3 forms of family business management & according to challenges
If we now look at the management of a family business, we must always consider the interaction between family and business. That means in which generation the family business is, the size of the business, its business purpose, the industry, but also the quality of how the family is connected to it, as well as the number of family members. Family businesses are complex systems. The context in which leadership takes place is very important. In general, management in family business can take three different forms:
- Pure: Key leadership positions engaged by the family members or just one family member.
- Mixed: Leadership team is a combination of members of the family and external managers.
- External: Leadership by external managers, where the family just focus on their ownership role.
The challenge of the management by family members is that the leaders must always consider the needs and expectations of the enterprising family. They have to fulfil dual roles, they wear two hats so to say: they are both family members and leaders within the company. Due to the different basic structures of the family and the company, the expectations placed on them can sometimes contradict each other. Do they make decisions for the good of the company and thus violate family expectations or the other way around? This inevitably triggers ambivalence in them. This puts them under stress, physically and psychologically. Another challenge arises from the emotionality of the relationships within the family. This can extend to the level of the company. Which can override the rationality required in companies. Conflicts in families can very quickly influence the company and significantly block its ability to function and, in extreme cases, bring them to its downfall.
But even if the family only focuses on its role as owner, external managers must always consider the enterprising family and its emotionality. Decisions that are not supported by the family will not be enforceable. External managers, therefore, need a deep understanding of the respective enterprising family and their dynamics. Furthermore, they in particular have to be congruent to a considerable degree with the family’s understanding of values. If the differences are too big, they often will not have a long-term future in the company.