The Advantage Of Dominance In Family Businesses

The essence of a family business is its leaders’ vision, developed by a dominant coalition who shapes and pursues the vision in a way that is potentially sustainable across generations of the family.

Dominant Coalition

This dominant coalition of powerful actors, both in publicly listed and private limited family controlled enterprises, use various mechanisms to exert their influence over management such as proxy voting, trusts, foundations, and holding companies. These mechanisms are designed deliberately to keep both the identities of shareholders hidden and to ensure control of the firm. The appearance of dominance by specific individuals is regarded as an important factor associated with firm value, and in some cases (e.g., NewsCorp) it has been argued that the existence of dominant shareholders increase the value of the firm. Moreover, higher levels of ownership signal to the market more stable future cash flows, greater security and less uncertainty.

Performance Advantages

There is also evidence indicating that family owned and managed firms exhibit performance advantages relative to firms in which the ownership and control functions are separated. One reason family firms dominate as a form of business organization is because the dominant coalition have longer horizons than managers in non-family companies. The lengthening of the dominant coalition’s horizon has the potential of overcoming many of the difficulties faced in organizations in which ownership and control are combined.

Conclusion

Another lesson that can be learnt from the dominant coalition is that because it works on a longer horizon, it also invariably demands loyalty and commitment from its family and employees. These two elements no doubt encourage success and survivability of the family firm. Thus, many non-family businesses have adopted practices that mirror familial ties and relationships. For instance, some companies attempt to improve the loyalty of employees in an effort to improve productivity. This is especially important in an era of corporate downsizing and reengineering that creates considerable anxiety among employees regarding the security of their employment.

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