Home' Trinidad and Tobago Guardian : November 8th 2015 Contents Family businesses form the bulk
of the SME (small- and medi-
um-sized enterprise) sector.
According to the US Census Bureau, 90 per
cent of all businesses are family owned and
operated and they account for half of the
employment and GDP of the US.
The Family Firm Institute, one of the leading
authority in the field, says that 66 per cent
of all businesses around the world and 70-90
per cent of the global GDP is produced by
family enterprises. In addition, most startups
are funded by family money, according to the
European Family Businesses Association.
Remember the adage of the 3Fs of sources
of funds: friends, families and fools! So, the
family unit has a profound impact in the busi-
It does not end there as family businesses
are not only large numbers, but they come in
different sizes too. The bulk is, of course, the
mom and pop stores and we tend to believe
that this type of business lacks progressiveness.
But many of the world s largest corporations
are family owned and/or operated and are
quite vibrant. The likes of Ford Motor, Walmart,
BMW and many of the Fortune 500 companies
are family controlled.
The Centre for Family Business at the Uni-
versity of St Gallen, in a recent study of the
top 500 global family firms, calculates that
they contribute US$6.5 trillion to the world
economy, which put them just behind China
(the second largest economy) in economic
Despite the importance of the family busi-
ness to the national economy, it is stunning
that there are not any major government policy
or strategic initiatives---that I am aware of---
that supports this important form of business.
At home, family enterprises are thriving it
seems. Some popular examples include Asso-
ciated Brands (Charles, Devon, Sunshine and
Universal brands), KC Candy, SM Jaleel (Chub-
by) and Bhagwansingh Hardware. I would go
so far as to say that ANSA McAL group of
companies is a family business.
What makes a business a family business?
According to Enesto Poza, if a family controls
more than 15 per cent of the ownership of a
company, has influence over the strategic direc-
tion and the family play a role in key decisions,
that business can be considered a family enter-
prise. While he admits that there are many
family business definitions, the issue of an over-
lap of the family, ownership and management
is a distinguishing feature.
Family businesses are unique as they have
an interplay of the three social networks, also
called the Three Circle Model. This makes
understanding and managing this enterprise
type a bit tricky as each one has different needs
First, you have the family dimension. They
can be a small or a large group (extending several
generations), have different opinions about who
should be working in the business and qual-
ifications for the positions.
Then there is the management circle. Some
families may choose not to have non-family
members in senior positions. Where there are,
they must be held accountable as everyone else,
even though they are family.
In the ownership dimension, the shareholders
may insist that the business transfer to the next
generation as a form of legacy as would a piece
Family business issues
The Three Circle Model shows that family
firms are different from non-family companies.
With an additional dimension, family firms can
have the potential to be a fertile environment
for conflict. The overlap of family, management
and owners and the fact that they live in the
same house makes it possible that issues may
end up home or affect the family.
Also, different stakeholders may have different
views. The founder might want to stay on the
same course, while the next generation might
believe what made them successful in the past
is not going to work in the future. In addition,
roles may be reversed as a younger child might
be the head of the organisation, but may still
be viewed as the baby in the family.
Conflicts can take away from some of the
advantages that family businesses have: the
long-term investment horizon, the patient
capital and speedier decision making. This
can be debilitating and sometimes be destruc-
tive to the business.
Here some of the strategies family members
have when conflict arise:
They have five options: avoidance, accom-
modation, competition, compromise and col-
Members in conflict may decide to keep
away from the issue. While this might work
for small things, it will eventually lead to break-
down in communication.
In the accommodation setting, some family
members allow others to have it their way,
thinking they need to keep the peace. Like the
avoidance situation, this will lead to a lower
performance organisation. Sometimes, mem-
bers see the situation as more competitive and
will outdo other family members for the limited
resources and opportunities.
Others try to compromise if the conflict
gets out of hand. Both situations normally
leads to greater conflict and the family mem-
ber(s) with the strong position trumps, the
loser tends to be sidelined.
The best strategy for the overall health and
growth of an organisation and the family is
collaboration. Instead of looking at the situation
as a fixed pizza size, why not increase the size
of the pie?
Case in point: how to use $1 million in extra
cash in the family business among four family
One family member want to get their 25
per cent paid as dividends. They have a sick
child and they want to pay medical bills.
The second family member wants to reinvest
in an export opportunity which will bring in
a 25 per cent return in three years and further
diversify the firm s income stream.
A third wants to diversify, but buy shares
in publicly held companies.
The fourth family member wants to keep
the cash in the company as a cushion for any
shocks that might be coming from a down-
What strategy do you chose in dealing with
four differing demands while still keeping the
family and business together?
Having a family business meeting as part
of good governance would be a good start. If
this is part of the culture, then resolution is
potentially easier than if the family meets less
often. The CEO of the family business can
find out what each stakeholder wants and the
drivers behind their preferences.
At the next meeting, the CEO can table a
proposal and ask members for their feedback.
The proposal could take the form of a partial
pay-out to satisfy the family with the sick
child and a loan from the business, if additional
funds are needed. They should also consider
taking out a group medical plan.
Most of the remaining $1 million can be
invested in business expansion since it needs
the rest of the funds.
The families that need the money to diversify
and keep it in retained earnings, can be
appeased by taking most of the returns from
the export initiative and have it invested in
public shares and some back in cash reserves.
While everyone may not be happy with this
scenario, this is where the CEO has to show
leadership and explain that by reinvesting in
the company, the firm would become more
diversified and a better positioned organisation
to handle any external shocks.
It fact, it would now be a better family
investment and everyone would be better off.
Sajjad Hamid is an SME consultant.
He can be contacted at
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt NOVEMBER 8 • 2015
with Sajjad Hamid
ALL IN THE FAMILY
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