Lawrence Nicholson | Family business distortions

The success or failure of many family businesses, FOBs, is dependent on many factors, including ethnicity, reasons for starting the business, attitude and approach to succession planning and the governance structure adopted.

However, effective analysis of these factors is sometimes hindered by what constitute family businesses. This must be addressed before any broad-based and useful discussions can be entertained on the factors that affect FOBs.

While family businesses, family enterprises, family firms and family-owned businesses are used interchangeably in the literature, in Jamaica, businesses are labelled ‘family businesses’ or FOBs if a group of family is involved. This has resulted in the mischaracterisation and distortion of the statistics on FOBs. It has also contributed to the failure of attempts to apply the principles, practices and governance framework designed for family businesses, as defined in the literature.

The three categories pooled as family businesses are family-owned businesses – FOBs; family in businesses – FIBs; and family-run businesses – FRBs?

To prevent or minimise the outcome from the pooling of all businesses with family involvement as FOBs, the rest of this article seeks to provide a distinction among the three common categories of ‘family businesses’ observed in Jamaica.

Family-owned business

The definitions of family businesses in the literature cover three main interrelated components of family, ownership and business. The definition adopted for this, and other articles, captures these components:

A family business is one whose ownership is controlled by a single family and in which two or more family members, through their managerial positions, ownership rights, or family duties, have substantial influence over the company’s direction and policies.

This does not mean that FOBs are made up of only family members. In many cases, the scope and influence of non-family members can exceed that of family members. In many cases, the dynamics of the components of family, ownership and business are played out as follows:

•Family members who are involved in neither the business nor ownership component, but whose opinion or views are sometimes considered when business-related decisions are made;

•Family members owning the business, with no involvement in the operation of the business, but with substantial influence over the direction of the business;

•Those who are employed in the business but are neither family members nor part of the ownership, but whose scope of influence could exceed that of family members; and

•Those who are part of ownership but are neither family members nor part of the business operations, but as a collective body, can dictate the tenure of the business.

The critical element in this above discussion is that there must be a combination of family-ownership, involvement in the operation of the business, along with substantial influence in the direction of the business.

Family in business

The FIBs designation is attributed to businesses owned by either a family member or non-family member, with several family members working in the business. Usually, the family members employed in the business are cousins, uncles, aunts and other ‘non-immediate’ family members, having no stake in ownership, management or controlling interests or influence.

However, these businesses are labelled family business because of the number of family members – usually from the same family – working in the business. In many cases, owners and managers of these businesses tend to reserve employment for members of the family for reasons such as: keeping the peace in the family; a placeholder until better opportunities turn up; and better to have family in my business than strangers, for, as the adage goes, blood is thicker than water.

The observation from those businesses is that employment of family members is devoid of the same emotional ties usually evident in FOBs. Therefore, the firing of family members is not as gut wrenching as is the case with FOBs. In short, these businesses are not defined as FOBs.

Family-run business

FRBs usually capture the scenario where a rich family member – or so-called rich family member – owns a business and designates a ‘trusted’ family member to run it. The family member who is tapped to manage the business usually has no controlling interests, ownership role or influence in the direction of the business.

The family members operating the business are usually doing so on behalf of the rich relative, who, in many cases, resides overseas. Part of the role of other family members employed to the business, as directed by the owner, is to ‘keep an eye’ on the ‘boss’ who runs the business.

These businesses are labelled family-owned businesses because of the known family connection – the owner, the family member who is asked to run the business and the group of family members employed to the business. However, there is no substantive influence on the direction of the business by any member of the family, except for the owner, who does not consider this as a family business.

In which category does your business fall?

Our focus and energy favour and are directed towards FOBs.

More anon!

Lawrence Nicholson, PhD, is senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family Owned Businesses, and a director of the RJRGLEANER Communications Group.lawrence.n.08@gmail.com