Family Firms: Values, Theories, Succession and Internationalisation
Handbook topic · Family Firms — the role of entrepreneurship and innovation in shaping family firms
Family firms are businesses whose decisions are shaped by several generations of one family. This week explains what makes them different from non-family firms — their values, their long-term view and their mix of family and business goals — and the five theoretical lenses the module uses to analyse them. You then see how these firms innovate, hand over leadership, govern themselves and go international, through three long-lived family businesses and the collapse of Japan’s Seibu empire.
The big question
What makes a family firm last for generations — and what makes it fall?
By the end of this week you can
- Explain the nature and distinctive features of family firms and tell them apart from non-family firms.
- Identify the core values of family firms and weigh the benefits and drawbacks of “familiness”.
- Apply agency theory, stewardship, the resource-based view, socioemotional wealth and bifurcation bias to a family business.
- Analyse how succession, ownership and governance choices shape the long-term survival and innovation of family firms.
- Describe the typical internationalisation pathways of family firms and the factors that hold them back.
What makes a firm a family firm?
A family firm is not simply a company with a family name on the door. It is a business where one family’s control, values and future generations shape the decisions.
A business organisation in which decision making is influenced by multiple generations of a family, whose members are related by blood, marriage or adoption.
Family businesses are the oldest and most common form of economic organisation. The lecture states that they make up around 80% of firms worldwide and up to 60% of businesses in Europe, and that in some countries many of the largest publicly listed firms are family-owned.
The practical test the module uses is control: a firm is family-owned when a person (and their family) is the controlling shareholder, holding the highest percentage of voting rights compared with other shareholders. This matters because a listed giant can still be a family firm if the family keeps the decisive votes.
Family firms versus non-family firms
- Relationship-based: trust and family ties hold the organisation together.
- Family and business objectives are intertwined when family members both own and manage.
- Ownership and management are often unified in the same people.
- Passed from generation to generation, so the planning horizon is long.
- Bound by family norms and values; the business is “more than just an investment”.
- Performance-based: people and units are judged mainly on results.
- Business objectives are set separately from any one family’s goals.
- Owners (shareholders) and managers are usually different people.
- Ownership can change hands freely, so horizons can be shorter.
- A widely held company may have many owners with different goals and expectations.
What makes family firms unique
- The family business is more than an investment — it carries the family’s identity.
- They take a long-term strategic outlook.
- Family values shape the organisation as a whole.
- Family firms identify themselves as such and are sympathetic to each other.
- They live with constant triggers for change: births, deaths, illnesses and conflicts in the family.
- Transformational change can come from adopting new technology or selling a business area.
- Ownership shifts over time — from the founder to siblings, then to cousins or people outside the family.
- They are known to be more sustainable and able to survive adverse economic conditions; the lecture also lists a clear succession plan and a focus on trust and relationships as distinctive features.
When you describe a business as a family firm in an assignment, show the evidence: who holds the controlling votes, how many generations are involved, and whether family members manage the business. One sentence of evidence is worth more than the label.
Core values and “familiness”: strength and weakness
Values are described in the lecture as the core of a family business. They give focus and direction — but the same family closeness can also hold a firm back.
Seven values the module identifies as typical of family firms. They are independent dimensions: a firm can be strong on some and weak on others.
The family acts together around a shared purpose for the business.
Decisions are judged over generations, not quarters.
Example — Frescobaldi practised sustainable agriculture long before it was fashionable because it manages for future generations.
The firm carries a history and a name that the family wants to pass on.
Owner-managers see themselves as guardians of the business assets for the next generation.
Staff are treated as part of a long-term community rather than a cost to cut.
Example — Miele invested even more in training its loyal, Germany-based staff when the trend was to downsize and cut costs.
Renewal is needed to keep the business alive across generations.
Honest discussion inside the family keeps conflict manageable and ideas flowing.
“If I’m with my family and we’ve taken the time to talk about what values are important to us and how those values shape our vision, then we’ve accomplished 50 per cent of the strategic planning process already.”
The argument behind this quote is simple. A widely traded company with a million shareholders may have hundreds of thousands of different goals and expectations. A family that has agreed its values already has focus and a clear direction of travel, so values and vision become a distinctive competence of many family businesses.
Benefits and drawbacks of familiness
- Loyalty and trust between the people who run the firm.
- Access to family resources (money, labour, knowledge, contacts).
- Strong family ties that hold the business together in hard times.
- Ownership concentrated among family members.
- The family agenda can take priority over the business agenda.
- Reluctance to sell equity.
- Reluctance to take on debt, which may restrict growth.
- Reluctance to rely on the expertise of external professionals.
The handbook asks what resource challenges the firm faces and how you will overcome them. For a family firm, the drawbacks above are exactly those challenges: limited capital because the family will not sell equity or borrow, and limited expertise because outsiders are not trusted. Name the drawback, then show how your plan overcomes it — for example, a funding mix that keeps family control, or an advisory board that brings in external expertise.
Five lenses for analysing family firms
Mini-Lecture 3.2 lists five theoretical perspectives that show how family firms differ from other firms. Each lens answers a different question about why a family business behaves the way it does.
| Perspective | Cited in the module as | Core idea | What it helps you explain |
|---|---|---|---|
| Agency theory | Kara et al. (2006) | Also called the principal–agent paradigm: the contractual problem between a firm’s principal (the owner) and its agents (the employed executives who control the use of resources). | Whether owners can trust the people running the firm. When the family owns and manages, the owner–manager gap narrows; problems reappear when outside executives are hired or when a family acts against minority shareholders. |
| Stewardship | Le Breton-Miller & Miller (2009) | Owner-managers of family firms see themselves as stewards of the family business assets and its continuity, protecting those assets rather than pursuing personal gain. | Why family managers protect the firm’s assets, avoid risky debt or reinvest profits: they act for the firm’s long-term survival. |
| Resource-based view (RBV) | Chrisman et al. (2005); RBV itself traced to Penrose (1959) | A firm’s internal resources are the source of sustainable competitive advantage and superior performance. In family firms, the question is which resources the family brings that make the firm successful. | What is hard for rivals to copy: trust, loyalty, family ties, reputation, tacit knowledge passed down the generations. |
| Socioemotional wealth (SEW) | Gómez-Mejía et al. (2007; 2011) | The non-financial aspects of the firm that meet the family’s affective needs. | Decisions that look “unprofessional” but make sense to the family — such as appointing an inexperienced family member as CEO, or refusing outside equity. |
| Bifurcation bias | Verbeke & Kano (2012) | The unbalanced treatment of family and non-family members in a family firm. | Why talented outsiders may be overlooked or leave, and why family members may be promoted or protected regardless of merit. |
The slides spell the stewardship authors “Lebreton-Miller & Miller”; the standard spelling is Le Breton-Miller. Cite the author-year pairs exactly as above — the module does not give full reference details for most of them.
Agency versus stewardship: two views of the family manager
- Starts from a possible conflict of interest between owner and manager.
- Asks what contracts, monitoring or incentives are needed.
- In family firms, the risk shifts to family versus outside managers, or family versus minority shareholders.
- Starts from alignment: the manager identifies with the firm.
- Family managers protect the assets and continuity of the business.
- Explains patience, reinvestment and caution with debt.
The “non-financial aspects of the firm that meet the family’s affective needs”. Families derive it from having the family name associated with the firm, emotional attachment to the firm, and the satisfaction of family members working in the company.
SEW cuts both ways. The lecture stresses that the desire to preserve it affects long-term performance both positively and negatively. It encourages patience, pride in quality and care for employees and community. It can also lead a family to refuse growth capital, block outside talent or cling to a successor who is not ready — because each of these protects the family’s control and identity.
Bifurcation bias is the people-side of the same problem. The Mini-Lecture 3.2 slide on it carries only its title, with no written definition; the definition comes from Verbeke & Kano (2012) in Mini-Lecture 3.1.
A paragraph that defines all five perspectives earns little. Pick the one or two that explain a specific decision in your firm (for example, SEW explains why the founder rejects venture capital; bifurcation bias explains why a non-family export manager is needed) and show the link in one or two sentences each.
Why some family firms last for centuries
The IMD article used in the tutorial argues that almost all long-lasting firms are family-owned and managed — and that their success rests on 25 principles, several of which contradict standard management advice.
The article (Kenyon-Rouvinez, 2017) challenges the idea that family firms are fragile. Many struggle to reach the second or third generation, but any company’s lifespan is short and falling: a Fortune 500 company in 1958 stayed on the index for over 60 years, but by 2012 only 18 years. Against that background, families that thrive for centuries have lessons for every business.
Its Family Business Secrets of Success model groups 25 principles into four categories. The most effective family firms excel at 80% or more of the principles at any one time and apply all of them over time. A firm weak in one category may get by; the more categories it fails in, the more vulnerable it is.
Twenty-five principles of long-term success, clustered into four categories.
Vision, Entrepreneurial Drive, Business Skills, Employees, Ethics, Succession Process, Adaptability. Succession works best when treated as part of business strategy, not as a head-hunting transaction.
Pride, Mutual Support, Strong Values, Social Engagement, Fairness, Ability to Handle Conflict, Strength in Unity. High-performing families do not avoid conflict; they discuss it openly and respectfully.
Trust, Control, the Equal/Unequal concept, Voting Rights, Responsible Ownership, Equity Concentration. The most able person leads, not the one with the most shares.
Separation of Issues, Formal Processes, Stewardship, Governance Structures, Role of the Family. Just enough structure to support business and family without bureaucracy.
Counterintuitive findings on innovation and profit
- Respecting tradition can help you be innovative, and planning for the long term nurtures innovation.
- The most successful family firms never make profit maximisation their main priority — financial rewards follow from focusing on products, services and customers.
- Open discussion and a diverse range of views inside the family foster innovation and creative ideas.
- One does not have to sacrifice ethics to be commercially successful; ethical conduct builds reputation, trust and the brand.
- Modesty is a natural ally of ambition; families that show arrogance or entitlement struggle to survive.
“Nothing could be more wrong than to think that the main and final choices have now been made and that the problems have been resolved once and for all. Other choices and other decisions await us.”
In the Individual Report you must propose a new product for the target market using innovation models. For a family firm, a convincing story links the new product to the family’s tradition and long-term values (as Frescobaldi did with tourism on its estates), then classifies it with the Week 2 innovation types and levels.
Succession and governance: passing on the business
Every family firm eventually faces the handover. The tutorial’s succession case — the fall of Japan’s Seibu empire — shows what happens when the founder’s methods, ownership and ethics are passed on without reform.
Succession is where family and business logic collide most sharply. The Seibu case (Nishikawa, 2020) observes that many founders have a stronger-than-average emotional attachment to their companies; as emotion wins out over reason, they tend to pick successors who are not suited to leadership. The founder unconsciously compares the successor with himself, is never satisfied, and may cling to power into old age.
Governance is the other half. Seibu’s problems included a lack of clarity about the roles of the family, the board of directors and the executive officers — the same issue the IMD model addresses through Separation of Issues, Formal Processes and Governance Structures.
Good practice for succession drawn from the Week 3 sources
- 1Plan it as strategy
Treat succession as part of business strategy, not as a head-hunting transaction, and accept that it may involve tough choices (Kenyon-Rouvinez, 2017). The lecture lists a clear succession plan as a distinctive feature of family firms.
- 2Choose on ability
The most able person takes the leadership role, not the one with the most shares; the wisdom of the collective decides, not the majority owner (Equal/Unequal principle).
- 3Hand power to a team
Shares may pass to one successor, but the work should pass to a team built around that successor, covering the areas where he or she is weaker (Nishikawa, 2020).
- 4Build front-line experience
Successors with an MBA-style theoretical training need to experience failure on the front line; otherwise they risk becoming one-sided leaders (Nishikawa, 2020).
- 5Separate family, board and management
Clarify who decides what, set formal processes and governance structures, and keep compliance and ethics above the family’s private interest.
Frescobaldi and Seibu both valued control and continuity. Frescobaldi combined it with a long-term, sustainable outlook, openness to change and a wider leadership group; Seibu combined it with autocracy, secrecy and resistance to reform. Values alone do not guarantee survival — how they are governed does.
If your business is a family firm, state who will lead the new market and how that choice is made. Showing awareness of bifurcation bias (bringing in a qualified non-family manager) and of succession risk strengthens both the Reasoning and Evidence criteria.
How family firms go international
Family firms tend to internationalise cautiously and through people they trust. Mini-Lecture 3.3 sets out their usual pathways and the family-specific brakes on expansion.
Internationalisation pathways of family firms
- Family firms tend to follow the Uppsala model introduced in Week 1: internationalisation as a step-by-step process of accumulating knowledge.
- Expansion is limited at first to countries with low psychic distance — markets that feel close in language, culture and business practice.
- Fits the long-term perspective and caution with risk and debt.
- Some family firms follow the born-global path, selling in several countries from or near inception.
- Less typical — probably because it demands fast resource commitment and outside expertise that families may resist (an inference from the restricting factors below, not a point made on the slide).
- Family firms rely on network ties.
- They internationalise with existing customers and suppliers.
- These relationships are usually based on a high level of trust — an extension of the relationship-based nature of family firms.
Factors restricting internationalisation
- Family firms sometimes refuse to accept help from outsiders.
- They are not very receptive to recruiting external staff with international expertise.
- The founding family may restrict internationalisation ideas coming from the later generation in order to preserve its socioemotional wealth.
Notice how these brakes mirror the drawbacks of familiness and the theory lenses: refusing external help is bifurcation bias at the level of the whole firm, and blocking the next generation’s ideas is SEW protecting control. The positive side is the network pathway: trust built over generations with customers and suppliers can carry a family firm into new markets without large up-front investment.
Mini-Lecture 3.3 also opens with the question “Was I right or wrong?”. That slide carries only the title question; the story behind it is told in full in the tutorial slides and discussed in the activities below. The lecture’s conclusion slide has a title but no text.
For a family SME, a first market with low psychic distance, entered through an existing customer, supplier or diaspora network, is easy to justify with this week’s pathway plus the Uppsala model and network theory. If you choose a distant market instead, explain what offsets the family firm’s usual caution — for example a trusted partner already there.
Tutorial activities
Class Activity 1: Which of these are family firms?
Mini-Lecture 3.1 asks you to decide which of five well-known companies are family firms: the Trump Organization, IKEA, Ford, Walmart and Heineken. Use the module’s definition — decision making influenced by multiple generations, with the family as controlling shareholder holding the highest voting rights.
- 1.For each company, who holds control, and how many generations have been involved?
- 2.Can a company listed on a stock exchange still be a family firm? Which of the five show this?
- 3.Which case is the hardest to classify, and why?
Case Study Task 1: Secrets of long-lasting family firms
Read the IMD article on long-lasting family firms, paying attention to Figure 1 (the Family Business Secrets of Success model), and the three cases on page 5: Frescobaldi, Takanashi and Miele.
- 1.What are the reasons for the success and longevity of the three family firms?
- 2.Link your answers to the 25 principles of success of family firms.
Task 2: Was I right or wrong?
The tutor’s own story: in 2012 he founded a company converting used wastepaper into the parent rolls used to make toilet rolls, napkins and kitchen paper, naming it after his children and intending to hand it over to them. In 2018 he entered a business plan competition, the African Entrepreneurial Award; out of 5,400 businesses across Africa, 40 reached the finals in Casablanca and he was one of 12 winners, receiving USD 100,000. Investors then offered a substantial sum for equity. He refused. Friends told him it is better to own 10% of a billion-dollar company than 100% of a million-dollar company. He still stands by his decision.
- 1.Was he right or wrong? Argue both sides using what you have learned about family firms.
- 2.Which family-firm theory best explains his decision?
- 3.As an aspiring entrepreneur, what would you have done, and what would you need to believe to make that choice?
Succession case study: The Seibu Group — what went wrong?
Read the FFI Practitioner case on the fall of the Seibu empire. In 1993 its owner was the world’s richest man; twelve years later he was arrested and the family lost control.
- 1.What went wrong at Seibu?
- 2.Which family-firm theories help explain the fall?
- 3.What should the founder and successor have done differently about succession?
Cases
Key terms
- Family firm
- A business in which decision making is influenced by multiple generations of a family; family-owned when the family is the controlling shareholder with the highest voting rights.
- Familiness
- The family-based elements of a firm — loyalty and trust, family resources and strong family ties — that can be both a strength and a drawback.
- Relationship-based vs performance-based
- Family firms are held together mainly by trust and relationships; most non-family firms are organised mainly around performance.
- Agency theory
- The principal–agent problem between owners and the executives who control resources (Kara et al., 2006).
- Stewardship
- Owner-managers acting as guardians of the family firm’s assets and continuity rather than for personal gain (Le Breton-Miller & Miller, 2009).
- Resource-based view
- Internal resources are the source of sustainable competitive advantage (Penrose, 1959); applied to family firms by Chrisman et al. (2005).
- Socioemotional wealth (SEW)
- The non-financial aspects of the firm that meet the family’s affective needs (Gómez-Mejía et al., 2007).
- Bifurcation bias
- Unbalanced treatment of family and non-family members in a family firm (Verbeke & Kano, 2012).
- Succession
- The transfer of ownership and leadership to the next generation; most effective when planned as part of business strategy.
- Equal/Unequal principle
- A family governance practice of one owner, one vote, so that the most able person leads rather than the largest shareholder (Kenyon-Rouvinez, 2017).
- Separation of Issues
- Identifying and handling business issues and family issues independently, even when they are closely linked (Kenyon-Rouvinez, 2017).
- Psychic distance
- Perceived differences between the home and a foreign market; family firms tend to enter low psychic-distance countries first.
Check your understanding
According to the module, when is a firm said to be family-owned?
Flashcards
References and sources
As cited in the module materials. Check each against the original before using it in an assignment.
- Chrisman et al. (2005) — cited in BUSI1764 Week 3 Mini-Lecture 3.2 for the resource-based view of family firms; full reference not given in module materials.
- Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson and Moyano-Fuentes (2007) — cited in BUSI1764 Week 3 Mini-Lecture 3.2 for the definition of socioemotional wealth; full reference not given in module materials.
- Gómez-Mejía et al. (2011) — cited in BUSI1764 Week 3 Mini-Lecture 3.2 for the sources of socioemotional wealth; full reference not given in module materials.
- Kara et al. (2006) — cited in BUSI1764 Week 3 Mini-Lecture 3.2 for agency theory in family firms; full reference not given in module materials.
- Kenyon-Rouvinez, D. (2017) ‘Secrets of success in long-lasting family firms’, IMD Perspectives for Managers, No. 2-17. IMD – International Institute for Management Development.
- Kontinen, T. (2014) ‘Biohit: a global, family-owned company embarking on a new phase’, Entrepreneurship Theory and Practice, 38(1), pp. 185–207.
- Le Breton-Miller and Miller (2009) — cited in BUSI1764 Week 3 Mini-Lecture 3.2 (as “Lebreton-Miller & Miller 2009”) for the concept of stewardship; full reference not given in module materials.
- Nishikawa, M. (2020) ‘Case study: The Seibu Group — the fall of the Seibu Empire’, FFI Practitioner. The Family Firm Institute.
- Penrose (1959) — cited in BUSI1764 Week 3 Mini-Lecture 3.2 as the origin of the resource-based view; full reference not given in module materials.
- Verbeke and Kano (2012) — cited in BUSI1764 Week 3 Mini-Lecture 3.1 for bifurcation bias; full reference not given in module materials.
Written from these course files
External pages used
- The Trump Organization — Wikipedia
- Ford Motor Company — Wikipedia (Ford family Class B voting rights)
- Walmart — Wikipedia (Walton family ownership)
- Heineken Holding N.V. — Our ownership structure
- Heineken N.V. — Wikipedia (Heineken Holding majority stake, L’Arche Green)
- Ingka Group — How we are organised