Lawrence Nicholson | Family-owned businesses – do we need them?

Family-owned businesses, FOBs, have been around for eons, even featuring in the Bible, starting with the business activities of Abel, who took care of the flocks, and Cain, who tilled the soil, as stated in the fourth chapter of Genesis.

Over time, FOBs have experienced tremendous growth and transformation to now form approximately 80 per cent of all businesses worldwide, and is a point of reference as a bastion of sustained resistance against harsh economic conditions.

FOBs are responsible for approximately 62 per cent of all wages, accounting for approximately 50 per cent of GDP and creating about 78 per cent of all new jobs in the United States; and they generate revenue equivalent to approximately 32 per cent of Jamaica’s GDP or economic output.

We ought to pause and salute the contribution of FOBs to the Jamaican economy, and invite those in the know to join in spreading the good news about FOBs.

The aforementioned statistics represent part of the output from peer-reviewed research, which has shown, inter alia, that FOBs form the foundation of many economies across the globe. Starting from our own ‘backyard’, findings from my research show that FOBs represent the ‘seat of entrepreneurship’ in Jamaica and the rest of the English-speaking Caribbean, and might even extend beyond it.

Within the context of these and other findings, one is a loss at the scant regard being given – meaning far from enough attention and resources – to this critical mass of businesses, by both government and decision-makers in the private sector.

There is time to correct this blunder; it’s not yet sunset for FOBs, with respect to the attention, resources and support they deserve. Over the next few months, we will discuss aspects of FOBs, with reference to the case of Jamaica and the English-speaking Caribbean, which, hopefully, will lead to a change in attitude and approach to this important category of Jamaican businesses.

Yes, I hear the shout of those in the know that it borders on the impossibility to have a complete coverage of FOBs in Jamaica, without a discussion of women-owned businesses, given the symbiotic relationship between the two. Let not your heart of being in the know be troubled; I share your view and intend to address this.

Working definition

Notwithstanding the history and extensive research on FOBs, there is no consensus on a definition. The lack of consensus has resulted in researchers, in many cases, adopting definitions that reflect the reality of the jurisdiction or region in which the research is located. However, most of the definitions in the literature seem to agree on three characteristics that help to guide the classification of an enterprise as a family business: ownership or control over the business (usually 51 per cent or more of the capital); power or management of the family in the business operations; and intention and/or incorporation of next generations of the family into the business, that is, succession.

Over the years, my preference has been the following definition: A business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.

But, consistent with the ever-increasing scope and dynamics of FOBs, a review of the reality of the Caribbean and Jamaican business environment has led to the adoption of the definition following definition, a better fit to the their experience:

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 space is intended to generate healthy and helpful discussions, therefore, no attempt to explain the above definition should be a starting point for such discourse. The definition adopted helps in placing in context discussion of areas of FOBs such as characteristics and myths, succession planning, governance, women and their ‘invisible hand’, and the dynamics of ethnicity.

More anon.

Lawrence Nicholson, PhD, is senior lecturer at the Mona School of Business & Management, University of the West Indies, and a director of the RJRGLEANER Communications Group.lawrence.n.08@gmail.com