PERFORMANCE IN THE

FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES
(Daugherty, 2013)
Founders of 1st generation family businesses typically
regard the firm as a source of livelihood and nourishment
for the clan. But as the business evolves and expands, the
family business is seen as a provider of something more
profound.
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

 All businesses strive for financial success as the

ultimate measure of performance.
 But there is often more to success than financial
gain for family businesses.

Economic Financial
Value Outcome
Family
Business Socio- Socio-
emotional emotional
Value Outcome
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

 In order to derive economic value from the

family business, specific financial outcomes like
profitability, ROI, and shareholder value must be
sustained.

 For socio-emotional value to be realized, the

family business must continuously enhance the
status, values, as well as relationships of the
family throughout the firm’s existence and across
generations.
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

 One critical issue that must be addressed by the

family business is the need for funding.
 Raising capital is essential in funding the
continued growth of the enterprise.
 But many families are reluctant to raise funds
externally when the need arises.
 Instead, funds are usually sourced internally.

 Some financial experts say that this could limit

the potential of family firms to raise capital in
funding growth plans.
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

FINANCIAL SUCCESS

 Family firms appear

to either outperform
or perform as well as
non-family firms.
 Many of these firms
are large & their
shares are already
publicly-traded in the
stock market.
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

FINANCIAL SUCCESS

 Family ownership
creates an added
value which non-
family owned
companies do not
have.
 Families have
reputations and
identities at stake,
preventing them from
risking or
endangering their
businesses.
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

FINANCIAL SUCCESS

 The distribution of family ownership may also

affect financial success.
 Ownership held be a few family members can
affect both financial and socio-emotional
outcomes if minority shareholders feel
disenfranchised (or bullied).
 Full ownership by the founder, on the other
hand, appears to improve financial and socio-
economic outcomes especially if lone owner is
seen as a “business-builder” and a “family-
nurturer”.
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

SOCIO-EMOTIONAL SUCCESS

 It is widely believed that

family business owners
care very much about the
long-term prospects of the
firm because it impacts
the family’s welfare,
reputation, and future
well-being.
 Thus, enhanced kinship,
loyalty, and fulfillment are
important outcomes of
family firms.
PERFORMANCE IN THE FAMILY BUSINESS:
FINANCIAL & SOCIO-EMOTIONAL OUTCOMES

OVERALL SUCCESS

 The CEO must be supported by a strong board

consisting of both family & non-family
members.
 Trust, culture, and personal connections
between management and the business should
be nurtured by those who govern.
 Only best-qualified employees must be
recruited. Promotion must follow the rules of
meritocracy.
 Family conflict must be resolved collaboratively
and expeditiously because it is one of the surest
ways for a family firm to fail.