A cautionary adage states, “Never do business with family or friends.”
Yet family enterprises are not only plentiful around the world but also among the most successful businesses in any category, as Johns Hopkins Carey Business School Professor Phillip Phan has found in his decades of research on the topic. That holds true whether the business is a local mom-and-pop store or a huge, multinational family-managed operation such as Tata Consultancy Services or Nike.
Family businesses have increasingly drawn the attention of academia over the past several decades. A new book co-edited by Phan – Innovation, Growth, and Succession in Asian Family Enterprises (Edward Elgar Publishing/Johns Hopkins University Series on Entrepreneurship) – furthers the discussion, with nine chapters by a range of researchers who specialize in the topic.
In the following Q&A, Phan, the Alonzo and Virginia Decker Professor of Strategy and Entrepreneurship at Carey, looks at the dynamics of family-run enterprises, including the evolving role of women and a surprising discovery about the way some family businesses responded to the Great Recession.
QUESTION: You note in your introduction to the new book that family businesses started to become a topic of serious academic study several decades ago, leading to the inception of the journal Family Business Review in 1988. Why do you think it has grown into a significant area of interest among researchers and students?
PHILLIP PHAN: In about the mid-1980s, the first generation of family businesses after World War II began to transition from founder to second generation. Transitions in family businesses are usually rife with conflict and political intrigue because of the inheritance and wealth-preservation complications that follow. This led to the demise of many once-successful businesses, which attracted the attention of scholars in entrepreneurship, management, and family sociology.
What was a cottage industry in the research of such enterprises has now become mainstream. This is due to the fact that the family business, as an organization form, is the dominant business form in many countries, including India, Southeast and North Asia, Europe, South and Central America, and North America. In Taiwan, for example, more than 80 percent of firms are family enterprises. In Thailand, they account for 80 percent of gross domestic product. In the United States, family enterprises generate more than 50 percent of the gross national product.
The nature of family-run businesses has long been a focus of yours. How did it begin for you?
In 1993, I conducted a four-country survey of more than 500 family enterprises (U.S., Canada, Thailand, and Hong Kong), and much to my surprise, in spite of the language and culture differences, I found more similarities than differences among these companies.
Most successions fell to the oldest male child in the family, even when the female first child was admittedly, according to some founders, more competent. Most successions did not go as well as the founders would have liked; strife, family breakup, and even lawsuits were common. Family businesses were found in almost all sectors of these economies, even those with tight government control.
Andrew Carnegie is credited with the aphorism “Three generations from shirtsleeves to shirtsleeves.” More than a third of family businesses do not survive the transition from first to second generation, and only 10 percent survive past the third generation. Successful family enterprises that live past the third generation are likely to become long lived, such as Beretta, an Italian arms manufacturer still under family management after 495 years. They seemed to have resolved many of the family-business challenges by that time. Successful family enterprises adopted professional management early and learned to separate the family dynamics due to inheritance and business control decisions.
Since then, our findings from that 1993 survey have been validated by many international studies on the social, political, and economic dynamics of family enterprises.