Family business

Based on Wikipedia: Family business

The two oldest companies on Earth are Japanese hotels. Nishiyama Onsen Keiunkan has been welcoming guests since the year 705—that's more than three centuries before the Norman conquest of England. Its slightly younger competitor, Hoshi Ryokan, opened thirteen years later in 718. Both are still running today, managed by the forty-sixth generation of their founding families. Let that sink in: forty-six generations of parents teaching children the business, of family members debating decisions around dinner tables, of traditions passed down through more than a millennium of earthquakes, wars, plagues, and economic upheavals.

This is what a family business can become.

The Dominant Form of Business You've Never Thought About

When most people picture the economy, they imagine corporations with boards of directors, quarterly earnings calls, and faceless shareholders spread across the globe. That image is a relatively recent invention—and it represents the minority of businesses worldwide.

The family business is actually the oldest and most common model of economic organization on the planet. From the corner bodega to Walmart, from your local car dealership to Volkswagen, from the fish market in your neighborhood to multinational conglomerates employing hundreds of thousands of people—most of these are family businesses in some form.

The numbers are staggering. In Spain, 2.8 million family businesses produce seventy percent of the country's entire economic output and more than seventy percent of all jobs. In Argentina, family firms contribute over half of the Gross Domestic Product and sixty percent of employment. When researchers analyzed the Forbes 400 list of America's wealthiest people, they found that forty-four percent of those fortunes came from being part of or associated with a family business.

And yet for most of the twentieth century, economists and business scholars barely paid attention to family enterprises. They were captivated by something shinier: the large, publicly traded corporation run by professional managers. These companies looked rational, bureaucratic, efficient. Family businesses, with their complicated psychology and messy interpersonal dynamics, seemed quaint by comparison—relics of an earlier era that would eventually fade away.

They were wrong.

What Makes a Business a "Family Business"?

Here's a distinction that matters more than you might think: not every business owned by one person counts as a family business. If an entrepreneur starts a company and runs it alone, that's an owner-managed firm, but it lacks the essential ingredient that makes family businesses unique—the multi-generational dimension.

A true family business involves multiple generations of a family, whether related by blood, marriage, or adoption, who can influence the company's vision and choose to pursue goals that matter to them as a family. The key word is "generations." Something happens when a business transitions from the founder to their children, or from the second generation to the third. New dynamics emerge. Family relationships intertwine with business relationships. The Thanksgiving dinner table becomes a de facto board meeting.

This can happen in businesses of any size and structure. A family business might be privately held, with ownership concentrated among relatives. Or it might be publicly traded on stock exchanges, with family members retaining enough shares to maintain control. The standard threshold used by researchers is twenty percent of voting rights—if a person or family holds at least that much, and it's more than any other shareholder, the family effectively controls the company.

Some of the largest corporations in the world fit this description. Walmart, the retail giant founded by Sam Walton in Arkansas in 1962, remains controlled by the Walton family. Volkswagen, the German automaker, is family-controlled. Samsung, the South Korean electronics conglomerate, and Tata, the Indian industrial group, are both family enterprises despite their enormous scale.

Three Circles That Explain Everything

Business scholars developed a simple diagram that illuminates why family businesses are so complicated. Picture three overlapping circles: Family, Ownership, and Management.

The Family circle includes everyone related by blood, marriage, or adoption across all generations. Some of these people will never own a single share in the business or work there a day in their lives. They might be young children, or relatives who chose different careers, or in-laws who married into the family but have their own professions.

The Ownership circle includes everyone who holds shares in the business. This might include family members, but it could also include outside investors, employees who received equity, or institutional shareholders if the company is publicly traded.

The Management circle includes everyone who works at the company in a significant role. Again, some of these people are family members, but many are professional managers hired for their expertise.

Here's where it gets interesting: some people occupy more than one circle.

A family member might own shares but never work at the company. They care about dividends and the business's financial performance, but they experience the company primarily as an abstract investment and a topic of conversation at family gatherings.

An employee might work at the company without being family or owning shares. They care about their career, their compensation, and the company's reputation in the marketplace.

A family member who works at the company but doesn't own shares occupies a particularly interesting position. They're emotionally invested in the family enterprise and depend on it for their livelihood, but they don't have an ownership stake in its success.

And then there are the people at the center—often the founder or senior family members—who occupy all three circles simultaneously. They're family. They're owners. They're managers. The business is inseparable from their identity. Every decision affects them in multiple dimensions at once.

This is why family businesses generate such intense emotions and such complicated conflicts. The same decision that makes perfect business sense might threaten family relationships or disadvantage certain owners. The same family dynamics that create loyalty and dedication can also breed resentment and favoritism.

When Interests Collide

Consider a scenario that plays out in family businesses constantly: the company needs capital to stay competitive. Maybe there's a new technology to adopt, or a facility to upgrade, or an acquisition that would strengthen market position. The business needs to retain its profits rather than distribute them.

But family members depend on those distributions. Maybe retired parents rely on dividends for their living expenses. Maybe a sibling who chose a different career path counts on their share of profits as part of their financial security. Maybe a cousin is trying to buy a house and was counting on a larger distribution this year.

What's good for the business isn't good for these family members. And because they're family, you can't simply treat this as a cold financial calculation. You're going to see these people at holidays. Your children play with their children. Your shared history stretches back to your earliest memories.

Or consider this conflict: one family member who owns shares wants to sell the business. They'd rather have the cash, or they're tired of the complications, or they see an opportunity to get a good price. But another family member is a manager at the company—it's their career, their identity, the place where they've imagined their own children eventually working. For them, selling isn't just a financial transaction; it's ending a dream.

The European Commission identified another version of this problem: what happens when the next generation simply isn't interested? A business owner nearing retirement age might have built their life around the expectation that their children would take over. But those children might have different ambitions, different skills, different interests. They might see the family business as a burden rather than an opportunity. In 2008, the Commission warned that this "lack of appreciation of the traditional role of family business" could harm the European economy as older business owners retired without successors.

The Nepotism Problem

Let's address the elephant in the room: favoritism toward family members is a well-documented issue in family businesses. Forbes has noted that nepotism "has been present for centuries" in these enterprises and remains "prevalent" today.

The word "nepotism" comes from the Italian "nipote," meaning nephew. It originated in the medieval Catholic Church, where celibate popes and bishops would advance their nephews (and other relatives, but "nephew" was often a euphemism for illegitimate sons) into positions of power. The practice was so common it needed its own word.

In family businesses, nepotism creates real problems beyond mere unfairness. When employees see that the boss's child gets promoted regardless of competence, or that family members receive better compensation for equal work, it corrodes morale and trust. Talented people leave because they see no path forward. The remaining employees become cynical, contributing less because they know merit doesn't matter. The workplace atmosphere deteriorates.

This isn't just about hurt feelings. It affects the organization's ability to function. And ironically, it can harm the family members who benefit from favoritism—they may never develop real skills because they've never needed to, leaving them poorly equipped when they eventually inherit leadership.

The Hidden Influence of Family Myths

Every family has stories it tells about itself. The grandfather who arrived with nothing and built an empire through sheer determination. The crisis moment when everything almost fell apart but the family pulled together. The values that supposedly define what the family stands for.

These family myths—shared beliefs passed down through generations—serve important psychological functions. They help family members cope with stress and anxiety. They create a sense of identity and belonging. They establish rituals and behavior patterns that unite the family against the outside world.

But myths can also become straitjackets.

When the family narrative says "we never sell the business" or "the eldest son always takes over" or "we don't bring in outside management," these beliefs constrain options. The family might cling to strategies that no longer work because abandoning them would mean abandoning the myth. They might promote an unsuitable family member to CEO because the myth says that's what the family does. They might refuse to adapt to changing circumstances because adaptation would contradict the story they tell about themselves.

Much of what constitutes a family myth operates below conscious awareness. Family members may not even recognize their beliefs as myths—they experience them as simply "how things are" or "what our family is about." This makes the beliefs resistant to examination and change, even when they're causing obvious problems.

The Five Challenges Every Family Business Faces

Business families must balance family needs against business demands in five critical areas. Getting any of these wrong can turn success into disaster.

First: Capital. How do the company's financial resources get divided between business needs and family needs? The business might need to invest in growth while family members need distributions for their livelihoods. There's only so much money. Every dollar that goes to one purpose can't go to the other.

Second: Control. Who actually makes decisions? This question has two dimensions—control within the family and control within the business—and they don't always align. A family elder might have moral authority at Thanksgiving but no formal role in the company. A professional manager might have operational control but answer to family members who own the shares.

Third: Careers. How do people get selected for leadership positions? If family membership guarantees advancement, you get nepotism problems. If family members compete for positions on pure merit, you get family members losing to outsiders and feeling excluded from their own heritage. Neither extreme works well.

Fourth: Conflict. Disagreements are inevitable whenever humans interact. The question is whether the family has healthy ways to address conflicts or whether disputes become destructive. Some families can argue vigorously and then share dinner. Others let small disagreements fester into permanent rifts that shatter both family and business.

Fifth: Culture. How do the family's values and the business's values get transmitted to new generations, new employees, and new owners? A strong culture can be an enormous competitive advantage—it's part of what allows some family businesses to survive for centuries. But culture doesn't transmit automatically. It requires intentional effort.

The Psychology Nobody Wants to Talk About

Here's an uncomfortable truth: the most intractable problems in family businesses usually aren't business problems at all. They're emotional issues that business problems get wrapped around.

A dispute about company strategy might really be about which sibling the parents loved more. A conflict over succession might be about a father who can't admit he's getting old. A fight about compensation might be about decades of perceived unfairness finally boiling over. The business provides an arena where these psychological dramas play out, but the underlying issues are about family, identity, and relationships.

This is why conventional business advice often fails in family enterprises. You can't solve an emotional problem with a spreadsheet. You can't reorganize your way out of family dysfunction. The family members might implement a brilliant strategic plan and still destroy each other—and the business—because they never addressed what was really going on.

Experts who work with family businesses increasingly emphasize the need to understand family dynamics alongside business dynamics. They use tools borrowed from family therapy, like the genogram—essentially an enhanced family tree that maps not just births, deaths, and marriages but also the quality of relationships. Which family members are close? Which are in conflict? Which have cut each other off entirely? These relationship patterns often repeat across generations, with children reenacting their parents' dynamics and grandchildren reenacting their grandparents'.

Understanding these patterns doesn't automatically fix them. But it can help family members recognize when they're acting out old scripts rather than responding to present circumstances. Sometimes that awareness is enough to change the outcome.

Passing the Torch

Every family business eventually faces the succession question. The current leader won't run things forever. Someone has to take over. How this transition happens shapes whether the business survives and whether the family remains intact.

Research suggests two main factors determine how succession unfolds: the size of the family relative to the business, and the suitability of potential successors in terms of managerial ability and commitment.

If there's an obvious successor—someone with the skills, the interest, and the family's support—the transition can be relatively smooth. The incumbent gradually transfers authority over several years, giving the successor more responsibility and more autonomy over time. Eventually the torch passes completely, with the former leader either leaving entirely or remaining in an advisory role.

But successors aren't always obvious. Sometimes no family member wants the role or is suited for it. Sometimes multiple family members want it, creating competition that can tear the family apart. Sometimes the incumbent can't let go, clinging to control long past when they should have stepped aside.

An intriguing pattern emerges in the research: potential successors who gained professional experience outside the family business often end up leaving to start their own companies, with or without family support. It's as if working elsewhere gives them confidence in their abilities and a taste for independence. Meanwhile, successors who only ever worked in the family business tend to stay—perhaps because they've never experienced anything else, or because they've been groomed from the start to take over.

Planning matters enormously. When succession is planned thoughtfully, with clear timelines and explicit conversations about expectations, both the outgoing leader and the incoming successor report higher satisfaction. The worst outcomes happen when succession isn't discussed, when assumptions go unexpressed, or when the incumbent refuses to acknowledge that transition is necessary.

The Professional Advisors Question

Family businesses often benefit from outside expertise, but they need a different kind of advice than typical corporations. A family business doesn't just need accountants and lawyers—it might need family systems experts, conflict resolution specialists, and communication coaches. The challenge is finding advisors who understand both the business dimensions and the family dimensions, and who can help the family navigate issues that are simultaneously personal and professional.

Some family businesses resist bringing in outsiders at all. They've developed their own unique culture over decades or generations—particular ways of doing things, implicit understandings, traditions that might look strange to newcomers. This distinctiveness can be a strength, but it can also make it difficult for professional managers to adapt. The family's way of doing things might make perfect sense to people who grew up with it and seem completely irrational to someone coming from outside.

The Long View

Remember those thousand-year-old Japanese hotels? They represent something remarkable about family business: the potential for a truly long-term perspective.

Publicly traded corporations face constant pressure to maximize short-term results. Every quarter brings earnings expectations. Every year brings demands for growth. Managers who sacrifice short-term profits for long-term investment risk being replaced by shareholders who want returns now.

Family businesses can think differently. When you're building something for your children and their children after them, a five-year investment horizon doesn't seem so long. When your family name is attached to the business, reputation matters more than squeezing out every last dollar of profit. When you expect the business to outlive you, you have incentive to make decisions that pay off over decades rather than quarters.

This isn't automatic—plenty of family businesses think short-term or make destructive decisions. But the structure at least makes long-term thinking possible in a way that's difficult for publicly traded companies.

The Pontifical Marinelli Bell Foundry in Italy has been making bells since the year 1000, owned by the same family for more than a millennium. They've outlasted empires, survived world wars, adapted to technologies their founders couldn't have imagined. The Ford Motor Company, founded by Henry Ford in 1899, remains influenced by the Ford family even as it competes in a completely transformed automotive industry. The Meliá hotel chain has been run by the Escarrer family since 1956, now in its third generation of leadership.

These businesses embody a form of immortality—not for any individual person, but for the family enterprise as a living institution that passes through time. Each generation inherits not just assets but responsibilities, traditions, and relationships. Each generation adds its own chapter to a story that began before they were born and will continue after they're gone.

Whether that story has a happy ending depends on how well each generation balances all those competing interests: family against business, short-term against long-term, individual desires against collective needs. Get the balance right, and a business started in a small shop can still be thriving a thousand years later. Get it wrong, and generations of achievement can be destroyed in a single succession crisis.

The family business is both the oldest form of economic organization and, in many ways, the most human. It combines the rationality of business with the messiness of family. It creates wealth while also creating meaning, legacy, and identity. It demands that people who love each other also work together, which is either the most natural thing in the world or an impossible contradiction, depending on how the family handles it.

Either way, the family business isn't going anywhere. It has survived every economic transformation so far. It will almost certainly survive whatever comes next.