Family businesses face various challenges that have led to their persistent failure in the economy. The success of a family business depends on the consolidation of the family members at large. Most of the family businesses fail because of the family issues and conflicts among the family members. Historically, family businesses were known for their low cost of capital for their formation. However, these challenges have persisted and led to their downfall.
Some of the family issues that affect the performance of the business include rivalry among the family members, death of a family member, the history of the business, succession issues, resistant to change, poor expression, and commitment. This paper seeks to explore the major family issues and conflicts that lead to the downfall of the family businesses. The paper also provides solutions to these problems to enhance the performance of the family businesses for the future generation.
Family issues and conflicts
Rivalry among the family members
The disagreements among the family members are the root cause of business failure. The management of family business encompasses the efforts of all the family members hence calling for cooperation among the family families. Many families owning businesses experience a breakdown of relationships creating a poor environment for the cooperation in the business. Further, these family members hold their differences and do not forgive each other, which affect the performance of the business in the end (Gordon & Nicholson 2008). It is difficult to operate in the business without stepping on someone’s toe. Research shows that families without the capabilities of forgiving each other for the purpose of progression of the business may create a hard time for cooperation in the business.
Most of the family businesses encounter problems when it comes to the succession of the business. Every member of the family strives to be successors of the family businesses. When many people tend to control the business, there will be conflicts of interests within the business hence resulting in the poor performance of the family business. Carlson Companies is one of the companies being controlled by family members. Initially, this company encountered the problem of succession, but it is now ranked the best family company with exemplary performance (Poza 2007). Recently, the company celebrated its 60th anniversary because of its tranquillity in the management. The issue of succession of the business has been accelerated by the motive of who should own the business.
Inability to change
Many family businesses are managed by outdated and dubious methods. The management of family businesses is based on the historical backgrounds. The new families do not change to the new ways of management hence lowering the level of competition with other firms. At the onset of the family businesses, there was a formulation of rules and norms that governed the operations of the business. One limitation of these rules is that they remain unchanged even if there is a change in the economy. The new generation restricts themselves to these rules without considering the global changes.
For instance, the rules governing the share of profits within the organization should not remain constant because of the return on the capital changes with the changes in the economy (Rhodes and Lansky 2013). During the inflation period in the countries, the profit margin reduces because of the high prices of the goods lower the sales margin. Adopting the new changes in the family businesses is cumbersome because it will involve unnecessary consultations from the family members. Not all family members may embrace change in the business.
Lack of training among the family members
Training of the family members provides the necessary skills required in the management of business resources. Management of any business institutions requires a certain level of skills. The skills enable the managers to foresee any current and future challenges that may affect the performance of the business. Lack of training among the family members make the business to face challenges that result in the downfall of the business.
Most of the family members inherit the business from their parents without acquiring any knowledge of managing the business. For example, most of the family businesses fail because of failure to manage debts in the business (Sorenson 2011). Management of debts requires skills to ensure a balance between the creditors and cash in hand to prevent the dissolution of the business.
Indirect communication has affected the family-owned businesses. Indirect communication comes when there are differences among the family members. Indirect communication cannot solve problems in the business. Neither, can it be used in making plans in the business. Often, family members in the business communicate indirectly to the outsiders. They discuss the business issues with the outsiders hence affecting the performance of the business. Business ethics advocates for the maintaining of business secrets (Rhodes & Lansky 2013). Exposing business secrets may give competitors an upper hand to compete with the business. Communication should be one that supports decision-making in the business.
How to govern family businesses for the future generation
Training of family members on how to manage business resources is one of the ways to govern family-owned businesses. This will help the members to foresee the problems that the business may encounter in future. Such problems may include handling of debts in the business and improper pricing of the goods. Secondly, the family members should be encouraged to stop indirect communication in business and maintain the secrets of the business.
Maintaining of the secrets in the business creates healthy competition with other business entities (Sardanis 2007). For this reason, the managers should set the rules that govern the communication styles in the business. Family members should learn how to solve their differences to enhance the operations in the business. Finally, every family business should adopt changes in the business according to the changes in the economy. This can be done by abolishing the historical form of management as dictated by the previous family members. Adopting the changes will enable the business to cope up with the changes in the business.
Critical evaluation of the topic
Critically, family issues and conflicts are the major causes of the downfall of the family businesses. Such issues may include lack of training, resistant to changes, rivalry among the family members, indirect communication and lack of training. For instance, indirect communication exposes the secrets of the business giving the competitors chance to identify the strengths and weaknesses of the business.
Other companies that are not influenced by such issues like private limited company perform better than family businesses. However, not all family issues are the cause of problems in family businesses. Other problems come from the external environment like government policies and devaluation of the currency. In conclusion, the family leaders should set favourable policies that govern the activities in the business to avoid conflicts in the family businesses.
Gordon, G., & Nicholson, N 2008, Family wars: Classic conflicts in family business and how to deal with them, Kogan Page, London.
Poza, E. J 2007, Family business, Thomson South-Western, Mason, OH.
Rhodes, K., & Lansky, D 2013, Managing conflict in the family business: Understanding challenges at the intersection of family and business, Palgrave Macmillan, New York, NY.
Sardanis, A 2007. A venture in Africa: The challenges of African business, I.B. Tauris, London.
Sorenson, R 2011, Family business and social capital, Edward Elgar, Cheltenham, UK.