altruism: Unselfish concern for the welfare of others at the expense of oneself, for example, when families make business decisions that actually hurt the business, such as avoiding layoffs in a downturn or keeping a long-term yet unproductive employee.
birth order: The order of birth in a specific family from first to last, such as oldest, middle, and youngest. Each position has different characteristics and plays a different role within the family.
board of advisors: A semiformal group of business advisors charged with making suggestions and nonbinding recommendations to the firm.
board of directors: The formal organization required for all corporations that has authority, responsibility, and decision-making power. In family firms, these roles are usually held by family members, with few outside (nonfamily) members.
conflict: Conflict means to be in serious and direct opposition with another’s ideas, viewpoints, plans, and strategy. Conflict can often be very contentious to the point of violent disagreement. When this occurs interpersonally, especially among family members, it has a negative impact on the family business. Intersibling rivalry can erupt into full-blown conflict. Conversely, conflict can be positive if all sides are able to share freely, and debate over the process of how work should be done (called task conflict). In this manner, good decisions can be made, and work is performed efficiently.
copreneurs: A couple who owns a business together.
cousin consortium: Usually the third generation, they are the children of the sons and daughters of the founders and they form a larger group than either the first generation or the second generation.
culture: This is a company’s unique set of values, norms, beliefs, history, and experiences, which make up the unique character of the organization. In a family business with a “positive” culture, the family members and employees have a shared system of beliefs, attitudes, and norms of behavior. It can be a source of tremendous competitive advantage. Conversely, in a business with a “negative” organizational culture, the employees do not share a similar value system, owners and managers may be at odds with employees, and there are no norms to guide decisions.
entrepreneur: Defined as the original founder of the organization; in a family business, an entrepreneur is synonymous with the first-generation founder of the business.
entrepreneurial family business: A family business that retains the original entrepreneurial spirit of the founder.
entrepreneurship: There are numerous definitions of entrepreneurship. Most researchers can agree entrepreneurship is the creation of something new that did not exist before and has some level of associated risk.
estate planning: The proactive discussion and planning for a person’s disposition of property, possessions, and capital. It is usually purposefully and proactively structured to minimize taxes and maximize generational wealth.
explicit knowledge: This type of knowledge is clear and obvious. It is gained by education and reading and expressed by words, numbers, and codes. It is the opposite of tacit knowledge.
familiness: A term created to describe the interplay between the family and the business, it includes the various forms of capital, such as human, social, financial, and physical, that are unique to the family business.
family: Most commonly refers to a nuclear family of blood relatives, such as a father, a mother, and their offspring. In family business terms, it can refer to extended family members and in-laws. The individuals are committed to mutual growth and development. They share a family history together and have strong bonds.
family business: There is not one well-accepted definition of family business. The most common definition is where the family, consisting of more than one family member, owns a significant amount of the firm and influences the strategy of the business.
family constitution: A formal document stating the firm’s mission, vision, and purpose. It is also used to outline policies and procedures for the family in the business.
family control: This is used when discussing large companies, often with outside shareholders. The family may have enough ownership to exercise a high level of input on the strategic direction of the firm.
family council: A semiformal council made up of family members. The purpose of the council is to have a proper venue for airing and discussing business and family issues. Usually items are presented, discussed, and voted on.
family foundation: The philanthropic (charitable) arm of the family.
family meeting: A very informal meeting of the family members used to increase communication and disseminate company information.
family of attachment: This refers to those who have entered the family by other methods than blood, such by as marriage.
family office: A group of service professionals who manage the family wealth, as well as provide accountancy and legal services, specifically for the family. Usually the family charitable foundations are housed in the family office.
family of origin: This is your blood family from birth.
family roles: Familial roles are generally assigned to us early in life. For example, the youngest member of the family is the baby, the older child has extra responsibilities, and there may be the black sheep of the family. It can be difficult for other family members to see the person as anything different.
gazelles: A term used to describe fast-growing family firms.
genogram: A diagram that lists the family lineage as far back as can be traced. Items include marriages, deaths, diseases, divorces, business ownership, entrepreneurship, and other pertinent facts.
governance: The formal measures of control instituted for effective management of the firm. Governance items include boards of directors, the family constitution, human resource policies, and similar items.
human capital: A measure of the economic value of the employee or employees.
individual life cycle: Each person goes through a cycle of birth, adolescence, teens, young adult, adulthood, later adulthood, and finally, death.
legacy: What the founder leaves behind. In the case of a family business, this may be a successful firm and the norms, mission, and vision handed down through the generations.
life cycle: The stages of development. The complete processes of change and development of individuals, products, and organizations.
management: The administration, organization, and control of the business. Proper management is necessary for success.
mission: A statement that defines the purpose, duty, objective, or task of the family business.
nepotism: Preferential treatment of family members in regard to employment, promotions, and compensation.
organizational life cycle: An organization also has a series of life cycles. But unlike an individual, the organization can live forever.
paternalistic management style: This means managing or governing the business, employees, and family members, as a father that is often dictatorial but in a loving way. A person with this management style habitually does not allow people to exercise their free will.
patient capital: As investment funds garnered by family members and friends, the funds have a longer-term outlook than other sources of capital.
personality: Characteristics, attitudes, emotional responses, behavioral patterns, social roles, and traits people display to others.
primogeniture: Referred to as the “right” of male primogeniture in many cultures, this is the long-standing norm of the first-born son to take over the family business.
product life cycle: The product life cycle goes through four distinct stages: introduction, growth, maturity, and decline. Decisions for business optimization are made at each stage.
pruning the family tree: To avoid having too many family employees or to keep the business in only one branch of the family, other family members may be bought out or encouraged to start a separate business.
shareholder council: Similar to a board, it is an organization of the shareholders of the business. Meetings are held for family members to discuss issues and make decisions.
sibling partnership: This describes a partnership of siblings, usually the second-generation children of the founders.
sibling rivalry: As the children grow, they may engage in competitive or aggressive behavior out of attention for parental love and affection. This behavior can exhibit itself when siblings try to break out of their family roles, with the conflict becoming problematic in the family firm.
social capital: The resources (e.g., ideas, information, money, and trust) that an individual is able to access through a social network. A high level of earned social capital is thought to be one reason behind a family firm’s competitive advantage.
social network: A social structure consisting of individuals or organizations connected by ties such as a relationship, link, or bond.
socioemotional wealth: A popular family business theory which discusses the importance of the emotional component within the family. The family gets value from their ownership of the firm in more ways than just monetary. Family pride, and their standing in the community are important factors.
stakeholder: Those who have an interest or stake in the firm or who can be affected by the business, such as customers, employees, and shareholders.
strategic planning: A process used to define the company objectives, assess internal and external situations, formulate a strategy, implement the strategy, evaluate the strategy, and make necessary adjustments.
succession: The transfer of ownership or leadership from one generation to another. This is likely the most problematic issue in a family business.
system: A combination of related individual parts organized into a whole. A family business is a complex system consisting of three subsystems: the family, the business, and the management of the business.
tacit knowledge: This type of knowledge is gained by being with and around other people; it is a sum of experiences. It requires joint or shared activities to develop. It is implicit, unspoken, and gained by observation. It is the opposite of explicit knowledge.
trust: In family businesses, trust is a critical component and is necessary in the creation of a competitive advantage. Agency costs are reduced due to high levels of trust. Conversely, when a family is low on trust, dysfunction results.
values: The principles, standards, and norms to which the business aspires. In a family business, the values are accepted by the group and are often passed down to the successive generations.
vision: The long-term goals of the family business, usually expressed in a vision statement.