Entrepreneurship

A number of studies demonstrate how working for a family enterprise can bring many benefits. The internal ambience is often better and more benevolent. Decision-making also tends to be more ethical because it focuses on the long-term and the working methods of a family business are often more responsive and adaptable. From the outside, clients are more likely to view such a company as being more reliable and offering better quality products and services. However, when the company survives and prospers, the founders do not always have the ability or the desire to carry on running the company and the role of preserving the family spirit and values is passed on to non-family members.

So how can the family identity be maintained when the family, for whatever reason, is no longer at the helm of company operations? Patrick LÊ, professor at NEOMA BS, has looked into the question, accompanied by two co-authors (Julia Vincent Ponroy, IPAG Business School, Camille Pradies, EDHEC Business School). Based on a French pharmaceutical company specialising in the production of veterinary products, the 3 researchers have outlined a map of the processes at work.

The study’s subject company – named VetCo – is the world’s leading family company exclusively dedicated to animal welfare today. VetCo has a strong identity as a family enterprise and the preservation of this identity is somewhat remarkable. The various family members withdrew from the company when its founder suddenly died.

VetCo’s founding father, who was extremely hardworking, well-known and respected by his staff, transformed the small laboratory he had set up in his apartment at the very beginning into a successful multinational company. However, after he passed away, the values on which the family business was founded were in danger of fading away.

The identity of a family business at risk

The researchers succeeded in identifying a number of factors that threaten the sustainability of a family business identity:

  • erosion of the founder’s values
  • dissolution of collective cohesion
  • increase in formalisation and procedures

The charismatic founder is no longer present to uphold the company values he once embodied, thereby risking their erosion. In addition, the transition from a family-sized company where the employees are on first-name terms, to an international company where teams no longer have the opportunity to work together directly, poses a real threat to the collective cohesion. Finally, the implementation of a ‘large group’ structure with a high number of procedures and a more vertical hierarchical structure challenges the flexible and adaptable model of the family business.

The emergence of a series of mechanisms to preserve the family business identity

These threats are also perceived subjectively by staff members. However, the study manages to identify how certain mechanisms that go towards preserving the identity of the family business are triggered.

Identification with the founder : Employees who knew or had heard of the founder share and can relate to the values he embodied.
>>The employees take pride in working for a family enterprise and are receptive to the idea of preserving a family heritage through their work, as opposed to working to provide dividends for shareholders who consider the company merely as a financial investment.

Collective identity: Mutual trust exists between Top Management members, which is also true of the laboratory technicians and workers, who are extremely supportive of one other.
>>Through this collective relationship, the company becomes a family in the metaphorical sense with the idea that “together, we are one big family”.

Exposure to strategic rationale: Other employees from larger groups decide to leave such organisations to join a company with a family structure because of the pragmatic way the company is run. For example, the rapidity with which decisions are made (vs. the number of hierarchical levels in large companies).
>> When these employees see how the company structure is taking shape, they ensure that flexibility, agility, dynamism and ability to innovate are retained. They also see that a long-term strategy, an ethical operational approach to which they are sensitive, is maintained. They will avoid decision-making that favours short-term or high-risk profitability.

A self-sustaining virtuous circle

family business

Patrick LÉ and his co-authors also reveal how these preservation mechanisms are reinforced by an additional phenomenon they refer to as “connections”.
This first phenomenon is compared to a net and derives from the fact that very few collaborators are unconcerned by any of the preservation mechanisms described above. Consequently, they almost systematically fall into a strategic net that preserves the family business identity.
The second phenomenon of connection concerns relationships. The researchers find that for many employees, the strategies that go towards strengthening a family company’s identity are in synergy with one another and mutually reinforcing.
Other factors contribute to strengthening the identity of the family business. The fact of being recognised as a family business by fellow professionals and clients etc. creates a mirror effect.

Conclusion and useful insights

The Directors and family members, although they are no longer present in an operational capacity, should endeavour to provide symbolic resources (e.g. common rituals, etc. such as festive celebrations, Christmas trees, etc.) to encourage and reinforce a sense of belonging for employees who are not direct family members. Members of the founding family should also respect the members of the organisation and the permanent contribution they make to the organisation, and try to adapt to them. Otherwise, their own actions could be perceived as artificial or oppressive.
Moreover, had the family’s ethical behaviour been questioned in the past, or a negative work climate prevailed, it would be virtually impossible to preserve the company’s identity which has now been discredited.

13 February 2020
Patrick Lê

THE AUTHOR

Patrick Lê

Professeur NEOMA BS

Patrick is Assistant Professor of Management at NEOMA Business School. Patrick's research explores the impact of new information and communication technologies on organizations, both on an individual and organizational level. Patrick also has consulting experience in a company specializing in management and technology consulting. He has given courses in management, organization theory, human resources and organizational behavior.