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Family Business

A family business is a commercial organization in which decision making is influenced by multiple generations of a family—related by blood or marriage—who are closely identified with the firm through leadership or ownership. Owner-manager entrepreneurial firms are not considered to be family businesses because they lack the multigenerational dimension and family influence that create the unique dynamics and relationships of family businesses.

Conceptual Overview

Family business is the oldest and most common model of economic organization. The vast majority of businesses throughout the world—from corner shops to multinational, publicly listed organizations with hundreds of thousands of employees—can be considered family businesses.

The economic prevalence and importance of this kind of business are often underestimated. Throughout most of the 20th century, academics and economists were intrigued by a newer, “improved” model: large, publicly traded companies run in an apparently rational, bureaucratic manner by well-trained “organization men.” Entrepreneurial and family firms, with their specific management models and complicated psychological processes, often fell short by comparison.

Privately owned or family-controlled enterprises are not always easy to study. In many cases, they are not subject to financial reporting requirements, and little information is made public about financial performance. Ownership may be distributed through trusts or holding companies, and family members themselves may not be fully informed about the ownership structure of their enterprise. However, as the 21st-century global economic model replaces the old industrial model, government policymakers, economists, and academics turn to entrepreneurial and family enterprises as a prime source of wealth creation and employment.

Family Business on the Couch

The academic field of family business—with university courses first offered in the late 1980s as a part of the multidisciplinary study of free enterprise and entrepreneurship—has been enriched by its strong historical and philosophical connections to psychology and psychoanalytic thinking. Family business is a derived discipline supported by constructs and theory from anthropology, economics, sociology, and psychology. While each of these social sciences offers important perspectives and understandings of the phenomenon, psychology provides the organizing concepts for the study of the interaction and interdependence of the family and business systems, and the emotional and social relationships they create.

Many of the early thinkers in the field were psychotherapists who, when working clinically with entrepreneurs and their families, recognized that their clients' symptoms and conflicts were based in their career and business relationships. Destructive individual or family behavior sometimes overwhelmed the family's attempts to deal with critical business issues. Therapists realized that family businesses are unique social organizations, requiring specialized interventions, techniques, and frameworks that take into account not only organizational behavioral issues and business values, but also the multiple roles and complex interpersonal relationships within the families who own these firms.

Two mutually informative perspectives have proved to be extremely helpful in addressing family business issues that fall outside the boundaries of traditional management theory: the psychodynamic perspective and the family systems approach.

The Psychodynamic Perspective

The psychodynamic perspective focuses on how individual thinking and behavior are shaped by previous developmental history. We are products of our life experiences and our family origin; therefore, the psychotherapist/psychoanalyst seeks to discover how our early experiences influence the way we interact with others as adults. Early interpersonal relationships set the stage for the kinds of interaction patterns adopted by the individual later in life. These clinical insights are helpful when deciphering the rational explanation for seemingly irrational behavior.

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