Family businesses are prominent throughout the nation, offering a variety of family-operated goods and services.
Around 30 percent of these businesses make it to the second generation and 12 percent are successful by the third generation, according to the Family Business Alliance.
How can these businesses achieve success while maintaining their unique family values?
Dr. Luis Gomez-Mejia, W. P. Carey Management and Entrepreneurship Regents Professor at Arizona State University (ASU), researched family businesses and their decision-making drivers.
His research also delves into the relationships of international management, strategic management and executive compensation.
“I began to realize family firms behave in a different way than non-family firms,” Dr. Gomez-Mejia explained.
A few key differences Dr. Gomez-Mejia noted are family firms are more long-term oriented, more likely to survive when performance is not high and more persistent.
On the other hand, non-family firms are typically more diverse, more likely to internationalize and are driven by economic factors.
Other socioemotional priorities include an unlikeliness to tackle new business ventures, values that align with the family’s values, low turnover, limited management processes and nepotism.
“Family firms are really unique in terms of independent choices they make in comparison to non-family firms,” Dr. Gomez-Mejia said. “So, family firms want to preserve what I call socioemotional wealth.”
Dr. Gomez-Mejia explained that approximately 70 percent of publicly traded firms in the U.S. are family-founded and employ 80 percent of the workforce.
Those family businesses are often driven by socioemotional wealth, which focuses on family values, preservation of tradition and pride.
He added, “It’s an important utility for the family. They get the satisfaction of having a family identity embedded in the firm, the family image is important.”
PING, a subsidiary of Karsten Manufacturing Corporation, is a leading golf equipment brand with 845 employees, 25 buildings and 52 acres around that. It is also a family business.
Dawn Grove, corporate counsel of Karsten Manufacturing Corp., said her grandparents incorporated the company and bought a building to continue production of PING golf equipment more than 50 years ago.
“My grandparents’ values of integrity, ingenuity, continuous improvement and service were naturally weaved into everything we do because my uncles and dad- and later my cousins and I- worked alongside them. Our passion has always been to make the best golf clubs possible, not to have the flashiest marketing shtick or to make the most money,” Grove said.
Although the socioemotional drive often overshadows the financial aspect of conducting business, PING uses its family values to enhance its business practices.
“Our family character inhabits all we do and uplifts our professionalism,” Grove said.
CEOs and other leadership positions of family businesses tend to maintain that position much longer than leaders of non-family businesses, Dr. Gomez-Mejia explained.
“You’ve got an attachment, that continuing identity of the family firm,” Dr. Gomez-Mejia said. “The firm is their baby, usually they launched the company in the first place- they founded the company.”
“What happens is the economic drivers are also important because if you lose that, you also lose the socioemotional wealth,” Dr. Gomez-Mejia said. “The main advice would be to be able to step back and be willing to professionalize when the situation demands that. The willingness to do that will make a difference as to whether or not the company survives and how well it will do in the future.”