Researchers from the IIM-Lucknow and the Management Development Institute-Gurgaon have found that maintaining a cohesive family structure with clearly-defined roles and responsibilities for each individual is a key factor in running a successful family business.
Family unity and conflict resolution strategies are also essential mechanisms to enhance the lifespan of a family business, according to the study, which has been published in the prestigious 'Journal of Small Business Management'.
The research evaluated existing literature, exploring how successful family businesses worldwide manage their governance structures and the resulting economic and non-economic benefits.
Balance in both family and work life.
"Family governance involves establishing ground rules to resolve conflicts, promoting effective communication, strengthening family relationships and fostering a sense of attachment among family members toward each other and the business. As businesses expand in size and scope, they become increasingly complex. Similarly, families managing businesses face complexity as they become multi-generational and increase in size," said Sabyasachi Sinha, an associate professor of Strategic Management at Indian Institute Of Management (IIM)-Lucknow.
He added, "The adoption of family governance structures by family businesses results in transformative changes both within the family and the business. It leads to the peaceful resolution of family conflicts and successful addressing of business challenges." Sinha explained that unlike corporate structures, where positions are established due to regulatory requirements, a family business structure is voluntary and unique.
It is crucial, as suggested by the researchers, to distinguish between the family -- relationships, roles, interactions, complexities and conflicts -- and the business aspect of the family business, creating a balance in both family and work life.
Four crucial family structures
The research team identified four crucial family structures -- family meetings, a formal family council, a family office for wealth management, and a family constitution, which is a written document detailing policies and principles. Additionally, informal governance structures, such as family celebrations, activities, and retreats, were deemed important.
"Our advice to family businesses is that as they expand their business and family, they should conduct more structured family meetings, establish family offices, and initiate processes to adopt a family constitution. These measures will enhance family unity, build a more coherent relationship between the family and the business, ensure a smoother transition of succession, and better utilise the capabilities of family members," Sinha said.
The research team highlighted in the study that future research should differentiate between various family governance structures while exploring their influence on the family and business systems.
"Governance structures might serve different requirements of a business family. Future research must examine why family firms adopt a particular governance structure compared to others and explore the process of developing these structures," he said.
