What do you think are the value systems that underpin family business decisions?
Recently I was invited to deliver a presentation entitled “Family Businesses in Modern Context: Challenges and Issues” and I wanted to make it more valuable than just stating the obvious.
So I decided to share some thoughts on “Socioemotional Wealth Mindset”.
I delved into the value systems that underpin family business decisions and highlighted how these values make family businesses different in the decision-making mindset.
Here is a snippet of those thoughts.
The key point of difference in a family business is the mindset.
It is your competitive advantage and a fantastic asset. But it also can be a significant constraint.
As you may or may not already be aware in your own situation, family businesses do not run on a mindset derived from the traditional rational profit maximising mentality. Tensions exist from this standpoint and from a mindset of Socioemotional Wealth (SEW) generation.
Martínez-Romero and Rojo-Ramírez define SEW as, ‘‘The intrinsic and inextricable emotional endowment that all family businesses have, i.e. the set of feelings, emotions, relationships and binding ties between members of the business family.’’
SEW can be categorised into five key drivers;
1) Family Control and Influence
2) Identification of Family Members with the Firm
3) Binding Social Ties
4) Emotional Attachment
5) Renewal of Family Bonds to the Firm through Dynastic Succession
These five characterisations precipitate into corresponding values that preferentially drive family business decisions to benefit the family interests over the maximisation of profit.
1) Family members have retained control of the firm’s strategic direction
2) Family brand – The business is perceived as the extension of the family
3) Collective social capital, relational trust and the benefit from solidarity among the group
4) No clear boundaries between decision-making in a family firm and a family’s emotions. Influenced by critical events such as succession, divorce, illness and/or economic downturns
5) Maintain the family business for future generations
The simplest one-line tag is: “By the Family, For the Family” the social purpose of the business is protecting the collective wellbeing of the family.
The reality is, these values create natural tensions between serving the soft emotional requirements of the family and the hard requirements of business and require a framework to keep in balance.
This is the role of a customised family-specific family governance framework.
No two families or two businesses are the same and a bespoke framework is required to harmonise the family decision tensions.
/// Unsure about how your business and family can manage the tensions caused by the socioemotional mindset? Then seek the assistance of an independent family specialist like Woodhouse.
You can also check out our videos on family businesses.