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The Institute for Family Business at Baylor University.

The Institute for Family Business at Baylor University

Family businesses are the predominate organizational form in the United States. A number of programs have been developed to assist families manage their firms. The University-affiliated program can play a critical role in both the areas of practitioner research and professional development. This paper discusses the development of such a program and the contributions it makes to the continuity and success of family-owned firms.

It is estimated that over 90 percent of the businesses in the United States are family-owned or controlled; they contribute over half of the GNP and are responsible for a significant proportion of wages paid (Dyer, 1986; Ward, 1987). These firms range from the well-known "mom and pop" business to a third of the Fortune 500. Many of these businesses are facing what has been termed a "succession crises": they were started by an entrepreneur sometime after WWII and now face a leadership transition. What will happen to them? Will the owner sell or quietly close his/her doors? One option, obviously a popular one, is that of retaining family ownership and management. The entrepreneur's legacy, in the form of a viable business, can be passed to what has been described as a "reluctant" generation (Blotnick, 1984). The opportunities and challenges that management succession provide are enormous, emotional and open to conflict. It is within this milieu that a service industry has developed; that of serving the family business.

Interest in the family business has skyrocketed as evidenced by the creation of publications devoted to the specific concerns of the family-owned firm (ie., Family Business Review, Family Business). Additionally, seminars, workshops and programs have been developed by public and private institutions to educated the family business personnel and the consultants who serve them. The number of professional consultants who now specialize in family business has grown phenomenally. For example, membership in the Family Firm Institute, the national organization for professionals serving family businesses, has grown from less than 100 in 1987 to close to 1000 by 1991. This university-affiliated program can play a special role in the development of knowledge about family business as well as the dissemination of that knowledge.

The Institute for Family Business in the Hankamer School of Business at Baylor University was founded in response to the interests of its alumni and students, a significant number of whom were involved in the management and transfer of family-owned firms. Further, approximately 60 percent of the students in the Entrepreneurship program not only grew up in family businesses but also saw them as a vital part of their own career path. Their needs led to our response. Formal design of the Institute began in 1987 when a Board of Advisors, consisting of founders, successors and key non-family executives of family businesses, met to identify the needs of family firms and the most effective way that the University could meet them. It was decided that the Institute for Family Business would provide positive leadership in the areas of research, education and professional development. Research

An integral part of any academic endeavor is quality, practitioner-oriented research. In reviewing the body of research which relates to family firms it was found that extremely few empirical, comparative studies of family firms had been performed. While a great deal has been written about families and about business, there has been little written which integrates the two. What had been published about family business was exploratory in nature and while making a significant contribution, it was only a beginning. We determined that our research would question the "common knowledge" or generalities of family business ownership. Statements concerning family business abound and are taken as truths. For example, characterizations of family business founders are usually negative. Many have written that the family business is emotionally driven which leads to ineffective management. Front page headlines of family business disputes, such as those of the Bingham's, Campbell's or Sebastiani's have led to blanket statements that families in business together are headed for trouble. One of the purposes of academic research is to question belief systems. And so the Institute asks: "Are these generalizations true or are they myth?"

For example, anecdotal literature suggests that the family firm is controlled by an egocentric individual, the entrepreneur, who refuses to "let go" of the firm thereby ensuring its demise. While the popular press has publicized this image, our research into the psychological characteristics of the entrepreneur as well as into the family business founder has revealed another type of person (Sexton and Bowman, 1985). The entrepreneur is a moderate risk-taker with a high level of energy and self-esteem and an ability to tolerate uncertainty. In general, they do not like a lessening of control, but the family business founders interviewed by the Institute saw delegation and successor training as an opportunity to strengthen their legacy (Bowman-Upton 1987).

Further, these founders had not started the business as a family firm but had seen that entity evolve as opportunities arose for family members to fulfill their career goals. These founders identified specific concerns that we believe are universal. These include successor selection, the desire to be fair to all children, difficulty in estate and succession planning, communication and conflict resolution, and transmitting the founder's family and business values. We found that while the founders acknowledge the need for planning, few had a written strategic, succession or estate plan. It is vital for the successful continuity of the family firm that these plans be prepared. Consequently, such plans are stressed in our seminars and workshops.

Another area of interest to us was that of the potential successor. Blotnick has called the children of family business owners "reluctant" and describes them as poor managers. Earlier research had done little to look into the motivation of children to enter the business and to identify their concerns. Our study of over 200 potential successors revealed the following motivations for entering the family firm: to make money, liked the business, a good career opportunity, and a positive family influence. These offspring viewed the family business as a career which offered a comparable salary commensurate with their experience and an enjoyable work atmosphere. Critical to their decision was the positive influence of family members. The implications of this research lead to an expectancy model of successor motivation. Our research has revealed that there are concrete things you can do to enhance the possibility of your children joining the firm. Much of this research has been integrated into our Family Business Management curriculum.

There are few comparative studies of family-owned and managed firms versus "professionally" managed firms in which families do not hold majority ownership. Comparative studies will allow us to test some of the hypotheses about family firms. For example, it has been widely written that the family firm is more emotional due to family relationships. Some authors have warned that this emotionality may interfere with effective decision-making. In a recent comparative analysis of family-owned versus professionally managed firms in a mature industry, we found there were no significant differences between the two in a decision-making task involving a new product adoption (Upton and Seaman, 1991). More studies of this nature are needed to dispel myths or legitimize them. We see our role in not only performing this type of research but also disseminating it. We have integrated the information from our research into both the classroom and the seminar. Further we actively seek outlets for publication of our results both in academic journals and those of the popular press. In addition, we publish a quarterly newsletter, Legacies, which is distributed free to family businesses, academicians, and professionals, the newsletter highlights research, educational opportunities, legislative trends which affect family businesses, and columns on leadership, personnel, estate planning and taxes.


The Family Business Management course is part of the Entrepreneurship curriculum and is offered within the Management Department of the Business School. The course is open to any student in the University, and about 30 percent of the class comes from outside the Business School. The course has three basic components: family system theory and lifecycle development, business theory and lifecycle development and the integration of the two into family business theory and lifecycle development. Within the family system perspective, the student develops his or her gennogram which reveals information about the patterns of interaction within the family. A family map is prepared which charts the lifecycle stage and the predictable crises which may occur at the stage. The students develop an understanding of what makes a healthy family. Within the business system perspective, the students study the entrepreneur, company culture, leadership transition, and the basics of marketing, management, finance and business strategy. The real challenge is integrating the two into a study of the family business. Once the student achieves an understanding of the separate systems, he or she is quite adept at integrating the two on a conceptual level. However, their actual responses to decision-making or problem-solving is usually confined to one system to the detriment of the other. True integration is achieved when the student can develop thinking which serves both systems effectively.

The class is experiential in nature and uses role playing to develop communication and conflict resulting skills. The students are required to form teams and develop a family firm. They each must take a position in this imaginary firm and develop personas to fit their role as founder/father or founder/mother, son/manager or daughter/manager, son-in-law, ect. The purpose of this exercise is to demonstrate the difference between perspectives and personality. Our work with family firms has shown us that the two are frequently confused. What is taken as a personality conflict is actually a difference in perspective.

Each student is required to develop a comprehensive report of their own family business which encompasses the strategic plan, the succession plan and the estate plan. We have found that this course ends up involving every family member and acts as a catalyst for planning and communication. Students leave the class feeling that they have the knowledge necessary to successfully enter and manage their family firms.

Professional Development

Based on the issues identified by both the Board of Advisors and the founders in our research program, quarterly seminars and an annual conference were designed. The content of these programs specifically addressed those concerns of the family business owner/manager, successor and key non-family manager. The programs were refined over a period of years to deliver most effectively the basic information necessary to enhance the management and continuity of a family firm. One of the advantages of being a non-profit organization was the ability to offer these programs at a reasonable price to the small business. A typical one-day seminar focuses on identifying issues within each family business which need to be clarified. Typically businesses will want to discuss compensation and performance reviews for family members, entry and exit policies into the family business and successor selection criteria. The bulk of the afternoon is spent on estate planning which minimizes transfer taxes. A number of experts provide sound legal and tax advice concerning transferring ownership and management control.

Special topic seminars have also been developed which meet the specific needs of the non-family key executive and the professional serving family businesses. Non-family employees play a vital role in the family firm and are often ignored when succession planning or strategic planning is considered. This manager has to cope with both the prose and cons of working in a family business. He or she can be the critical factor in determining how successfully the next generation will enter and manage the family firm. Our interviews with non-family executives have identified their concerns as: how to avoid family tension, trepidation over the lack of succession planning and the difficulties of supervising "the boss's offspring." To encourage a free flow of ideas, we separate the participants into two groups, family and non-family, during the morning. Issues, problems and challenges identified during this session are then presented to the entire group in the following session. The remainder of the seminar is spent on developing teamwork between these two groups. This usually involves developing an appraisal system for the non-family manager and a commitment on the part of the family to include these executives in the strategic and succession planning process.

The seminar designed for the professional serving the family business usually includes attorneys, accountants, financial planners and insurance specialist. These men and women have seen a gradual increase in the number of family businesses as clients. While they feel extremely competent in their area of expertise, they do not feel comfortable with the demands of the family system. Some are unprepared for the emotion and conflict that estate planning creates. Others want to hear more alternatives in the areas of estate and succession planning. They have found that the key question they must answer is: "How can I be fair to all of my children?" What the founders are asking is: "Do I leave the business to all my children, whether active in the business or not; or to only those who are active?" There are pros and cons to both sides. Our research indicates that dividing stock evenly amount the children (both active and nonactive) may interfere with the management of the firm. Nonactive members may lack trust (whether appropriate or not) in the family managers. This is most likely to occur when the goals of the active family members are not consonant with those of the inactive members. For example, current family management may wish to achieve growth which requires additional debt or the retention of earnings. This strategy may scare the nonactive members who see debt as risky and retention of earnings as punitive. Unless there is a forum for discussing the strategy and mutual trust and respect among the siblings, serious conflict may result. The other option, leaving stock to only operating members and comparable assets to nonactive members may backfire. First, there must be other assets. Usually, this is not the case. Instead, the bulk of the family wealth is tied up in the business. There are ways to provide funds to nonactive members using insurance, etc., but even if the parents feel they have left everyone equal, it rarely ends up that way. For example, a nonactive member may feel his or her children have been excluded from the family business. Or, the value of the family business may grow faster than the value of the assets left to nonactive family members; and they feel cheated. The family business advisor must be cognizant of these possibilities and have the skills necessary to lead the family through a process which clarifies the alternatives and their consequences.

A recent development in our program was the initiation of the Family Business Retreat Series. After the third annual conference, it was determined that families needed more indepth, personalized instruction. To meet that need, the Family Business Retreat Series was designed. In this program, a single family business comes to Baylor University for the weekend. Prior to the retreat, all family members are interviewed and an agenda is designed to meet the specific needs of the family. A facilitator guides the two-day meeting assuring open communication in a non-confrontational atmosphere. The families who have been part of this series see it as the single, most valuable thing they have done to ensure continuity and a unified vision of the family firm. The topics covered at the retreat are usually those mentioned earlier as universals. At the end of the retreat each family member has a better grasp of his or her role in the business and a better feel of what the future holds for that business. The facilitator maintains contact with the family business for the next twelve months to assist in planning monthly meetings. It is important that the family maintain communication throughout the year not just once a year. One of the interesting aspects of the monthly meetings is the rotation of responsibility. Every month a different person in the family is responsible for organizing the meeting. They must set the agenda, assign responsibility for presentation of reports by family members or outside speakers and preside over the meeting. This gives the children in the business an opportunity to exercise leadership, organizational and delegation skills.

Managing a family-owned business is more difficult and the opportunities for conflict among family members is greater than in other businesses, but there are many positive aspects of family ownership and management. We feel it is important to emphasize those positives, it is for that reason that we established the Outstanding Family Business Award to be granted to that family that best exemplifies the values of a strong, successful family firm. The award winning family is committed to each other and to business continuity and succession. In addition, they are responsive to the needs of their community and serve in voluntary and advisory capacities. The past two winners, the Mary Kay Ash family and the Herman J. Smith family both serve as excellent role models for family businesses and for our students.

The Institute for Family Business at Baylor University is dedicated to providing a forum for the development and dissemination of information relevant to the continuity and health of the family business. To support this mission statement the Institute conducts research of a practical nature, disseminates that research through academic journals, magazines and newspapers, and an in-house publication, Legacies, and provides opportunities for family businesses, large and small, to gain the knowledge and skills necessary to be "an outstanding family business."


Blotnick, S. (1984). "The case of the reluctant heirs." Forbes, July 16,

p. 180. Bowman-Upton, N. (1987). "Family Business succession: Issues for the

Founder." Proceedings: United States Association for Small Business

and Entrepreneurship, 11-15. Dyer Jr., G.W. (1986). "Cultural Change in Family Firms." San Francisco:

Jossey-Bass Publishers. Sexton, D. & Bowman, N. (1985). "The entrepreneur: A capable executive

and more." Journal of Business Venturing, 1, 129-140. Upton, N.B. & Seaman, S. (1991). "Rational decision-making in family

firms: A comparative analysis." Working Paper No. 211991,

Baylor University, Waco, TX. Ward, J. (1987). "Keeping the Family Business Healthy." San Francisco:

Jossey-Bass Publishers.
COPYRIGHT 1991 St. John's University, College of Business Administration
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Article Details
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Title Annotation:Symposium: Family Business
Author:Upton, Nancy Bowman
Publication:Review of Business
Date:Jun 22, 1991
Previous Article:Family firms are different.
Next Article:Interview with Les Slater.

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