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, BMW, Tyson Foods, Cargill, and IKEA can be considered family businesses by being owned or controlled by families.

Family Owned versus Family Controlled

A definition of family business is provided in chapter one. However, for the purpose of simplification, consider a local entrepreneur who recognized an opportunity, started a business, found success, and now his children work in the business. The business is small by corporate ­standards, but since the founder owns 100% of the business it generates a healthy income for his family. This is family owned. The family owns the business.

Alternatively, consider that same entrepreneur who found success, and was able to scale their enterprise to a large number of locations and hundreds of millions of dollars in sales. In order to fuel continued growth, the family may decide to sell some shares of stock to a private equity firm or to the public (called going public, or an initial public offering). This would result in the family having less shares of stock in the firm, and thus less control by the founding family. They are now part owners of the business. The family may be the largest shareholder group, they would have more votes, and thus control the company. This is called family controlled rather than family owned. The family does not own it all anymore.

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 realizing they were family owned businesses. 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. According to a Boston Consulting Group study, more than 30% of all companies with sales over $1 billion, are family owned or family controlled businesses.⁴

Management guru Peter Drucker wrote about the vital role family businesses play in our economy and entrepreneurship.⁵ 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.⁶ 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.⁷ The business magazine Forbes is in its 100th year of family ownership. 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.

Table I.1. World’s Largest Family Firms and Percentage of Family Control

Sales rank	Company	Percentage of family control
1	Wal-Mart	Walton family owns 41%
2	Toyota Motor Corp	Toyoda family owns 2%
3	Ford Motor Co.	Ford family owns approximately 40% of voting shares
4	Koch Industries	Koch family owns 84% of America’s largest private company
5	Samsung	Lee family controls 22%
6	ArcelorMittal	Mittal family owns approximately 50% of the world’s largest steel company.
7	Banco Santander	Botin family owns 2.5%
8	PSA Peugeot Citroën	Peugeot family holds 42% of voting shares
9	Cargill	Cargill and MacMillan families own 85% of the 111 year old firm
10	SK Group	Chey family controls 71 affiliated firms
11	Fiat S.p.A.	Agnelli family owns 30%
12	LG Group	Koo and Huh families own 59%
13	BMW	Quandt family controls 47% of shares
14	Hyundai Motor	Chung family members control large group (chaebol ) of interrelated firms
15	Robert Bosch GmbH	Bosch family owns 7% of shares, but family charitable foundation controls 92% of voting rights

Source: Pearl and Kristies (2009, spring).

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.⁸ 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.