Family Business

The business is family business in which the members of a family hold the property sufficient to determine the composition of the board. Normally, in family business, representatives of this family will keep one of these positions: Chairman of the Board, directors or CEO. The family members usually keep many positions simultaneously such as shareholders, managers and CEO.

In developing economies, many successful companies have also originated from the family business, some typical examples like Wal-Mart, Bertelsmann and Bombardier in North America and Europe. In fact, family business has both advantages and disadvantages.

In terms of advantages, because ownership is in the hands of one or a few members of the family, so the family business tends to "personalize", unified power into the hands of homeowners. This power allows family business to execute a long-term vision, focused investments to create long-term competitive advantage that the company runs base on short-term results in the stock market cannot achieved. Secondly, the family business tends to save and careful in expenditure. The consistency between the ownership and the management help to mitigate the scale and extent of the representation problem.

However, the family business has to face with a very unpleasant fact, that statistics show that the rate of long-term success of family business is very low. According to the McKinsey survey, only 5% of family businesses which have large scale continually develop well after the third generation. In general, when a successful family business drops into the control of the descendants of the founder, this family firm starts going down. Go to the third generation of corporate takeovers, corporate context has been built for quarrel between family members. Instead of focusing on corporate governance, they will compete for a share of profits and the leadership position of the company. On the other hand, the family business has little of supervisors, not bear pressure from external, and face with risk in giving unsuitable business strategy with market realities.

As a result, good corporate governance is critical factor to decide long-term success of family business. Experience of successful family companies in the world showed that in these companies, should be have a clear separation between ownership and operating rights, acknowledges the role of an independent board and clearly defined responsibilities of owners with board and executive apparatus. Besides, there are some factors decide the success of family business, namely: good governance, risk diversification and dynamic management in a business investment.