R AY

6 The dynamics of family firms: an institutional perspective oncorporate governance and strategic change 94M AT T I A S N O R D QV I S T A N D L E I F M E L I N

7 The financial affairs of smaller family companies 111PA N I K KO S Z ATA P O U T Z I O U R I S

8 Training and HRM strategies in small family-ownedbusinesses: an empirical overview 127H A R RY M AT L AY

9 The emergence of leaders in family business 138J I L L T H O M A S

PART III

A critical discourse in studies of the smallfamily business 155

10 Exploring the connection: ethnic minority businesses andthe family enterprise 157M O N D E R R A M A N D T R E VO R J O N E S

11 A household-based approach to the small business family 168S U S A N BA I N E S, JA N E W H E E L O C K A N D E L I Z A B E T H O U G H TO N

12 Emotions and the moral order of farm business familiesin Finland 180S A I JA K AT I L A

Bibliography 192Index 215

vi Contents

Tables

1.1 Numbers of surveyed family and non-family unquotedcompanies in the UK 23

1.2 Performance contrasts between matched-paired family (n = 73)and non-family (n = 73) unquoted companies in the UK 27

1.3 Non-financial objectives contrasts between matched-pairedfamily (n = 73) and non-family (n = 73) unquoted companiesin the UK 29

3.1 Ideologies in the family business context dimensions andmeanings 51

3.2 The family businesses some basic facts (end of 1997) 524.1 Family business background characteristics 674.2 Correlations between measures, reliabilities, means and

standard deviations 684.3 Summary of goodness of fit information for between-group

comparisons 705.1 Family relationship themes and emotional functioning: Case A 835.2 Family relationship themes and emotional functioning: Case B 857.1 Profile of database of private companies 1187.2 Funding structure of private SMEs 1197.3 Sources of development finance for private SMEs 1197.4 The balance sheet structure of private companies

(%, averages, 19979) 1207.5 Performance of family and non-family companies 1217.6 Rationale of OMDs of smaller family companies for

venture capital deals 1227.7 Perceived problems, issues involved in venture capital dealings 1238.1 Size distribution and composition of the research sample 1308.2 Family business representation in the research sample 1318.3 The locus of training and HRM decision-making processes 1318.4 Management styles of owner-managers 1329.1 The emergence of leaders in family businesses 142

Illustrations

9.2 Summary of characteristics of cases 1439.3 Case-ordered display: relationships between the older generations

expectations for younger generation to join family business, youngergenerations level of satisfaction in business, and their subsequentleadership ability 145

9.4 Case-ordered display: relationship between family businessapproaches to developing leadership and younger generationsacceptance of that approach 150

Figures

1.1 Numbers of family and non-family companies as classified byWesthead and Cowling 21

3.1 The medium-sized family business at an ideological intersection 494.1 Results of hypothesised workfamily conflict model 695.1 Case A: family genogram in 1994 805.2 Case A: company structure in 1994 805.3 Case B: family genogram in 1994 815.4 Case B: organisation chart in 1994 816.1 A model of governance and strategy processes in family firms 967.1 Experience and attitudes of family companies towards ESOPs

and PLC options 12411.1 A schema of the micro-business as embedded in the household 171

viii List of illustrations

Susan Baines, Department of Sociology and Social Policy, Claremont BridgeBuilding, University of Newcastle, Newcastle.

Marc Cowling, Research Centre for Industrial Strategy, The BirminghamBusiness School, University of Birmingham, Birmingham.

Denise E. Fletcher, Nottingham Business School, The Nottingham TrentUniversity, Burton Street, Nottingham.

Annika Hall, Jnkping International Business School, PO Box 1026,Jnkping, Sweden.

Carole Howorth, Institute for Enterprise and Innovation, NottinghamUniversity Business School, Jubilee Campus, Wollaton Road, Nottingham.

Bengt Johannisson, Scandinavian Institute for Research in Entrepreneurship(SIRE), Vaxjo University, Vaxjo, Sweden.

Trevor Jones, Department of Strategy and Management, Leicester BusinessSchool, De Montfort University, Leicester.

Paul Karofsky, Center for Family Business and Management Science Group,College of Business Administration, Northeastern University, Boston,MA 02115.

Saija Katila, Department of Management of the Helsinki School of Economicsand Business Administration, Helsinki, Finland.

Harry Matlay, The Business School, University of Central England, FranchiseStreet, Perry Bar, Birmingham.

Leif Melin, Jnkping International Business School, PO Box 1026, Jnkping,Sweden.

Robert Millen, Center for Family Business and Management Science Group,College of Business Administration, Northeastern University, Boston,MA 02115.

Barbara Murray, The Family Business Network, Lausanne, Switzerland.

Contributors

Mattias Nordqvist, Jnkping International Business School, PO Box 1026,Jnkping, Sweden.

Elizabeth Oughton, Department of Sociology and Social Policy, ClaremontBridge Building, University of Newcastle, Newcastle.

Panikkos Zata Poutziouris, Manchester Science Enterprise Centre, UMIST,Fairburn Building, Manchester.

Monder Ram, Department of Strategy and Management, Leicester BusinessSchool, De Montfort University, Leicester.

Claudio A. Romano, AXA Family Business Research Unit, Dept. Accountingand Finance, Faculty of Business and Economics, Monash University, POBox 197, Caulfield East, Victoria 3145, Australia.

Kosmas X. Smyrnios, AXA Family Business Research Unit, Dept. Accountingand Finance, Faculty of Business and Economics, Monash University, PO Box197, Caulfield East, Victoria 3145, Australia.

David J. Storey, Centre for Small and Medium-Sized Enterprises, WarwickBusiness School, The University of Warwick, Coventry.

George A. Tanewski, AXA Family Business Research Unit, Dept. Accountingand Finance, Faculty of Business and Economics, Monash University,PO Box 197, Caulfield East, Victoria 3145, Australia.

Jill Thomas, Graduate School of Management, Adelaide University, SecurityHouse, North Terrace, Adelaide, SA 5005, Australia.

Paul Westhead, Institute for Enterprise and Innovation, Nottingham UniversityBusiness School, Jubilee Campus, Wollaton Road, Nottingham.

Jane Wheelock, Department of Sociology and Social Policy, Claremont BridgeBuilding, University of Newcastle, Newcastle.

Mustafa R. Yilmaz, Center for Family Business and Management ScienceGroup, College of Business Administration, Northeastern University, Boston,MA 02115.

x Notes on contributors

In the early 1990s Paul Westhead and I obtained a substantial grant from theLeverhulme Foundation to examine economic aspects of family businesses. Atthat time a Conservative administration was in power with, at least in public, acommitment to tax cutting. While no taxes are ever popular, the payment ofinheritance tax on the assets of family businesses caused particularly strong feel-ings. Family businesses, it was argued in the popular press, were the bedrock ofthe UK economy and taxes, that constituted a disincentive to businesses beingpassed from one generation to the next, risked undermining that bedrock.

Our simplistic view in the proposal to Leverhulme was that we might be ableto throw a little light on this thorny problem. If we were able to demonstrate thatfamily businesses, in general, outperformed otherwise comparable non-familybusinesses, then this would provide supporting evidence for those seeking tolower these taxes. If the non-family businesses outperformed the family busi-nesses, then the case for an inheritance tax was very difficult to make.

The simple empirical question of whether or not family businesses did or didnot outperform non-family businesses was dogged by the difficulties associatedwith defining what was meant by a family business. It has always seemed to methat the last refuge of the scoundrel is to keep changing definitions until oneemerges that yields the right answers. But in this case it was genuinely tricky as is shown in Chapter 1 by myself, Paul, Marc Cowling and Carole Howorth.

Even so, despite devising a cornucopia of definitions, we found the relation-ship between family ownership and business performance a very difficult link tomake. In bald terms, whether a business was family-owned or not did not seem toinfluence its performance. Hence justifying the lowering of inheritance taxes onthese grounds was difficult. This finding failed to endear us to those wishing todemonstrate that family businesses were in some sense special or different. Butthe finding that the performance of family- and non-family-owned businesses didnot differ did not mean the factors influencing the performance were the same or that, in some sense, family business was an uninteresting subject of study.

For those interested in the internal organisation of businesses the familyownership component adds an important extra dimension. Denise Fletchermakes this point clearly in her editorial overview to this volume. She is at painsto ensure the readers dont take this (family) special quality for granted. So, just

Foreword

what is it that makes family businesses special? Being a small business owner, ofalmost any sort, is clearly different from being an employee or from being ashareholder in a large business. In comparison with large businesses, small firmowners have more internal certainty than large firm managers but more externaluncertainty (Storey and Sykes, 1996). But the addition of family, as DeniseFletcher argues, leads to additional tensions and contradictions because of thesocial and emotional relations.

Conventionally the family component is defined in terms of ownership thatis, having the shares of the businesses owned by family members but what theliterature seems to imply, but not make explicit, is what difference that ownershipmakes. In my view what makes family businesses special is not the fact that theshares are owned by family members per se, but the implication of this for theway the business is organised internally. The special quality derives from acloseness that only families can provide. At its most simplistic, the ChiefExecutive Officer/Chairman of large companies never meets the vast majorityof their shareholders. At best they might come face to face with a (probablyunrepresentative) sample of them at the AGM, so their relationship is armslength. In contrast, the CEO of the family business regularly looks into the eyesof the key shareholders, possibly every Sunday lunchtime.

But does closeness really influence behaviour? The economists response tothe closeness argument is that business is so fundamentally competitive that afailure to implement profit-maximising practices puts at risk the very existence ofthe firm. In a competitive world the distinction that Hollander and Elman (1988)make between the rational business motivation having to take second place tothe irrational family motive is unrealistic. Instead, all businesses, whether family-or non-family-owned, have to perform in the same way if they are to survive andprosper; our own performance findings on family/non-family businesses arecertainly compatible with this proposal. The Hollander and Elman distinctiontherefore exists only in imperfect markets. But such markets are surely the norm,and only the purest of economists believe them to be the exception. So, let usassume that such imperfect markets do exist and that family businesses arepresent in these markets. How, then, does closeness influence behaviour?

The obvious way is that the family would be expected to be better informedabout what is happening in the business than anonymous shareholders. Sincethey frequently work in the business, and discuss its performance and prospects,information is likely to circulate more freely. However, in practice, as shown byseveral chapters in this volume, the key figure in the business often takes steps toensure that information about the business is restricted. Family shareholders, infact, can be less well informed about what is going on than the anonymousshareholders in large companies who are, by law, provided with a minimum levelof information. Nowhere perhaps is this more clearly illustrated than in thequotation in Denise Fletchers chapter by the second-generation chairman of thesmall electrical engineering company.

This issue of closeness seems to encapsulate issues relating to family busi-ness. However, because the subject is, comparatively, in its infancy, equally

xii Foreword

plausible, but wholly contradicting, a priori arguments may be presented. DeniseFletcher in her overview is highly sympathetic to such mixed results. In herview, this new area of study would be ill-served by seeking to deliver a unifiedparadigm, which would risk closing off potentially promising areas of develop-ment. What she and her fellow authors have certainly done is to demonstratethat the relationship between family and small business organisations iscomplex, ambiguous and shaped by contradictory discourses of control andnurturing. I am sure that readers of this volume will find a similar therapywhich the (family) small business owner claimed to feel when discussing theseissues with Denise.

David J. Storey21 November 2001

SME Centre, University of Warwick

Foreword xiii

Introduction

In this chapter, a route map is laid out to provide the reader with a set of signpostsand directions with which to journey through and explore the dominantantecedents and approaches that have shaped understanding of theworkfamilysmall business relationship. A substantial literature has emerged overthe past thirty years concerned with raising the profile of family businesses as aspecial area of study. Studies have focused on: definitional issues and the contribu-tion of family firms to national employment and gross domestic product (Donckelsand Frhlich, 1991; Cromie et al., 1995; Daily and Dollinger, 1993; Litz, 1995;Poutziouris and Chittenden, 1996; Shanker and Astrachan, 1996; Westhead,1997); strategic management practices in family firms (Beckhard and Dyer, 1983;Gersick et al., 1997) and the complex nature of the businessfamilywork relation-ship (Holland and Boulton, 1984; Dyer and Handler, 1994). In the followingsections, the reader is introduced to the contributors to this book and also to otherscholars who are enhancing understanding of the small family business sector. Inembarking on this journey, the reader will become familiar with current researchinterests and how support or policy initiatives may be directed in the future.

The journey, however, is not always a smooth one. The aim of the book is notto produce a family business research monograph that re-produces (and rein-forces) what is already known about family business. In contrast to Wortman(1994: 3), who laments that there is no unified paradigm for the field, it is notthe intention here to argue that there should (or could) be a unified paradigm forthe study of family business. Such a unified paradigm, which might privilegecommon methodologies and ways of theorising the family business, is unhelpfulfor a dynamic and growing area of study. Also, the very complexity of the institu-tion of family (Holland and Boulton, 1984: 16) and its role/meaning in differentsocio-economic contexts means that a unified paradigm is not only senseless butalso untenable. The notion of family in society refers to groups of people boundtogether by blood and marriage ties (Muncie and Sapsford, 1997) and caninclude the traditional nuclear form of family, extended families, kin groups,clans and single-parent families. Such a unified paradigm, therefore, would riskclosing off new perspectives and insights that explore the complex relationshipbetween workfamily and the small business.

IntroductionFamily as a discursive resource forunderstanding the small family business

Denise E. Fletcher

In contrast, therefore, the aim of this book is to examine the relationshipbetween work and family in the context of the small business. As approximately7080 per cent of small firms are family firms (see Matlay, this volume), it isimportant to explore the relationship between family ties/roles and organisationof the small business. One aim of the book, in particular, is to draw attention tothe tensions and contradictions that are created within the small business as aresult of this distinctive workfamily relationship. These tensions are examinedthrough a wide variety of theoretical and methodological perspectives includingquantitative and in-depth case analyses using interpretive techniques. Thesetensions are also examined through three dominant discourses which are identi-fied as shaping the development of family business research. As the readerapproaches this collection of writings, it is hoped that the journey through thebook will be an enjoyable and informative one. At times the reader will be reas-sured when their assumptions and expectations of family business practices areconfirmed. At other times, readers assumptions might be challenged. Also, thereader should be prepared to ignore the signposts (or discard the route map) whena new (theoretical or methodological) perspective, seen for the first time, looksmore promising and inviting. Thus, the reader is invited to consider some of theapproaches that have enhanced family businesses as a distinctive area of studyand at the same time be introduced to the variety of perspectives put forward bythe contributors to this volume. Before this, however, narrative from a second-generation chairman of a small manufacturing company is presented in order togive space and voice to the people who are continuously negotiating the specialand distinctive features of small family businesses:

I can remember walking into this place and Id walked away from a job where I had to fill atime sheet in and account for my hours and that was a shackle, if you like. I came in hereand, OK, I got paid every week and I didnt have to account for my time but I worked twiceas hard as I did before but I found myself obligated because it is a family company. You justcant walk away from this place. You cant slam the door and think, sod it, Ill go and worksomewhere else, which Ive done many times. Its so frustrating because you know as soon asyou get one bit of the business right, theres another bit going wrong. So you know you aregoing to go from one problem to another and after twenty years you get a little bit fed up of itand so it is a bit of a prison as well. At one time I always used to say I didnt like this joband one aspect I havent, Ive never enjoyed it, but on another plane I have. I enjoy coming inhere and opening the post because you dont know whats going to be in the post or thenext phone call.

(Second-generation chairman of small electricalengineering company in the UK)

The special quality of small family businesses

In the above quote the voice of this chairman is made prominent to highlighthow working in the family business is distinctive. In reflecting on his life in thebusiness from when he joined the family firm as a qualified electrical engineer,

2 Denise E. Fletcher

he comments that while there is less accountability and more secure wages, thereis also hard work, constant problems, forever commitment and both the frustra-tion and satisfaction of being obliged to continually keep on working to get thebusiness right even when the temptation is to walk away. For this owner andmany others like him, the family business is special and distinctive. Also, the nowextensive literature concerned with highlighting the family business as a specialarea of study, is evidence of this. For example, Gersick et al. (1997) argue that thefamily business is an extraordinary, special form of organisation and this specialquality brings both negative and positive consequences. It is not the intention inthis book to challenge the aspirations behind this dominant assumption of familybusiness research, training and consultancy. At the same time, however, thisspecial quality and distinctiveness should not be taken for granted. It needs to bemade explicit, to be evaluated, explored and justified using different methodolo-gies and theories. The aim of this book, therefore, is to bring together acollection of works from leading and developing scholars who are researching,exploring and writing about the special quality and distinctiveness of familyfirms. I want now to return to the case of the small electrical-engineeringcompany to explore this notion of special quality.

The company was started in 1948 by two brothers. One brother left the busi-ness and Fred, the remaining brother, continued to run the electrical-engineeringbusiness. On Freds retirement, he distributed ownership of the companys sharesequally to his four daughters. None of the daughters wanted to be involved inday-to-day management of the company. However, two of the husbands didcome in to run the business (Robert, first now chairman; followed by theyounger Stewart as managing director). In 1999, Robert and Stewart were facedwith a serious dilemma. Robert tells the story:

Fred was very secretive with his daughters and whatever. He gave them shares but theywere never given accounts or anything. They were asked to sign bits of paper but neverknew what they were, you know. As I was when I was made a director. I never hadaccounts for five years even though I was a director. I was taken to meetings with theaccountants and told sit there and dont say a thing, you know. But luckily after one year,I ended up doing all the talking because I knew what was going on and nobody else didyou see but, anyway, Stewart and I decided its a family company, the shares are prettymuch divided between the family. We would have a meeting with the family to explain tothem what they have inherited, what the company was, how it was formed and its goodthings and bad things. So obviously, Stewart and I married the two daughters and theresthe other two daughters. We all get on socially and as a family fine. So we sat down inStewarts house and we said, well make it very informal. We said, right, well tell youabout the company. How much we do and how many people we employ, and they sat andnodded and at the end of it, Peter, the leading brother-in-law, said, Well, wed like out.What do you mean, Peter? Well, you know, business is not really us, weve got noinvolvement in it whatever, you and Stewart are obviously there and wed like out.

So they said, wed like out. So I said, what do you mean Peter? He said, well, youknow, buy our shares whatever. It knocked me back a little bit I must admit. So we left it

Introduction and family discourses 3

there, we came away and I thought, well, hang on a minute, if we pay them out, buy theirshares off them, how are we going to finance it? If we do it personally, wed have toborrow money and I thought Im coming up for sixty, Im not borrowing any money. Ivegot a pension as well and I dont need to do that and Stew said, Im the same, Im notputting my house at risk and whatever. The company could buy its own shares back. Wehad a chat to the accountant. Yes, you can do that. We thought, well, but no way weve gotcash reserves but Im certainly not letting them walk away with assets and leaving us withall the debts and going into having overdrafts and God knows what and mortgages. Fredsshares had to be valued by an accountant in this formula. So we told them, which started amassive family row because it was substantially less than the realisable value and, God, itcaused no end of problems. Until at the end I then said, enough of this, Im not having anyof this. We called a formal meeting. We had a meeting in here and we went round the tableand said, does anybody want to buy the shares? Nobody wanted to buy any shares. I said,right, the company doesnt want to buy any shares and everybody, and even all of us,agreed that it had gone too far. So we more or less said, right, enough is enough. Obviouslyit brings the problem up, how do we all realise our potential in this company? Im not both-ered. You see, Ive got some shares but I started out with no shares. Theyve been given tome over the years and Id gladly give them to the lads to be honest but Im sure the daugh-ters wont. So how do we, then, Ive got six to eight years to sort something out, say to Chrisand Tony, look, do you want to buy these shares? Do you want to do a management buy-out? Youve seen what we can make over the years and whatever. Theyre still young enoughand theyre hungry enough perhaps to do it or maybe even bring the other people in as well.If that doesnt happen, then the only alternative is to go to a competitor and say, do youwant to buy us, but we wont get a lot of money for it because they can quite happily sitand let it go. So, yes, we could liquidate the company which Stew, myself, our two wives and we have overall control of the company are all adamant that that will not happen.You know, Ive found myself caring more about this company than I thought when thathappened. But the trouble is when Stewart and I go, what will happen? I dont knowtherell be a younger man, shares will be left to families that have no understanding of thecompany and whatever but I dont know. But this is a thing of family companies, isnt it?

The special nature of family firms can be seen very clearly from this shortcase extract. During his narrative, the chairman speaks about complex issuesand processes which influence his understandings and persuade him to act inparticular ways. In addition to the hard work, frustration and obligation toalways be there, owner-managers not only have to deal with day-to-dayproduct/market/employee/growth/marketing/training issues that all managersface, but also they have to carefully manage and negotiate a complex set of socialand emotional relationships involving family and non-family members who havedifferent expectations and motivation for involvement in the family business.Thus, day-to-day issues of management are combined with issues of ownership(shares, buy-outs, cash reserves, personal borrowings, equity and capital). Suchconcerns are stimulated by age, thoughts of retirement, ill health, succession andthe need for good leadership to realise the potential of the business. Also, there isa voicing of concerns that all the shares might be left to the daughters who do not


understand the business and recognition of the need to bring good, loyal non-family members into the management team with a view to, and eventually givingthem, ownership. Thus, kinship ties, nepotism, hereditary management andemotions are special features of the family business. But also, strategic concernsof growth, finance, leadership, succession and in-house training/development ofnon-family managers are woven into the chairmans comments.

Family as a discursive resource for understandingsmall business organisation

From this short account a number of discourses can be identified. Discoursesare a connected set of statements, concepts, terms and expressions which consti-tute a way of talking or writing about a particular issue, thus framing the waypeople understand and act with respect to that issue (Watson, 1994a: 113).Therefore, an interest in discourse is revealed, whereby human beings drawupon a set of linguistic resources to give voice to and express aspects of theirorganisational lives (Watson, 2002). A focus on family as a discursive resource isimportant for understanding small business organisation for two reasons.

First, the concept of family is multi-dimensional and interpretively dynamicin that family discourse assigns meanings to the actions we take on behalf ofthe social ties designated as familial (Gubrium and Holstein, 1990: 14). Fromthis perspective also, the key research focus becomes not what is family but inwhat ways family becomes a resource for specifying individuals relations withothers (ibid.). McCollom (1992) takes a similar perspective in her research whereshe concludes that talk, interaction, relationships and discourse in the businessare dominated by family issues and that through this family discourse meanings(of family, organisation, business) are managed in the system (ibid.: 19). Ram(1991, 1994a) also refers to the concept of negotiated paternalism to drawattention to the way in which meanings are managed through social/familyrelations within ethnic firms. In addition, Ram and Holliday (1993a) andHolliday and Letherby (1993) explore family culture and the familial analogyin small firms in order to examine why people in small firms refer to themselvesas one big happy family. A focus on family as a discursive resource is thereforeimportant for understanding small businesses.

A second reason relates to the close relationship between discourse andprocesses of social construction. A social constructionist perspective is emergingin entrepreneurship research (Steyeart and Bouwen, 1992; Bouchiki, 1993;Fletcher, 1997; Chell, 1998). Social constructionist ideas invite researchers intonew worlds of meaning and action (Alvesson and Skldberg, 2000: 16) and theopportunity to challenge dominant assumptions, discourses and ideologies.Social constructionist ideas provide for a critical stance towards taken-for-granted knowledge (Burr, 1995) and provide a means of understanding howsmall business reality is interpreted or constructed. On the one hand, there isan emphasis on the meanings (of familywork, businessfamilies) generated bypeople as they collectively engage in descriptions and explanations in language


(Gergen and Gergen, 1991: 78). Also, people bring to their interactions previouscultural, historical and political understandings that contextualise and shapefurther interactions. Therefore, social constructionism is used by people in theprocess of relating (Gergen, 1999). In relating to each other, there is an emphasison language and the discursive resources (for example, family concepts) thatpeople use or draw upon to provide meaning in their organisational contexts.

In the chairmans account above, discourses relating to hereditary manage-ment, kinship ties and family responsibilities are made explicit. Also, discoursesreferring to the special needs of family firms in terms of business development(succession, leadership, training, finance) are expressed in order to indicate howfamily firms are different from non-family firms. Reference is made, on the onehand, to how the family influences can impede strategic business developmentand therefore need to be isolated and contained. This can be made sense of interms of a rationality discourse. At the same time, attention is drawn to how thefamily can provide important resources in the form of nurture, support andemotional labour to support the development of the business or provide opportu-nities for self-expression and realisation for family business members. Here,reference is made to ways in which the small business is tightly embedded andinterwoven within a complex set of emotional, kinship and household ties whichyield special obligations and commitments. This can be made sense of in termsof a resource-based discourse. However, a critical discourse can also be identifiedwhich highlights how commitment to family can also mean suppression or inhibi-tion of individual freedom of action or self-expression/realisation. This discourserelates to issues of control, oppression and inhibition that can be seen to someextent in the earlier quote from the chairman when he refers to the family busi-ness as a prison.

These contradictory but overlapping discourses which are inferred interpre-tively from the chairmans short account relate to and reflect the ambiguity ofthe familywork relationship. The discourses show how the concept andmeaning of family are complex and ambiguous in that the dynamics at workwill be socially constructed and negotiated according to gender and ethnicity(Ram, 1991; Ram and Holliday, 1993a; Holliday and Letherby, 1993; Fletcher,2002). Focusing on the ambiguity of the workbusiness relationship provides ameans of enhancing understanding of small business organisation. Also,research, policy direction, government support and private consultancy can betargeted more appropriately to respond to these special needs. The discoursesare now used to provide a rationale for making sense of the family business liter-ature on the one hand, and for structuring the chapters in the order that theyappear in this volume, on the other.

Part I: A rationality discourse in studies of the smallfamily business

The emotional aspects associated with the family business such as hereditarymanagement and attention to kinship ties or responsibilities identified above are


often referred to in the family business literature as irrational. Family ties andemotional issues are often seen as competing with the demands of the organisa-tion and that commitment to family clashes with the ability to be loyal, efficientand totally committed to the work organisation. The rational approach,according to Hollander and Elman (1988), sees two organisations co-existingwithin the family business the family, non-rational component and the busi-ness rational component and when the two parts clash, the business side(i.e. structure, functions, purpose) loses out to the power, sentiment andemotional issues of the family. As a result, therefore, early writers lamented thefact that family firms were not operated in a more business-like way. Thesolution [for which] was to excise the family (Calder, 1961; Donnelley, 1964).Their solutions tended to be highly normative, prescribing how the emotionalissues involved in running a family business could be smoothed away bypreventive or corrective strategies. Attempting to separate the family from thebusiness issues was espoused as the guiding principle for developing asuccessful business and this view has also permeated a number of family busi-ness texts (see Leach, 1994) and is very dominant in short training andconsultancy programmes.

One important consequence of rational thinking, however, is that it hasencouraged the development of useful classificatory schemes of the family busi-ness that have applicability in different socio-economic contexts. Such schemesare important for providing common frames of reference for research teams whoaim to evaluate the characteristics and processes that strongly differentiate familyfrom non-family firms (Daily and Dollinger, 1993; Poutziouris and Chittenden,1996; Westhead, 1997) and in so doing highlight the special quality of familyfirms. Initially, Holland and Boulton (1984) delineated between the husbandwifeor large family business in order to make a distinction based on the participationof family members in ownership and day-to-day management (i.e. pre-family,family, adaptive family, post-family). Also Leach (1994) defined a family businessas any firm which was influenced by a family relationship. Furthermore, Litz(1995), taking forward Barrys (1989) framework, identifies nine categories offamily firms derived from two structural considerations: ownership and manage-rial control. Within this typology three categories characterise family firms. Thefirst type is a more pure definition: firms involving family members in bothownership and management of the company. Other categories include thosefirms with non-family ownership but with family managers involved in day-to-day management (for example, a first generation company preparing forsuccession). Third, other categories include the family business that has gonepublic but where family members are still in senior management positions.Importantly, Litz emphasises the intentionality within the business (i.e. tobecome, remain, erode or displace the family). This avoids a static perspectiveof the family business and provides a framework for analysing the role offamily relationships at different levels and stages within both large and smallorganisations (cf. Dyer and Handler, 1994). Also, Gersick et al. (1997) proposeda three-dimensional view of the family firm in order to draw attention to the


complexity of family firms in their different guises from single entrepreneurmoving into second-generation, to cousin consortiums faced with maturitymarket/product/business life cycles.

The definitional issue is taken up in Chapter 1 of this book. Paul Westhead,Marc Cowling, David Storey and Carole Howorth take forward their earlierwork in this area and assert that if the family business is associated with moresuperior business performance than non-family businesses, then strong argu-ments are needed to support this. Otherwise these special quality claims arealways definition dependent. In their chapter, these authors present their exten-sive family business classificatory scheme using a range of criteria. Thisdefinitional framework is helpful to policy-makers/support agencies in targetingparticular client groups. However, Westhead et al. state that a problem with widerdefinitions is that the proportion of firms classified as family business can varyfrom between 15 and 81 per cent depending on the narrowness or extensivenessof the definition selected. As such, they make a case for selecting a fairly broaddefinition (whereby 50 per cent of ordinary voting shares are owned by membersof the largest single family group related by blood or marriage and where thecompany was perceived by the chief executive as a family business). In takingthis definition, their findings show that family firms represent 63.7 per cent of allbusinesses surveyed in their sample. Also, these family firms tend to be older andsmaller in terms of employment size and sales revenue. They also did not findany statistically significant differences between family and non-family withregards to performance indicators, non-financial objectives (including the needto ensure independent ownership and retain employees). The only significantdifference was that family firms tended to be more concerned with lifestyle andsecuring family jobs in the management team. These findings were in line withresearch by Poutziouris and Chittenden (1996) but contrast with the researchundertaken in the early 1990s that showed that family firms considerably outper-formed non-family firms.1

What can be highlighted from this is that while many business practices aresimilar in family and non-family firms, certain aspects such as hereditarymanagement and family lifestyle influences are the distinguishing features particularly if they have undergone an inter-generational transition. What isneeded, then, is further, in-depth research on the complementary and contradic-tory processes through which family and business discourses interact in the smallbusiness organisation and this is where this book makes a major contribution.

In summary, therefore, rational discourse has highlighted the special nature offamily businesses. On the one hand, as is also seen throughout this book, it iseffective in isolating the special situation and needs of family firms as theyattempt to achieve succession (Fox et al., 1996; Kimhi, 1997), manage culture(Hall et al., 2000), manipulate product, business, family life cycle changes (Davisand Stern, 1988; Gersick et al., 1997) and professionalise their businesses (Dyer,1989). It has also encouraged greater understanding of those features whichcharacterise family from non-family firms (Daily and Dollinger, 1993;Poutziouris and Chittenden, 1996). At the same time, however, a number of


writers are critical of the influence of rational thinking in family businesses.These criticisms are now discussed.

Kepner (1983) argues that a rational perspective and the desire to isolatespecial problems and challenges created by inter-generational transition,emotional-kinship aspects and hereditary management have encouragedunhelpful polarity within studies of family business. This business versus familydualism manifests itself in a number of studies, which have created polarassumptions of how family businesses behave and thus how they can be cate-gorised. For example, family firms are often characterised as less entrepreneurial,professional, and more risk-averse or closed in terms of culture. For example,Daily and Dollinger (1993) found that small family-managed firms tend to besmaller, younger, less formalised and growth-oriented and tending towards adefender strategic typology. This is also shown in Gartner (1990) and Hoy andVerser (1994) in which family state and entrepreneurialism are depicted asseparate (although overlapping) domains. However, as identified above, the rela-tionship between family and small business organisation is an ambiguous oneproducing many tensions and contradictions. The following two chapters, there-fore, explore the tensions produced by rational discourses and the implications ofthis for an understanding of small family businesses.

In Chapter 2, Annika Hall questions the usefulness of a rational perspective infamily business research. However, rather than arguing that family firms arerational or non-rational, she puts forward a multi-rational perspective to explorethe ways in which individuals working in family firms engage in multiple rational-ities at different times. She explores a multi-rational perspective in the context ofa small Swedish company and shows how multiple rationalities (from genuine toexpressive) shape strategic change processes during inter-generational transition.

In Chapter 3, Bengt Johannisson is also critical of the tendency to see familybusiness life as irrational and introverted. He argues that entrepreneurship isabsent in many family business debates and accounts for this partly because ofthe dominance of rational thinking but also because of managerialist perspec-tives which focus on recipes for growth or success. Taking forward Dyer andHandlers (1994) work, which examines how family and entrepreneurialdynamics intersect in the life of a small business, Bengt posits that it is importantto inquire into the differences between family, managerial and entrepreneurialideologies because these ideologies create both complementary and contradic-tory tensions which can energise medium-sized organisations as they grow.

The roots of rational thinking, Kanter (1989) argues, can be traced back tothe rise of industrial capitalism and a movement towards scientific management,whereby firms became larger and work became less craft-like, more mechanisedwith better-trained workforces. The result of this was that the worlds of work andfamily came to be separated. The need for loyalty from workers and their familynetworks, Kanter (1989) argues, became less important to employers and familyinfluence and control were seen as best isolated from the workplace. Family tiesand emotional issues were seen to compete with the demands of the organisationand ties to the family clashed with the ability to be loyal, efficient and totally


committed to the organisation. As a result, Kanter argues that during the post-Second World War period the separation of family from work to ensure thesmooth functioning of both family and economic institutions became accepted asthe conventional wisdom for the organisation of work. This also meant that theinstitutions of economy and family as connected organisers of experience andsystems of social relations, are virtually ignored (1989: 77). She argues that inpre-industrial societies family and working life were highly integrated and thefamily unit was seen as important for imposing some control over daily tasks.

The family was an important work unit in city factories in England spin-ners in textile mills chose their wives, children and near relatives asassistants, children entering the factory at eight or nine worked for theirfathers, perpetuating the old system of authority and the traditional valuesof parents training children for occupations it was the family system thatmade possible the transition from pre-industrial to industrial ways of life.

(Kanter, 1989: 7980 referring to thework of Hareven, 1975; Nelson, 1975)

Muncie and Sapsford (1997), however, provide an alternative perspective. Theissue was not so much that the family became separated from work but that thenature of the family unit changed. They remind readers of the work of TalcottParsons (1959) who argued that the pre-industrial family, which was charac-terised by a large-scale kinship unit providing a mixture of economic,educational, social and political functions, changed to a more nuclear formduring industrialisation because it was more adaptive to the functional necessitiesof an industrial economy. However, Muncie and Sapsford review historical andcontemporary evidence to conclude that there is no simple pattern of a shiftfrom extended to nuclear families during industrialisation. Instead, the nuclearunit was always prominent as a key domestic grouping (1997: 16). From this, it ispossible to argue that it is not that the worlds of work and family became sepa-rated (as is reflected in the rational discourse) but that the nature of theirrelationship is more ambiguous and becomes less transparent. This ambiguity isexplored further in the following section, which examines the resourcing rela-tionship between families and working life.

Part II: A resource-based discourse in studies of thesmall family business

Many studies of the small business have emphasised the important resourcingfunction provided through the mass of inter/intra-organisational connectionsand interdependencies that are drawn upon to shape small business emergenceand growth. In the context of the smaller business, these interdependencies areoften explored through a network perspective of personal and social networkcontacts (including family linkages) which are seen as a resource through whichsmall business owner managers gain access to important social, cultural,


emotional, financial information, resources and capital (cf. Mitchell, 1969;Boissevain, 1974; Tichy et al., 1979; Aldrich and Zimmer, 1986; Johannisson,1987a, 1987b; Curran and Blackburn, 1991; Butler and Hansen, 1991; Larson,1992; Ibarra, 1993; Ram, 1994b).

Also, other studies emerge in the form of business history accounts of familyfirms and industries (Crossick et al., 1996; Grell and Woolf, 1996; Muller, 1996;Hareven, 1975; Nelson, 1975; Chapman, 1996; Cookson, 1997) to examine howfamily ties and networks have important regional economic development poten-tial (Lombardini, 1996; Muller, 1996; Weidenbaum, 1996; Brogger and Gilmore,1997; Heuberger and Gutwein, 1997). Furthermore, discussed in terms of socialcapital, gender, and family (Whatmore, 1991; Rosa, 1993; Stafford, 1995; Salaffand Hu, 1996) other accounts emphasise the important role of womensemotional labour in resourcing enterprise development and also ethnic or immi-grant labour (Ram, 1994a; Sanders and Nee, 1996, Fletcher, 2002) or householdlabour (Whatmore, 1991; Wheelock, 1991).

This research is important for understanding the small business sector onthree counts. First, it highlights the social embeddedness of business activitywithin a broader social context incorporating family, kinship and social rela-tions (Granovetter, 1985; Grabher, 1993). Second, this research led to closerexamination of the relationship between family and organisation of the smallbusiness workplace and consideration of the complexity, ambiguity andmultiple directions of the businessfamily, familybusiness relationship (Kepner,1983; Wheelock, 1991; Ram and Holliday, 1993a; Poutziouris and Chittenden,1996; Fletcher, 2000). This argument has much value for understanding theorganisation of the small business. It also provides some background andcontext to the remaining chapters of the book which are concerned withexploring the contradictory relationship between workfamilysmall businessorganisation and the complex ways in which the family is a resource providingboth supportive/buffering and controlling/inhibitive functions.

In family business studies during the 1980s and 1990s, resourced-based ideaswere centred on a developmental view of the family firm which acknowledgedhow the different elements of the family business system (comprising marketplace, industry, technology, stakeholders, founder issues, family issues) cometogether to shape the organisation of the family business (Kepner, 1983;Hollander, 1984; Ward, 1987). Taking this perspective forward, Hollander (1984)and Beckhard and Dyer (1983) began to draw attention to the interdependencyof business, family and environmental components and examine how the familybusiness system operates according to rules which are derived from theconflicting needs and demands of the components of the system. At the sametime, Kepner (1983) highlighted the need for a co-evolutionary perspective offamily business based on a more interactive understanding of family and firm.McCollom (1988) also explores how the family system can perform a key inte-grating role for the business and at the same time meet the needs of the family.She sees the relationship as a dynamic one in terms of dominantsubordinatepositions (with the family goals as dominant). The middle section of the book


contains chapters that combine or take forward developmental perspectives inorder to examine particular strategic processes faced by family businesses. Thesecontributions are now discussed.

In Chapter 4, Kosmas Smyrnios, Claudio Romano, George Tanewski, PaulKarofsky, Robert Millen and Mustafa Yilmaz examine how and why workfamilydomains are interrelated by comparing owner-managers of family and non-familyfirms in Australia and the United States. In particular, they test owner-managersratings of their anxiety and work stress in order to examine how individuals inten-tionally create, modify or eliminate workfamily links. This emphasis is distinctivein that few studies have researched this in the context of family business ownerswho constantly manage work and family tensions. They conclude that high levelsof work to inter-personal conflict and business dissatisfaction have an adverseeffect on family cohesion. But the strength of association between work to familyconflict and family cohesion is stronger for non-family than family firms. This isbecause family supports have a buffering effect for family business owners.

In this chapter, therefore, the authors acknowledge the supportive orbuffering role of the family in helping individuals to realise opportunities forself-expression. This perspective is also highlighted in Chapter 5, where BarbaraMurray examines the Emotional Dynamics of Family Enterprises. Barbaraadopts a grounded theory and case study approach to report on fieldwork under-taken over a five-year period in which she explores how emotional dynamics arerealised in family businesses facing inter-generational succession. Through in-depth analysis of two Scottish case studies, Barbara combines family life cycleand adult development theory to show that anxiety and emotional issues providedifferent (complementary and contradictory) outcomes in terms of organisa-tional action. Emotional dynamics have the dual effect of often accelerating and,at other times, slowing down decision-making processes.

What is emerging from the contributions, so far, is an understanding of thespecial nature of small firms in which there are family relationships. From theseanalyses, it can be seen how the family can often provide a locus for emotionalsupport and fulfilling relationships a protected enclave against impersonal andrational world of capitalism (Zaretsky, 1976). In this sense, the family can some-times provide a nurturing context in which business developments are enacted.

The family dynamics theme is further elaborated in Chapter 6 in whichMattias Nordqvist and Leif Melin combine institutional theory with conceptsfrom corporate governance and strategic change in order to examine whycertain changes in the corporate governance process occur. Using a case studyapproach, they analyse the empirical results of strategic change and successionin two small, third-generation, family firms in Sweden. They conclude that therelationship between corporate governance and strategic processes is complexand unique to each family firm. As such, they should be examined in conjunc-tion with each other. However, internal political dynamics and family values areidentified as important in shaping the institutionalisation of governance which inturn has implications for the processes of strategic change and the structuring ofthe corporate governance system.


In Chapter 7, Panikkos Poutziouris discusses the Financial Affairs of Smaller,Family Companies. Here Panikkos examines the finance gap and principles ofthe pecking order framework to explore how these restrict survival and long-term growth of smaller, privately held companies (including family firms).Evidence is drawn from 150 owner-managing directors of small family businessesto establish their views and experiences about venture capital financing and othercapital options. Panikkos shows that the financial development of family busi-nesses adheres to the pecking order philosophy whereby smaller familycompanies tend to be more dependent on internally generated funds forsurvival/development (i.e. share capital plus retained profits and internally gener-ated equity) and are governed by a keep it in the family tradition. Also, they arenot enthusiastic about parting with venture capital which risks losing family busi-ness control. So they also tend to build a stronger equity base over time throughretention of profits. They are also sceptical about fast growth as this might entailrelinquishing control and dependence on external investors. Panikkos concludesby arguing for tax-based schemes to offer an allowance for corporate equity.

Continuing the business development theme, Chapter 8 is entitled Trainingand HRM Strategies in Small Family-owned Businesses. Here, Harry Matlaydiscusses the lack of attention to training and human resource managementpractices in small family firms. Using data from triangulated telephone, survey,and case research he identifies that there are differences between family andnon-family business in terms of the ways in which human and financialresources are allocated. Harry found that there is a positive link betweenmanagement progression and career development of owner-managers in smallfirms but there were some differences in the way non-family members wereapproached in terms of training. Also, employing close relatives secures againstmanagerial or supervisory skills shortages and trust/commitment provided byfamily members mitigates against the need for training.

The issue of leadership development in succession processes which has notreceived widespread attention in family business research is the focus ofChapter 9. Here Jill Thomas explores some of the issues raised in the previouschapter through in-depth case analysis of Australian small firms. She examinesthe influences on leadership and explores whether attributes of succession can bedeveloped. In contrast to Harry Matlay, she finds that there is no evidence offormal development plans matching successor skills with development opportu-nities although some informal strategies for leadership development wereevident. She finds that genuine choice of entry to the family business is a valu-able indicator of subsequent leadership potential (although leadership skillscould also be learned). Also, low expectations in joining the family business andextensive exposure in other companies lead to excellent leadership skills.Likewise, evidence of formal education is found to be complementary to leader-ship development of succession (although less so for older generation CEOs).

In contrast to earlier chapters which have focused on the more dynamic (andsometimes supportive) features of the resourcing relationship between familyand small business organisation, the last three chapters of the book approach the


notion of family from a perspective which is being made sense of here in termsof a critical discourse. This is now discussed.

Part III: A critical discourse in studies of the smallfamily business

A critical perspective of family business research is explored by Fletcher (2001)in which ideas from critical theory are drawn upon to acknowledge some of thequieter and more divergent voices/actors/practices involved in the small familybusiness contexts. A critical discourse refers to issues of control and the suppres-sion of individual freedom of action, self-expression and realisation. A criticalperspective also seeks to draw attention to underlying social, historical, culturalissues and expressions of dominance that give rise to particular ways of working(Alvesson and Skldberg, 2000). From this perspective, family can be seen as asite of exploitation from which small business developments grow.

Taking a critical stance towards the dominant discourses and approaches usedto evaluate the family business, Part III identifies some of the conflicts and diffi-culties that owners and workers from family businesses find themselves in whenattempting to balance work and family lives. Each chapter in this Part problema-tises the notion of family and challenges the tendency to over-glamorise the roleof family in business development. Ram and Jones are critical of the positiveassociation usually made between family and ethnic minority small businessdevelopment and the assumption that the family yields a wealth of social capitaland resources. For Baines et al. the family becomes the means through whichsmall business creation is realised. For Katila, the family is exploitative andcontrolling through the way in which it draws upon a moral code in order tosustain its use of unpaid and underpaid labour.

The role of the family as a notable feature and vital support mechanism ofethnic minority enterprise in terms of providing business resources and competi-tive advantages which enable ethnic minority groups to transform social/familycapital into entrepreneurial enrichment, is critically challenged in Chapter 10.Here Monder Ram and Trevor Jones explore the dominant discourse that makesa strong link between family and ethnic minority enterprise and argue that thisassumption needs to be qualified in several ways. While ethnic minority busi-nesses are often deeply embedded in family processes, this relationship isambiguous and conflictual, often characterised by gender and generationaltensions that needs careful consideration. They posit that the family influenceand the use of social capital (trust, mutual obligations) may not always be posi-tive, operating for the common good of the ethnic group. Also business resourcesderived from social capital and networks are not the exclusive preserve of anynational origin or religious groups. Indeed, family is much more ethnicallygeneralised than is often portrayed and there is a need therefore to link aspects ofethnic minority enterprises and families to broader academic discourses whichare not restricted to a cultural approach.

In Chapter 11 Sue Baines, Jane Wheelock and Elizabeth Oughton suggest


that there has been a return to a traditional organisational form for the businessfamily, with parallels a shift from a single bread-winning wage to a familyemployment model with all adults earning. This means that the new micro-busi-nesses emerging in the 1990s are a reinvented form of the traditional businessfamily that both Kanter (1989) and Muncie and Sapsford (1997) referred to.Baines et al. take the household as the economic provisioning unit for smallbusiness because, they argue, the world of micro-business should be understoodin the context of changes in labour markets and household livelihoods. Theypresent a conceptualisation of the household livelihood jigsaw, which takesaccount of the (gendered) interrelationship between market, household andstate. They provide evidence that micro-businesses (09 employees) are oftensustained through contributions from a variety of household members in waysthat are reminiscent of older ways of working. Modern small business families, inother words, may be exploiting themselves and their household members as theystruggle to compete in the market. Thus, Baines et al. posit that the emergenceand shape of business-families are more an indicator of survival rather thanenterprise and entrepreneurship in local economies.

In a similar vein, in Chapter 12, Saija Katila discusses Emotions and theMoral Order of Farm Business Families in Finland. She conceptualises thefamily as a social construction whereby families are representatives of theircultural communities that adhere to, embody and enact particular moral codes.This perspective is important because it highlights the rights and obligationsascribed to family members within a community and how the moral ordershapes the way families do business. Through ethnographic research and the useof biographical accounts she explores how the norm of unpaid family work andthe use of labour are regulated with regard to the communitys moral order inone Finnish farm family. This focus is particularly interesting given that farmingin Europe is dominated by familial units. Saija shows that in Finnish agriculturemonetary incentives in farms are irrelevant because of the social obligations tokin and promise of future succession. However, the price to pay for these familyand social obligations is a lifetimes commitment to hard work which begins at ayoung age. Also, the family, she argues, is still often the legitimate site for unpaidand underpaid work (involving children).

In summary, the discourse emerging from these chapters is that in the contextof the smaller business, notions of family often reflect a discourse of controlwhere family ties, social capital and kinship obligations suppress and inhibit thepersonal freedom of owners and managers to act in ways in which they other-wise might. What can be identified also is a move away from a closed andnon-problematised idea of family and its relationship with business (Levin,1993). This is seen also in the quote earlier from the chairman who uses wordssuch as prison or shackle to indicate the ways in which his obligations to thefamily business constrain and inhibit his opportunities for individual freedom.This perspective is also seen in small business studies which emphasise the pater-nalistic role of the small business owner-manager who keeps a tight andcontrolling rein over the workforce and strongly influences the employment


relationship (Newby, 1977; Rainnie, 1989; Scott et al., 1989; Curran andStanworth, 1979a, 1979b, 1981a and 1981b; Scase, 1995). It can be argued,then, that the family can also be seen as an ideological construct a stereotypeproduced and maintained for the purpose of exerting certain kinds of socialcontrol (Gittins, 1985). From this perspective, the family is associated with adiscourse of control that helps to define the roles people should play and thepower structures within which these roles are worked out.

Understanding the small family business

This introductory chapter has been concerned with discussing the dominantantecedents, approaches and discourses that have shaped approaches to studiesof the family business over the past thirty years. As can be seen from thesummaries of each chapter, the relationship between family and small businessorganisation is complex, ambiguous and shaped by contradictory (and yetcomplementary) discourses of control and nurturing. The intention has not beento provide a unified paradigm for the study of family business as Wortman(1994) proposed. Instead, the aim has been to examine the theoretical andconceptual issues which have shaped the study of family firms. In reviewing arange of conceptual and methodological approaches, the complexity and ambi-guity of the institution of family (Holland and Boulton, 1984: 16) and itsrole/meaning in different socio-economic or organisational contexts are high-lighted. This book and the contributions therein highlight how the concept offamily is interpretively dynamic (Gubrium and Holstein, 1990). An emphasis ondiscourse is important because through language and discourse people realiseinterpretations and meanings of family in a small business context (Bourdieu,1996). As can be seen from some final words from the chairman introducedearlier in this chapter, family is a concept that is socially constructed, is multi-dimensional and is constantly being realised through rational, resource-basedand critical discourses:

Its funny but talking here now, it feels like therapy a sort of counselling. You know, Ihave a brain tumour, its benign, and I am not going to die from it or anything but its leftme with only 60 per cent of what I was and that does concern me, it really does. While Iwas able to keep lots of balls in the air, always have done but now I can only do onething at a time. But this company, you know Ive gone along thinking its a prison. Butyes, Im really pleased with the way the company has gone. Im quite proud of what wevedone. I really am.

I welcome you to the book and hope that your journey through the chaptercontributions is an enjoyable one.

Note

1 London Business School/BDO Stoy Hayward and BBC 2 Business Matters/BDO SH.


Part I

A rationality discourse in studies of the smallfamily business

Introduction

A key objective for owners of family businesses is to pass their businesses on tothe next generation of family members (Morris et al., 1997). Many family busi-ness owners are concerned that the fiscal regime, particularly capital taxes, canput at risk the inter-generational transfer of businesses (J.L. Ward, 1987). Policy-makers and practitioners can introduce policies that encourage the survival offamily businesses. They are, however, reluctant to introduce new policies orchange the tax regime without reliable information about the scale, nature andeconomic contribution of family business activity. There is, therefore, a need foracademics, practitioners and policy-makers to carefully define, identify andunderstand their target group of analysis. Policy-makers are interested in reliableinformation that indicates whether family businesses report superior levels ofperformance than non-family businesses (Shanker and Astrachan, 1996). Iffamily businesses were associated with superior business performance than non-family businesses, this would be a powerful argument for lowering capital taxes,because of the benefits to the wider economy. Further, if the transfer of busi-nesses between generations of family owners were to lead to enhancedperformance (i.e. faster sales revenue and employment growth), then it could beargued that inter-generational transfers are in the interests of the nationaleconomy as well as family business owners. If family businesses transferred fromone generation to the next performed no better, or worse (i.e. clogs to clogs inthree generations), then there is no clear case for seeking to lower/abolishcapital taxes.

Of particular relevance to policy-makers and practitioners is reliable informa-tion relating to the following questions:

Is the reported scale of unquoted family company activity influenced by thefamily business definition selected?

What proportion of unquoted companies are family businesses? Are unquoted family companies over-represented in older business age

bands? Are unquoted family companies over-represented in small employment size

bands?

1 The scale and nature offamily businesses

Paul Westhead, Marc Cowling, David J. Storeyand Carole Howorth

Are unquoted family companies over-represented in lower sales revenue sizebands?

Are unquoted family companies over-represented in any industrial sectors? Are unquoted family companies over-represented in any regions? Do family businesses report superior levels of financial performance than

non-family businesses? Are family businesses more likely to stress non-financial performance objec-

tives than non-family businesses?

In this chapter, it is emphasised that the scale of the family businessphenomenon is definition dependent. Demographic differences as well as simi-larities between family and non-family businesses are discussed. Evidence fromstudies focusing upon the performance of family and non-family firms is alsoreported. In the final section, conclusions and implications for policy-makers andpractitioners are discussed alongside directions for additional research attention.

Family business definitions

There is a lack of consensus surrounding the theoretical and operational defini-tion of a family firm (Handler, 1989b; Litz, 1995, Chua et al., 1999). Researchershave frequently used four key issues when defining family firms. First, whether asingle dominant family group owns more than 50 per cent of the shares in abusiness (Donckels and Frhlich, 1991; Cromie et al., 1995). Second, whethermembers of an emotional kinship group perceive their firm as being a familybusiness (Gasson et al., 1988; Ram and Holliday, 1993b). Third, whether a firm ismanaged by members drawn from a single dominant family group (Daily andDollinger, 1992, 1993). Fourth, whether the company had experienced an inter-generational ownership transition to a second or later generation of familymembers drawn from a single dominant family group owning the business(Gasson et al., 1988). In addition, some researchers have considered multipleconditions when defining family firms.

Studies in which the numerical dominance of family businesses is greatesthave used the widest definitions, by asking respondents whether their businesssatisfied one specific criterion. Westhead and Cowling (1998) argue that two ormore of the above elements in combination need to be considered when identi-fying family businesses. It is, however, appreciated that there is no singledefinition of a family business that is widely acceptable.

Using the four criteria highlighted above, several operational definitions of anindependent unquoted family company were identified by Westhead andCowling (1998) as follows.

1 The company was perceived by the Chief Executive/ManagingDirector/Chairman to be a family business (categories a, b, c, d, e, f and hcombined in Figure 1.1).

20 Paul Westhead et al.

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2 More than 50 per cent of ordinary voting shares were owned by membersof the largest single family group related by blood or marriage (categories a,b, c, d, e, f and g combined).

3 More than 50 per cent of ordinary voting shares were owned bymembers of the largest single family group related by blood or marriageand the company was perceived by the Chief Executive/ManagingDirector/Chairman to be a family business (categories a, b, c, d, e and fcombined).

4 More than 50 per cent of ordinary voting shares were owned by membersof the largest single family group related by blood or marriage, the companywas perceived by the Chief Executive/Managing Director/Chairman to bea family business and one or more of the management team was drawnfrom the largest family group who owned the company (categories a, b, c,and d combined).

5 More than 50 per cent of ordinary voting shares were owned by membersof the largest single family group related by blood or marriage, the companywas perceived by the Chief Executive/Managing Director/Chairman to bea family business and 51 per cent or more of the management team weredrawn from the largest family group who owned the company (categories aand b combined).

6 More than 50 per cent of ordinary voting shares were owned by membersof the largest single family group related by blood or marriage, the companywas perceived by the Chief Executive/Managing Director/Chairman to bea family business, one or more of the management team were drawn fromthe largest family group who owned the company and the company wasowned by second generation or more family members (categories b and dcombined).

7 More than 50 per cent of ordinary voting shares were owned by membersof the largest single family group related by blood or marriage, the companywas perceived by the Chief Executive/Managing Director/Chairman to bea family business, 51 per cent or more of the management team were drawnfrom the largest family group who owned the company and the companywas owned by second generation or more family members (category b).

Westhead and Cowling used these stated family business definitions to measurethe scale of family business activity. Data were gathered from a stratifiedrandom sample (by broad industrial categories and by standard region) of inde-pendent unquoted companies that were at least ten years old located throughoutthe United Kingdom. Evidence from a postal survey of 427 respondents wasanalysed.

In Table 1.1, the 427 independent unquoted companies surveyed byWesthead and Cowling were subdivided with regard to majority share ownershipof ordinary voting shares, perception by the Chief Executive/ManagingDirector/Chairman of being a family business, family members involved in themanagement team and the generation of family business ownership. Table 1.1


shows the proportion of businesses classified, as family businesses, is highlysensitive to the definition used. Using the widest definition 81 per cent ofcompanies sampled could be viewed as family businesses. Whilst using thenarrowest definition, this fell to only 15 per cent.

All four elements are potential influences upon definitions of what consti-tutes a family business. Some elements, however, are more central than others.While it is important for the Chief Executive/Managing Director/Chairmanto view the enterprise as a family business, i.e. definition (1), this can beregarded as a necessary, but not a sufficient, condition. If it were a sufficient

The scale and nature of family businesses 23

Table 1.1 Numbers of surveyed family and non-family unquoted companies in theUnited Kingdom

Family company Family companies Non-family companiesdefinition No. (%) No. (%)

(1) 335 78.5 92 21.5(2) 345 80.8 82 19.2(3) 272 63.7 155 36.3(4) 265 62.1 162 37.9(5) 139 32.6 288 67.5(6) 122 28.6 305 71.4(7) 62 15.0 365 85.0

Notes:(1) The company was perceived by the Chief Executive/Managing Director/Chairman to be a

family business (categories a, b, c, d, e, f and h combined in Figure 1.1).(2) More than 50 per cent of ordinary voting shares were owned by members of the largest single

family group related by blood or marriage (categories a, b, c, d, e, f and g combined).(3) More than 50 per cent of ordinary voting shares were owned by members of the largest single

family group related by blood or marriage and the company was perceived by the ChiefExecutive/Managing Director/Chairman to be a family business (categories a, b, c, d, e and fcombined).

(4) More than 50 per cent of ordinary voting shares were owned by members of the largest singlefamily group related by blood or marriage, the company was perceived by the ChiefExecutive/Managing Director/Chairman to be a family business and one or more of themanagement team was drawn from the largest family group who owned the company(categories a, b, c, and d combined).

(5) More than 50 per cent of ordinary voting shares were owned by members of the largest singlefamily group related by blood or marriage, the company was perceived by the ChiefExecutive/Managing Director/Chairman to be a family business and 51 per cent or more ofthe management team were drawn from the largest family group who owned the company(categories a and b combined).

(6) More than 50 per cent of ordinary voting shares were owned by members of the largest singlefamily group related by blood or marriage, the company was perceived by the ChiefExecutive/Managing Director/Chairman to be a family business, one or more of themanagement team were drawn from the largest family group who owned the company andthe company was owned by second generation or more family members (categories b and dcombined).

(7) More than 50 per cent of ordinary voting shares were owned by members of the largest singlefamily group related by blood or marriage, the company was perceived by the ChiefExecutive/Managing Director/Chairman to be a family business, 51 per cent or more of themanagement team were drawn from the largest family group who owned the company andthe company was owned by second generation or more family members (category b).

condition, then the definition would be totally subjective and, as outsiders, wewould have no clear idea upon what basis the categorization was made. Broadall-embracing definitions of a family company, such as definition 1, have,however, been questioned on the grounds that they are too inclusive. As aresult, definition (1) cannot be regarded as the most appropriate definition.Similarly, definitions with multiple conditions, such as those associated withdefinitions (6) and (7), have been questioned on the grounds that they are toorestrictive. It may be overly restrictive to require that all family businesses haveto be at least second generation businesses.

The elements that most closely encapsulate the concepts of a family businessare perception, share ownership by family members and management of thebusiness by family member. Definitions (3), (4) and (5) in Table 1.1 best incorpo-rate these concepts, with definition (3) being the most expansive and definition(5) being more restrictive. Westhead (1997) argued that ownership rather thanfamily management is the crucial family element that distinguishes familycompanies from non-family companies. As a result, Westhead favoured defini-tion (3) rather than definitions (4) and (5), which, in fact, are very similar.

Characteristics of family businesses compared withnon-family businesses

In this section, demographic differences between family and non-family firmsare discussed with regard to business age and size, principal industrial activity ofthe business and the location of the business.

Business age

The Stoy Hayward (1992) survey of family and non-family unquoted andquoted companies in the United Kingdom found family companies werelonger established than non-family companies. With regard to several familyfirm definitions, Westhead and Cowling (1998) also detected that independentunquoted family companies were much more likely to be older than non-familycompanies.

Business size

Daily and Dollinger (1993) found professionally managed independent manufac-turing firms with less than 500 employees in the United States were significantlylarger in terms of number of employees than family-owned and family-managedfirms. Furthermore, Donckels and Frhlichs (1991) study focusing upon inde-pendent manufacturing firms with less than 500 employees in eight Europeancountries noted the highest proportions of family firms were found in thesmallest employment size bands. Cromie et al. (1995) and Westhead and Cowling(1998) also detected that Irish and British family firms were smaller in terms ofemployment size and sales turnover than non-family firms.


Principal industrial activity of the business

In the United States, Reynolds (1995) found new family firms were less likely tobe engaged in manufacturing and business services. Stoy Hayward (1992)detected that a larger proportion of service businesses were family companies inthe United Kingdom. Gasson et al. (1988) also noted the majority of farms in theUnited Kingdom are family businesses. More recently, Westhead and Cowling(1998) detected that family businesses were more likely to be over-represented inagriculture, forestry and fishing as well as in the distribution, hotels and cateringindustrial sectors. Family businesses were, however, under-represented in thebanking, financing, insurance and business services sectors.

Location of the business

Westhead and Cowling (1998) explored whether family unquoted companieswere over-represented in particular locations. They detected that family busi-nesses were over-represented in rural locations (i.e. in areas with less than 10,000people). Moreover, family businesses were slightly over-represented in the EastMidlands of England. Conversely, they were markedly under-represented in theSouth East of England (associated with the Greater London agglomeration).Reynolds (1995), however, found family firms were significantly over-representedin urban areas.

The performance of family and non-family businesses

Because of their numerical importance, the performance of family businesses isof critical importance to the development of an economy. Family businessperformance is also of importance if such firms seek to obtain special fiscaltreatment from government, for the reasons outlined earlier. Poutziouris andChittenden (1996) explored the performance of family and non-family busi-nesses in the United Kingdom. They failed to detect any significant differencesbetween the two groups of firms.

Westhead and Cowling (1997) also explored the performance of unquotedfamily and non-family companies in the United Kingdom with regard to severalperformance indicators. They used family firm definition (3). Two matchedpaired sub-samples of unquoted family and non-family companies were identi-fied. Family and non-family companies were paired/matched on four criteria:age of the company since receiving its first order, location type (i.e. a rural or anurban location), location of the company by standard region and the mainindustrial activity of the company. Companies were simultaneously perfectlymatched on the latter three criteria. In essence, the matched paired design heldthese three elements constant, during the performance comparisons of matchedfamily and non-family companies. Ultimately, two matched paired sub-samplesof family and non-family companies were identified, each containing seventy-three companies.

The scale and nature of family businesses 25

The financial performance indicators selected by Westhead and Cowling(1997) are detailed in Table 1.2. Table 1.2 shows the two matched groups ofcompanies were compared with regard to nine performan

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