The parents usually have the fear that when doing the planning of the succession they are forced to choose one of their sons or daughters as a successor, which it can end in a family conflict because brothers and sisters may argue because they are not agreed with the decision of their parents. Because the process is more emotional than rational, the owner can think that the best is to avoid all the arguments, and may decide to sell the company to a non-family member.
The results show that family owned firms are less productive that non-family owned firms (advances in entrepreneurship: volume II). This productivity gap is however explained by differences in management regime. Family owned-firms managed by manager hired outside the owner family are equally productive to non-family owned firms. Family owned firms can mitigate the risk problem between shareholders and bondholders, since the family owned firms are more interested in firm survival than the shareholders. Consequently family firms may face a lower cost of debt financing.
Family firms may be less efficient than non family-owned firms. Family firms are more careful with financial issues as financial disasters can damage all the family. This situation brings that the owner of the family will invest less, or he/she will be more careful in raising loans or to admit new investors. This caution may limit the introduction of productivity. At the same time this means that they do not react ask quickly as non family firms to change. Because many times changes means to invest and other financial issues.
Usually the management in family business is more informal. It is very difficult that the family can learn to work together in a systematic plan. Moreover, in many cases the family has not work in any other firms than in the family firm, so they have not enough experience. So discursions are more personal and many conversations can end in discussions and the result can be the stagnation. If the successor works in another firm, it will decide later or sooner to enter into the family business because he/she wants to and thinks that it can contribute from his/her experiences. It can be possible that from earlier experiences can bring new necessary knowledge to market the products, or more even a new way to contact the customers. That successor can be the source of new ideas.
In the case that a middle manager exists, a non family member, he/she will know that there are not many changes to reach to the top management position in the firm. This problem can cause the middle manager to reduce efforts. It is also said that family firms perform better than non-family firms, both as to return on assets and return on equity (advances in entrepreneurship: volume II). The family owned firms have lower value added, fewer employees, and less capital. This last one means than family owned firms do not deal with building relationship capital because their roots are familial, not business-oriented.
We need to have in mind that family owned businesses differ from one to another. All the advantage and disadvantages mentioned above can probably not be applied for all the family businesses, probably some exceptions have to be made in some cases. The clearest thing is that if family-owned companies want to survive, a succession plan is compulsory. And of course, the family must want to continue. Society, as well as the economy, would be poorer without them.
RECOMMENDATION TO SUPPORT FAMILY OWNED BUSINESSES THROUGH THE GOVERNMENT.
The main problem of the family-owned business is the inheritance taxes, often called the dead taxes. Those taxes are so high that often the families tries to convince the government that the business does not cost as much as it does, so taxes will be reduced. But problems arise when the successor goes into the management and the business can not perform as before because the government will realize that it was false the taxation of the business. Others, simply, think of selling the business to non-family members because they can not afford paying all the taxes. The government should reduce the inheritance taxes. If the government thinks that the family owned businesses are essential for the economy it should try to maintain them, because the main important point for all the family owners is the inheritance taxes.
Many of the owners do not give the ownership and management to their successor because they think they have not got enough money to life their remaining lives. There is also the problem that the owner never retires because he/she thinks that the successor will not be good enough being on his/her own, and the believe that the successor would never be as good as the owner. The government can give the chance to those owners to retire earlier so that the successor can go to the management earlier. So, the government can propose to those owners that if they retire with 60 years old and give the management to their successor their can have and early retirement pension. That way both, the owner and management can benefit from the situation.