Introduction

The vast majority of businesses in the world are owned or controlled by families. Family business is by far the most prevalent form of business in the world. As many as 80%–95% of all businesses in the United States are family owned or controlled. In Europe, the prevalence of family business is approximately 70%–80%. It is estimated as much as 75%–90% of firms in the Middle East are family owned. In Latin America, 70% of all firms are owned or controlled by families. The Australian economy is controlled by family firms, estimated at approximately 67% of all businesses and Asia is dominated by family firms, many of them Chinese family firms that are based in other countries.

It is estimated that family businesses in the United States accounted for up to 50% of all industrial purchasing and 50%–60% of the 2003 gross domestic product (GDP). Family businesses are responsible for the majority of jobs in the United States, including 85% of private-sector jobs and 86% of all jobs created in the last 10 years.¹ Approximately 40%–50% of employment in Europe is at family-owned or family-controlled firms.² Over one-third of the companies on the Standard & Poor’s 500 index are family owned or controlled, as are one third of the firms on the Fortune 500. Even large corporations (some of them publicly listed on stock exchanges) such as Ford, Michelin, Enterprise Rent-A-Car, AstraZeneca, Renault, Tyson Foods, Cargill, and IKEA can be considered family businesses by being owned or controlled by families.

Despite the high prevalence of family business in the global economy, many business people in the United States consider family business in a negative manner and derisively call them “mom & pops.” It is true: The vast majority of family firms are small businesses, and we have all shopped at their stores and bought their merchandise often without knowing. Yet numerous examples of highly successful family-owned businesses have a sustainable competitive advantage and dominate their markets, and many of them are well known to us. For example, in the classic business book Built to Last, approximately a third of the firms were owned or controlled by families.³ A family firm in the United States, Cargill, has managed to grow into a giant multinational corporation employing 160,000 people, with sales of $116 billion, and it remains privately held by the Cargill and MacMillan families.

Management guru Peter Drucker wrote about the vital role family businesses play in our economy and entrepreneurship.⁴ Consider that most businesses start out as family businesses or utilize family resources.

In an analysis of the 2010 Forbes 400 Richest Americans, as many as 44% derived their fortune from owning, controlling, or receiving an inheritance from a family business.⁵ As an example, the 200-year-old du Pont family fortune is now split among multiple family members who collectively own 15% of DuPont. Other examples of family fortunes based on family enterprises are the Rockefellers, the Rothschilds, the Guggenheims, the Oppenheimers, and the Onassis family. The world’s largest retailer, and one of the largest corporations in the world, Wal-Mart, is controlled by the descendents of the founder, Sam Walton. If the entire Walton family fortune was combined, instead of being separated as a result of the inheritance upon the founders’ passing, the combined wealth would surpass that of Bill Gates and it would be twice that of Warren Buffett.⁶ Students may recognize McGraw-Hill, the large textbook publisher, which is also a family firm with a third-generation McGraw family member as the CEO. The academic publisher Sage is family owned as well.

The belief that family business is small and unprofessional is not an absolute. The United States has 143 family businesses with sales of more than $1 billion. Table I.1 lists the world’s largest family-owned firms (in dollars), with the percentage of control held by the family in 2009.

Legendary investor Warren Buffett believes family businesses have a distinct competitive advantage, and he has purposefully sought out and bought many family companies. His purchases include Clayton Homes, the $4-billion purchase of Iscar Metalworking in Israel, Helzberg Diamonds, Ben Bridge Jewelers, and Nebraska Furniture Mart (the latter from the Blumkin family). Buffett specifically focuses on well-managed companies, and he likes key management to stay in place. Buffett lets management stay in control, and he has a very hands-off management style. This can be ideal for a family in business who wishes to sell yet remain involved. Clayton Homes looked at the transaction as a way to have a greater impact on their industry but still stay on and manage the firm.⁷ Buffett was pivotal in the very secretive Mars family (Mars Candy) $22 billion takeover of family-owned Wrigley (chewing gum). Buffett invested $6.5 billion in the deal. He also bought 60% of the Pritzker family’s Marmon Holdings Inc. (Hyatt Hotels) after an interfamily lawsuit and court-ordered breakup of the 100-plus-year-old company. He is presently looking at European family firms for purchase.

Considering that the majority of new ventures fail within 20 years of inception, a firm that has been in business for many generations is impressive. When we add the complex issues associated with family businesses, the success becomes doubly impressive. It may be beneficial for other firms to observe what family firms are doing right and emulate some of their practices. Family businesses fill a significant space in business ownership. These businesses, regardless of their size, have unique complexities, issues, and problems that nonfamily-owned enterprises simply do not encounter. Some examples of these issues are sibling rivalry, multigenerational succession, nonworking family members, divorce, familial interpersonal conflict, and inheritance tax issues that face the ever-expanding generations of family members. For a family business to have faced those types of complex issues and still be thriving multiple generations later is a situation worthy of examination if not emulation. It is interesting to speculate on what a nonfamily business can learn from a family business.