Perils Of the Family Business

Published 8 years ago

In the United States, 60% of the country’s employment is said to be created by family-owned businesses, though Ted Clark, the executive director at the Northeastern University Center for Family Business, believes this to be an exaggerated estimate. Despite this, family businesses are significant to job-creation, which is why it is important to understand some of the risks that come with them.

From the golden arches of our local McDonald’s, to the swiveling rims and the muscular lines of the latest BMW, we see some of the manifestations of enduring and pioneering multi-generational family businesses. But, the road to success if often paved with threatening challenges and temporary misfortune. Pitfalls such as financial turmoil, hostile takeovers, fraudulent misdemeanors and corporate scandals often plague family businesses.

Most family businesses dislike the idea of incorporating a formal structure to their business as it grows. Such structures would imply tedious forms of communication that may be placed under scrutiny by non-members of the family. Despite this, such a structure would ensure better organization, the avoidance of miscommunication, more profitability and clearer job tasks. One of the reasons many small family businesses lack structure is because they were founded without a business plan. Maintaining conflicts of interest is another tricky aspect of a family business, especially if it operates with a human resources department. Most family-business consultancies recommend that there be no direct lines of communication between relatives.


Family dynamics and business structure do not necessarily work together. In most cases, disagreements in family business stems from an overlap between family dynamics and the structure and policies of the company. Unresolved issues in a family tend to spill over into the business environment, which may stagnate the growth of, or even the continued existence of, the business. Other causes may be the lack of definitive roles that each member is required to respect. Crossing the boundaries of one’s role and assuming unsolicited authority over areas of the family business may prove detrimental to relationships within the business and unproductive to employees. Another common problem is the lack of transparency for non-family employees regarding payment structure, decision-making and career progression.

According to a report, publically-listed family businesses were found to have performed better than non-family businesses during the recessions in 2001 and 2008. Many family businesses fail to make it to the second generation owing to unresolvable family disputes, resisting or ignoring change, poor succession planning and failing to adapt to the latest business and market trends. What may have worked for the founder of the business, may be damaging for the loyal successor. On the other hand, contrasting and conflicting views on how the business must be run is a common cause of failure. Like in any company, a clear and shared vision is required to ensure that all members are working effectively towards the same goal.

The big N-word that most family businesses hate being associated with is nepotism. This is a word that usually sits at the tip of the tongue of a disgruntled employee who may have been sidestepped for a promotion that was given to a less experienced family member.

In some cases, working in a family-owned business may mean limiting your sights to positions that will never lead you to the coveted position of CEO or chairman, often reserved for the company’s blue bloods. It may be in the best interest of some family businesses take a page from the family that founded the LEGO Group. The company chose to ensure the longevity of their business by promoting the first non-family member to head their eponymous toy dynasty in 2004.


While many family businesses come with their complications, it is important that these issues are discussed openly between family and non-family members to ensure the health and growth of a business that intends to grow beyond the first or second generation.