Understanding the Small Family Business

Understanding the Small Family Business

Understanding the Small Family Business

Understanding the Small Family Business


It is estimated that family businesses comprise between 60-90 per cent of all firms in Europe and the United States. This book makes a contribution to the understanding of small family firms by bringing together a number of key themes in management/organization studies.


In the early 1990s Paul Westhead and I obtained a substantial grant from the Leverhulme Foundation to examine economic aspects of family businesses. At that time a Conservative administration was in power with, at least in public, a commitment to tax cutting. While no taxes are ever popular, the payment of inheritance tax on the assets of family businesses caused particularly strong feelings. Family businesses, it was argued in the popular press, were the bedrock of the UK economy and taxes, that constituted a disincentive to businesses being passed from one generation to the next, risked undermining that bedrock.

Our simplistic view in the proposal to Leverhulme was that we might be able to throw a little light on this thorny problem. If we were able to demonstrate that family businesses, in general, outperformed otherwise comparable non-family businesses, then this would provide supporting evidence for those seeking to lower these taxes. If the non-family businesses outperformed the family businesses, then the case for an inheritance tax was very difficult to make.

The simple empirical question of whether or not family businesses did or did not outperform non-family businesses was dogged by the difficulties associated with defining what was meant by ‘a family business’. It has always seemed to me that the last refuge of the scoundrel is to keep changing definitions until one emerges that yields the ‘right’ answers. But in this case it was genuinely tricky - as is shown in Chapter 1 by myself, Paul, Marc Cowling and Carole Howorth.

Even so, despite devising a cornucopia of definitions, we found the relationship between family ownership and business performance a very difficult link to make. In bald terms, whether a business was family-owned or not did not seem to influence its performance. Hence justifying the lowering of inheritance taxes on these grounds was difficult. This finding failed to endear us to those wishing to demonstrate that family businesses were in some sense ‘special’ or ‘different’. But the finding that the performance of family- and non-family-owned businesses did not differ did not mean the factors influencing the performance were the same - or that, in some sense, family business was an uninteresting subject of study.

For those interested in the internal organisation of businesses the family ownership component adds an important extra dimension. Denise Fletcher makes this point clearly in her editorial overview to this volume. She is at pains to ensure the readers ‘don’t take this (family) special quality for granted’. So, just

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