Think family business and you may picture small, mom-n-pop outfits, or perhaps Dad’s pizzeria where the kids help out during the holidays – all unsophisticated, cottagey and modestly profitable operations. If so, you’d have accurately captured just part of this vast and layered phenomenon.

Globally, some three-quarters of output is generated by family businesses. That figure is lower in the United States, where numbers in the mid-60% are more commonly cited. Countries like Italy and India, as well as parts of Latin America, come in above 90%. In South Africa, we attribute more like half of GDP to family enterprises.

While many of these companies are small, medium and micro enterprises (SMMEs), they range right up to the very biggest and best-known multinational conglomerates. There’s the Porsche-Piëch family of Porsche and VW fame. If you’ve ever owned a Ford, you’ve done business with the heirs of Henry. Likewise, those of Frank C. Mars, depending on your fancy of chocolate bars. Through their control (albeit tumultuous) of Samsung, the Lee family retain a grip on what amounts to 17% of South Korea’s economy. Tata, BMW, Lego, Suzuki and Ikea – all at once worldwide behemoths and family dynasties.

Here in South Africa, perhaps the most iconic family business is Pick n Pay, controlled to this day by the Ackerman family. Raymond and wife Wendy remain honorary life presidents and second-generationer Gareth is chairman. Of course, if you’re inclined to do your groceries at Food Lover’s Market, you do your trade with the Coppins. If you’re lucky, you may drive a BMW from the Kunene brothers, while you’ve almost certainly enjoyed an ice-cold beverage their empire bottled. If wine is more your tipple, you’ll surely have sniffed, swirled and tasted the produce of what we think is the oldest family business in the country, Boplaas Family Vineyards, established in 1880.

Despite this geographic ubiquity with intermittent antiquity, family businesses compete in two markedly different global leagues. The lower rung is no bad place to be. Here, family firms still typically outnumber the non-family variety. But it is the premier division where the veritable “Joneses” of family enterprise operate. These countries, regions and even districts are defined by the great and small of their family firms, which account for upwards of 90% of productivity. And while it’s unclear quite how promotion to these rarefied heights is achieved, there is a trusty marker that confirms it: a moniker. 

Land of the rising son

Consider Japan’s “ie” system. Translated literally as “home” or “family”, this describes a complex and patrilineal unit of kinship and commerce. The ie is also a role, translating most closely to a patriarch. He (traditionally always a male) must survive as head of the family and the business, through growth and decline, merger and acquisition, and even though war. Where no capable son emerges, the incumbent ie has full discretion to adopt an outsider (historically by legal adoption of an adult male who would also marry the ie’s daughter) to groom for takeover, thus ensuring an unbroken (and meticulously recorded) lineage, often for dozens of generations. The ie – both as social structure and position – is supreme to any individual inside it. 

While the formality of the ie as a corporate form and strategy is fading in the 21st century, the upshot remains a business culture known for long-term planning, relative weakness of shareholders outside the family, an apprehension for mergers, and a tactical preference for market share over profit. And the figures bear that out.

...over 95% of all businesses in Japan are family businesses...

Today, over 95% of all businesses in Japan are family businesses and account for 75% of employment. Japanese family businesses last an average of 52 years – more than double the average American family business. The country is home to more than 50,000 family businesses of 100 years or older, of which over 3 500 are double centurions or older. It should come as no surprise that the world’s oldest family business, Nishiyama Onsen Keiunkan, is a hot springs hotel established 1 300 years and more than 50 generations ago in Hayakawa, Yamanashi Prefecture, Japan.

There is more specific evidence in Japan of a positive relationship between adoption of successors and firm performance. At least one study has found that firms with adopted heirs outperform those with blood heirs; firms in both of those scenarios outperform non-family firms. 

Mittelstand isn’t a structure, it’s a culture

A generations game

In Germany, it is “mittelstand” that captures the spirit of family business. Literally middle-sized businesses, the term describes far more than that. As Fabian Wehnert, the head of department for SME and family business at Germany’s Federation of German Industries (BDI), puts it, “Mittelstand isn’t a structure, it’s a culture”. Thus, while the European Commission restricts the label to companies with 250 employees or fewer and less than €50m in annual sales, the BDI and popular culture apply the term more liberally. It is a stamp of approval (think “German engineering”) and primarily comprises family businesses. On these criteria we’re talking 3.7 million firms, accounting for over 90% of the nationwide total.

As with their Japanese counterparts, Germany’s family businesses have become associated with an archetypical business philosophy. Part of this is a long-term mindset. In Wehnert’s words, “the German mittelstand doesn’t look at quarterly figures, but thinks in generations”. A reputation for engineering and innovation is backed by research: German regions with a higher share of family firms file more successful patents. A mittelstand orientation for export is not hard to believe in view of Germany’s status as the globe’s third-largest exporter. 

Tentacles

What the mittelstand is to Germany, the “chaebol” is to South Korea. First used in English in the 1980s, the name is a portmanteau of the Korean words “chae” (wealth) and “bol” (clan or clique). Chaebols are almost, by definition, controlled by a family, but unlike the mittelstand and ie, just a few dozen extremely large and usually diversified conglomerates fit this bill, such as the likes of Hyundai, LG, Samsung and (until its demise) Daewoo.

...the chaebol has become almost synonymous with poor governance, outsized political influence and anti-competitive practices...

The chaebols also stand apart from more aspirational cultures of family business for the unwanted parts of their reputation. While several were keystones of South Korea’s part in the so-called “Asian economic miracle” and the emergence of the Asian Tigers circa. 1960 to 1990, the chaebol has become almost synonymous with poor governance, outsized political influence and anti-competitive practices (even if still with many positives). If this was a secret to the outside world, the façade fell with the 2017 imprisonment of Samsung’s de facto leader (and son of group chairman) Jay Y. Lee in a bribery scandal that also toppled then-president Park Geun-hye through related impeachment proceedings.

...and South Africa?

So, the chaebol may not be what South Africa needs. Likewise, the mighty mittelstand and inequitable ie. The very same for any other socio-economic nest that has grown around an ecosystem of families and their businesses. None would fit here. These things come from within – with supporting institutions, with government enablement, and with self-reinforcing spillovers – and grow over time.

GIBS recently hosted some 80 guests for an intensive discussion to help find out what South Africa’s family business magic formula might look like. Under the auspices of the GIBS Centre for African Management and Markets (CAMM), panel discussions covered funding family businesses, managing family wealth, and dealing with the often harsh clash of the family unit with outside investors. And while one morning can’t hope to build a culture, it may just have laid the founding stone for a hub that plays a part in it. 

What exactly makes a family business?

There is necessary debate in a field so young. A 2015 study found that nearly half of academic work applies the “components of involvement approach”, requiring some degree of ownership, management and/or governance by family in the business. Less than a quarter employ the “essence approach”, which demands a business exhibit certain behaviours deemed typical of family firms. This is criticised for circular reasoning, begging the question, ‘What behaviours are typical of a family business?’ One attempt at a framework to measure the degree to which a business is a family one is the F-PEC scale. This wields proxies for family power, experience and culture to place firms on a spectrum of ‘familiness’ but has yet to catch on in the literature. This is all to highlight the novelty of family business as an academic pursuit and the importance of circumspection around the statistics. 

Despite a long history (family businesses are as old as commerce), family business is only 30 years old as a field of academic pursuit. However, the last decade has seen this grow rapidly. Half-a-dozen academic journals are now dedicated exclusively to the topic, while established Blue Riband journals feature the topic, too. Business schools around the world are increasingly expected to incorporate family business in curricula for both academic and executive education. Indeed, family business centres have taken root at more than 250 business schools around the world, from Alberta to Adelaide and from INSEAD to Singapore. 

While the academy has failed thus far to provide a generally acceptable tool to define family business, it has landed on a theory that captures why family matters in business. Championed by Luis Gomez-Mejia, the term socioemotional wealth (SEW) describes the “non-financial aspects of the firm that meet the family's affective needs, such as identity, the ability to exercise family influence, and the perpetuation of the family dynasty” (Gomez-Mejia, 2007). That is, controlling owners of a family business think and behave differently to those in non-family enterprises because it is the gains or losses of SEW rather than profit alone that serves as a reference point for strategic decisions (Berrone et al., 2010; Gomez-Mejia, Cruz, Berrone, & Castro, 2011). In short, add to the ordinary profit motive the incentive to protect family reputation, the fulfilment of grooming a son or daughter as CEO, and the comfort of knowing a healthy enterprise survives for later generations.

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