Monday, March 9, 2015

Commonly Held ‘Best Practices’ For Family Firms Are Not Necessarily True

Family Business Magazine’s article, Using and Abusing Family Business Research from the Autumn 2009 issue, is written by noted academic and family business researcher Joseph H. Astrachan. He has clearly outlined a number of key challenges for family businesses, and addresses whether or not scholarly research has proven solutions to these challenges, warning that “[a]necdotal evidence should be taken with a grain of salt.” Many of his points will come across as controversial to some family enterprise advisors or consultants.

Key excerpts from his article:

1.      “The central task of family business management is growing and developing family and business simultaneously. In so doing one must help family and business build upon one another while reducing the forces that lead each to erode the other. The core task of research should be to promote real understanding that leads to actionable information.”

2.      “‘Best practices’ research ... [dictates] that practices of successful companies are purportedly relevant for all family businesses. Most such research is not conducted in a rigorous manner and does not specify the conditions under which the ‘best practices’ work. A lack of rigor in research can have profoundly negative results when applied; among other drawbacks, it gives false comfort and allows leaders to avoid deeper challenges.”

3.      One of the commonly cited ‘best practices,’ “can be summed up as ‘run your family like a family and run your business like a business.’ These notions promoted a separation of family and business, developing inflexible rules and structures, and the idea that non-family businesses provide a good model for the management of family companies. To date, there is scant research support for the separationist view and growing support for an integrative view.”

4.      A frequent recommendation is that “one should have a plan for succession of management and ownership. Currently, there has been no research that supports this idea. There is a simple reason for this lack of research support: if you love working with your family, it does not matter how badly the company performs; you will still want to work with your family and be an owner of the business. Conversely, if you cannot stand being around your family, it does not matter how much the company is making; you will still want ‘out.’

5.      “Another common recommendation is that in order to develop successors and family employees, to benefit corporate performance and to ease family relations, family members should spend three or more years working for others before returning to the family company. Again, to date, there is no research yet supporting this commonsense proposal ... I suggest that the important issue here is that parents and children should continually work on their relationships, whether in the business or not.”

6.      Popular ideas for successor succession hold that 1) strategic planning should come first, followed by 2) a careful review of the talents, experiences and abilities needed by the future leader who will implement the plan, then 3) an examination of the current candidates to create a development plan and 4) when the needed attributes have been achieved, succession can occur. No research has been conducted on this notion. A contrary view is that for most family firms the future is too difficult to predict; therefore, a leader must be someone who can align stakeholders and motivate people to action.

7.      Many consultants recommend that the senior generation should choose the successor. Again, no research supports this idea.”

8.      “There is also no research on the use of ‘bridge’ leaders - non-family managers who will lead the company and train future successors - but there have been some studies of non-family leaders in general. They suggest that non-family leaders must view caring for and managing family as a critical role, and that the hiring process should be carefully designed to ensure they have this quality.” 

9.      Family constitutions or protocols - a collection of family ‘laws’ that govern relations between family and business - are thought to be valuable in ensuring family harmony and business success. The research here is mixed. ... It appears that family commitment to the business is a better indicator of performance and longevity than policies, and that commitment is built through transparency, education, communication and involvement.”

10.   “While some research shows the importance of family meetings, research from the organization theory school suggests that rigid structures can lead to catastrophic failure. It is likely a good idea that when implementing such suggestions, family business leaders make sure the structures have appropriate flexibility to adapt to changing conditions. Research on complex systems shows that organizations, be they family or business, must be able to change quickly in order to survive. The ability to rapidly evolve is, of course, enhanced by communication, commitment, and deep, strong, healthy family relationships.”

11.   Boards of directors are widely seen as important for organizational survival. Research supports this idea. However, in private family business rigorous studies linking outsiders to the board to business success have yet to be conducted. ... In private companies the critical factor may be having board members from whom the CEO will willingly take direction.”

12.   Family business leaders should take a skeptical view of suggestions not supported by research. It is unfortunate that much of the research conducted on family business over the last 25 or so years is largely inaccessible to the layperson. Nonetheless, the truly professional family business leader is well advised to either wade through what is available or seek the counsel of those familiar with the body of scholarship.”

 In another, related column written for advisors and practitioners on the above points from  Astrachan, and published on the FFI blog The Practitioner, Jane Hilburt-Davis calls on fellow advisors and practitioners to change their ways of advising families because too often advisors “make suggestions based on our experiences and not on data.” She calls for more research, and appeals to other advisors to give researchers feedback in order to help make research more user-friendly and practical. Ultimately, she argues, more ongoing, challenging conversations between practitioners and researchers will develop the field and build stronger family firms.


Post a Comment