Man and boy making shoes. Reproduction of a painting by Louis Emile Adan (1839-1937), © Braun & Co., N.Y. (Source: Wikimedia Commons)
Ideas for Leaders #174

Family Business Ownership and the Next Generation

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Key Concept

Most owners of family businesses want to ensure that their firm stays in the hands of the family for generations to come. This is not impossible to achieve. In this Idea, some practical steps that senior managers can take to ensure next-generation members are committed to the family business are outlined. The key is to develop a sense of “psychological ownership.”

Idea Summary

There is a hotel in Japan — Houshi Ryokan — that has been run by the same family for approximately 1,300 years. Forty generations have managed to maintain control of the business, epitomizing what IESE Business School’s Josep Tàpies and Lucía Ceja refer to as “psychological ownership.” In their article published in IESE Insight, Tàpies and Ceja suggest that strong emotional ties that get passed down through subsequent generations, as well as a shared sense of mission, are the key components that make up psychological ownership — something that can help members identify more closely with the business and in turn, give their company a competitive advantage.

They came to these findings through a qualitative study of various family-owned firms, narrowing down to three factors that enable the creation of balanced and positive psychological ownership:

  • Firsthand knowledge: early exposure to the family business can help next-generation members acquire firsthand knowledge of operations and activities. On the other hand, a lack of information can lead to conflict or disaffection — something associated with negative and/or weak psychological ownership.
  • Direct involvement: investing time and energy into incorporating next-generation members into the company, as well as providing them with structure and support aids the development of strong and positive ownership.
  • Capacity to control: share ownership can be instrumental in allowing next-generation members to feel they have decision-making authority and a say over business matters. Alternatively, having a mentor can also help empower members.

Overall, however, a healthy family climate is what will make a significant difference as to how the above are delivered; if a family deals with conflicts in positive and constructive ways, this contributes to a healthier family climate.

Business Application

Senior family members can play an important role in empowering their next generations. In this respect, Tàpies and Ceja offer advice, which includes the following:

  • Generate trust by making yourself accessible to next-generation members, and create an open environment in which they feel they are able to express their thoughts and opinions.
  • Encourage integration by helping next-generation members understand company values. You can do this by communicating and explaining your company’s history and the benefits of belonging to the family business.
  • Teach next-generation members how to address conflict without losing sight of the big picture. Offer them training in communication techniques, and encourage them to nurture their own entrepreneurial spirit.
  • Encourage next-generation members to build projects of their own and feel a sense of personal fulfilment.

However, it is also up to the next-generation members themselves to develop the right attitudes and take-up what senior members offer. Thus, everyone contributes towards creating the type of strong and positive psychological ownership that ultimately helps family businesses build resilience.

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Authors

Institutions

Source

Idea conceived

  • June 2013

Idea posted

  • July 2013

DOI number

10.13007/174

Subject

Real Time Analytics