Why Are Family Businesses So Important to Study?

By Eva Wang, Wharton MBA 2013

On the first day of class in Management Strategies and Practices of Family-Controlled Companies, our lecturer, William Alexander, kicked-off the discussion by asking, “Why are family businesses so important to study?” A student astutely responded that approximately one-third of all companies in the S&P 500 index are family-controlled. Beyond the S&P, family businesses make up more than 90% of all companies worldwide, and many of them are actively outperforming their non-family-controlled competitors. Clearly, something is to be learned from these family businesses, some of which have been passed down from one generation to the next for hundreds of years!

The pervasiveness of family businesses is widely evident in the classroom—our class has a diverse mix of students from Wharton and Penn Law School, with a sizeable representation of international students. Each student has a unique story and a family business of their own—from a winery spanning three generations in California to a car parts manufacturer in Asia to my own family business in the wholesale fasteners industry on the East Coast. With these diverse backgrounds, our class discussions are rich with personal and distinct references. Occasionally, a student will present his/her own family business and a familial issue with their company, and the class will use course concepts to conjure solutions.

What is so beneficial about the class is that course concepts are relevant not only to family businesses but for all companies. For example, we studied the concept of “stewardship,” a culture prevalent among successful family businesses. Stewardship is an ethic that embodies responsible planning and management of resources. Such a culture is all-encompassing—it represents all the values and competitive advantages of a family business.  For example, trust is a distinct competitive advantage among family businesses – families devote less time to formalizing contracts regarding employment, responsibilities, loans, etc. with their own family members as opposed to outsiders. Developing this trust requires good communication, empowerment among family members, mentorship and planning, which all represent other key dynamics of a high-performing family business.

Such concepts are particularly important for entrepreneurs, those who are at the very inception of creating a business and who are responsible for creating the values and foundation for the company. Entrepreneurs are naturally subject to an “agent-leader” mindset, with all power concentrated in the hands of the founder, which contrasts with what a steward leader represents. After all, it was the entrepreneur’s brilliant idea, work ethic and knowledge that led to the creation of the company. It may be hard for an entrepreneur to relinquish his/her power and control and to recognize that others can also work to the benefit of the company. However, with the proper self-awareness, training and preparation, and through avenues such as taking William Alexander’s course, any entrepreneur and future company leader can recognize that the foundation of success for any business is to act, function and work like one big family.

 

EvaWang_headshotBio: Eva Wang is currently a second year MBA student at Wharton. In addition to her focus on academics, she is the leader of the Wharton Roadrunners & Triathletes club and spends her free time running, exercising and recruiting. Even with this busy schedule, she still manages to find time to help her parents with the family business located in Fairless Hills, PA.

3 comments on “Why Are Family Businesses So Important to Study?

  1. This class has been by far and away the best class I have taken at Wharton. If you have a family business, take it!

  2. I have been working and studying family business¨for many years, and Ihave to confess that I had not seen this encompassing concept of stewardship explicitly presented, as a powerfull driver of this type of companies

    Thanks for this valuable insight

    Regards,

  3. Starting a family business is not a big issue but to maintain and take it to progress it what we should be concerned of. You have shared awesome tips. THanks for sharing.

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