Risk Management in Family Owned Businesses
A family business can be simply described as "any business in which a majority of the ownership or control lies within a family, and in which two or more family members are directly involved" (Bowman-Upton, 1991). In other words, it is a multifaceted, twofold structure consisting of the family and the business meaning that the involved members are both the part of a job system and of a family system (Bowman-Upton, 1991).
Most families seek stability, intimacy, a sense of community, and belonging through the family business (Hess, 2006). On the other hand, whenever family and business are mentioned together, a majority of people think of continuous conflict, competition and contention (Crenshaw, 2005). However, "successful family businesses do not let the family destroy the business or the business destroy the family" (Hess, 2006).
The family-owned businesses are the backbone of the world financial system. According to a number of estimates, more than ninety percent of all business projects in the United States of America are owned by families. Other estimates reveal that sixty percent of all workforces are involved in the family owned businesses. About 30-40% chief businesses in USA are family owned. Similarly, in the United Kingdom, more or less seventy six percent of the major 8,000 companies are either owned or controlled by families. Similar data and figures have been found regarding the family firms all over the world. Hence, in order to understand the world economy, it is essential to have an understanding of the distinctive characteristics of family owned businesses (Vaknin, 2010).
Relationship between Family and Business Systems
The two systems i.e. family and business can overlap that may result in the occurrence of conflicts as each system has its own set of laws, responsibilities and necessities. The family is an emotional system that has its main emphasis on relationships, faithfulness, reliability, love and care. One enters into this system since the time of birth and attains an everlasting membership. The role of an individual in the family bears with it definite tasks and prospects. Besides, families possess unique modes of correspondence, communication and conflict resolution that take years to become perfect. Such styles, however, may be good for family circumstances but might not be the finest means for resolving conflicts in the business (Bowman-Upton, 1991).
On the other hand, the business system is not an emotional one and is based on contract. One can enter in this system only through experience, knowledge and potential. Performance determines the duration of the membership and the rewards are given in the form of material. The roles of business workforce also have particular tasks and expectations just as family members have. The businesses also have unique methods of communication, conflict resolution and decision making (Bowman-Upton, 1991).
Families build, expand, and demolish their business ventures in a generation's time. Even though their businesses bring riches, prosperity, satisfaction, pride and authority; they also bring nuisance, friction, and pungent divisions. History reveals that a number of families have created great businesses, and have destroyed them later. Family disputes have the tendency to demolish a top-notch business. Business quarrels and clashes may also ruin family relationships and break up the ties of love (Scott, 2002).
Challenges/Risks Faced by the Family Owned Businesses
All the business organizations have an exclusive set of confrontations and problems. Similarly, family business has its distinct risks and challenges. Though a lot of these problems are present in commercial business settings, several can be found in a family business. Family business undergoes different stages of development and expansion ultimately. Thus, a number of challenges have to be faced once the subsequent generations take over the business. According to a famous Mexican saying, family owned business can be summed up as "Padre noble, hijo rico, nieto pobre" (Iwan, 2006) meaning "Father, founder of the company, son rich, and grandson poor" (Iwan, 2006). It can be understood as that the initiator puts the efforts and builds a business, the son later occupies it but manages the business poorly enjoying the wealth at the same time, and the grandson takes over a dead business and poured out bank account (Iwan, 2006).
Risk Assessment and Management
Risk Management can be simple described as "the formal process of assessing exposure to risk and taking whatever action is necessary to minimize its impact" (as qtd. In Cotten, 1993). Risk management seeks to provide remedies to any vulnerability faced by the company (Gerber & Feldman, 2002). The issue of risk management is comprised of all the features of the "family office's work,...
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