Legal Blog

Family Business Myths, Debunked

familybusinessFamily businesses are as prevalent as they are misunderstood. In experience as counsel and advisor to family-owned organizations in the Mid-Atlantic region, I have heard a number of misconceptions about what it means to own and operate a family business. These fallacies are held not only by people outside of such organizations, but those inside of them too. Here are seven all-too-common family business myths, followed by the truth about each:

Myth: All family businesses are small.

Reality: Some of the biggest companies in the world are family-owned. Walmart, Samsung, Nike, Ford, Mars and Oracle are just a few examples of global behemoths that started as—and could still be considered—family businesses. In fact, “mom and pop” enterprises may be equipped to grow faster than their nonfamily counterparts, according to a 2014 EY survey.

Myth: Family dynamics always trump business dynamics.

Reality: Every family-owned organization’s decision-making process is different. While plenty of family businesses keep several relatives on their boards, just as many operate independent from hierarchies at home. Being a family member does not always or automatically make an employee an insider.

Myth: Passing on a family business to the next generation is simple.

Reality: Succession plans should be considered far in advance. In 2014, PwC found that 40% of executives surveyed would have a hard time passing their organizations on to their children, and only y 27% had “a robust and documented succession plan for senior roles.”

Myth: Family members make for much more—or significantly less—motivated employees.

Reality: Incentivizing family employees takes time and effort, as is the case for any member of any workforce. Every family business has its own culture, and cultivating a sustainable working environment means understanding and addressing the traits that culture values—whether they are ingrained in a certain lineage or not.

Myth: Family conflicts will work themselves out.

Reality: Dispute resolution often requires outside counsel, and conflicts happen frequently. The Family Firm Institute reports that 20% of family businesses suffer disputes weekly, another 20% see them happen monthly, and 42% have arguments 3 or 4 times per year. When these conflicts do happen, a qualified family business advisor can ensure they do not escalate into something greater.

Myth: Family-owned businesses should always stay in the family.

Reality: The future and legacy of your business depends on your strategic goals. The PwC survey mentioned above discovered that nearly half of respondents did not foresee their companies remaining in the hands of family members.

Myth: Family business owners have few people to talk to outside their organizations.

Reality: Peer support networks are out there, and ready to help. I run the Family Business Roundtable (FBR), an advisory group for family businesses, sponsored by Offit Kurman. For more information about the FBR, click here . This article is the first in an eight-part series all about modern family businesses. In the next installment, I will discuss how to establish roles in a family business—check back here soon, or subscribe to the Offit Kurman blog so you don’t miss an update.

ABOUT MICHAEL N. MERCURIO

Mike_Mercurio_WebsiteNEWBusiness attorney and M&A lawyer Michael N. Mercurio serves as outside general counsel on matters related to business law, M&A, and real estate law As a strategic partner to firm clients, Mr.  Mercurio regularly counsels entrepreneurial individuals and assorted entities on all aspects of business and commerce, with a core specialty in mergers and acquisitions—both from the sell side perspective and buy side perspective.