They can be a blessing and a burden.

Murray Low: So I do a little bit of teaching in the area of family business, and I’ve done some consulting work there. And if I’m teaching on this topic, I will start off by saying, “Family business, is it the best of all possible worlds or a recipe for disaster?” And in a way, that’s kind of a false question, because the answer is it’s both of those things. So family can bring a huge amount of value to a business. There’s just a high degree of trust. And I was in a business with my brother for eight years, and as I said before, Plan A seldom works. Plan B might not work. Maybe by the time you get to Plan C, you finally get the formula for making the business work. And in that process of ups and downs, there’s all sorts of opportunities for people to lose interest or to act in their own self interest, as opposed to the interest of the business or the other parties. So having family members who you just fundamentally trust that they won’t put their interest ahead of yours is really helpful. Interestingly, I had a Ph.D. student research the whole issue of trust and family businesses. And what she found is that trust amongst the top management team in a family business actually increased from the first generation to the second generation. In a way, that kind of makes sense, because the second generation is a group that’s grown up in the business, the sort of tendency of entrepreneurs, founder entrepreneurs, to be paranoid and micro managers dissipates. And you can have more of a team-based approach by the second generation. But that after the second generation, as the ownership gets more dispersed, as people with maybe less contact or relevant skills with the business come in, family business, trust amongst the top management team in family businesses falls off fairly dramatically. And by the time you get to the fourth generation, it’s sort of a free for all.

Recorded on: 5/13/08