Social Capital and Management in Family Businesses

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Family businesses are the economic engines of many nations. They are often credited for nurturing entrepreneurial talent across generations, and creating employment. However they seldom last.

 

A famous Mexican saying about family owned businesses is: “Father, founder of the company, son rich and grandson poor”.
This can be construed as the life cycle of most family businesses all over the world.

 

The founder establishes a competitive business; the founder’s children reap the fruits of his labour and they leave the founder’s grandchildren with a shadow of the original entity.

 

In fact, most family businesses worldwide do not survive beyond the third generation. Statistically only 15% of family owned enterprises continue to the third generation.

 

This is a cause for concern because approximately two thirds of all businesses in the world are family businesses.

 

In fact, some large international corporations like Wal Mart, Richemont, Nike, Volkswagen, Samsung and Armani, are family owned business.

 

Now, given that the Zimbabwean economy today comprises of a significant number of family-run Small to Medium Enterprises, it is worthwhile to discuss how a family-run operation can become more effective. There are two attributes that a successful family business should have. These are: strong social capital, and a strong bureaucratic structure.

 

Social Capital

Social Capital refers to “goodwill, fellowship, sympathy, and social intercourse among the individuals and families who make up a social unit”.

 

Social capital can also be defined as the shared values and understandings that enable people to trust each other and work together.

 

Basically, social capital refers to the shared principles, values and ideas that inspire strong relationships between people.

 

Now, I must emphasize that social capital is pivotal for the success of any organization. The more social capital an organization has, the more competitive it is, because its leaders have shared values and strong relationships which allow for unity of purpose, principled decision making, and a clear business structure.

 

Large corporations tend to have a board of directors with substantial social capital.

 

However family businesses often lack social capital, particularly in Zimbabwe.

 

In fact family businesses in Zimbabwe are often competitive when the founder is still alive. When the founder dies, they tend to contract.

 

This is because relationships among the second generation family members are often weak, and consequently the leaders of the business do not have unity of purpose. Such businesses are characterized by qualities like hatred, suspicion, jealousy, mistrust, fear, greed, superstition and paranoia, resulting in poor decision making, misuse of resources, rivalries among the business leaders and stagnation.

 

Ultimately the business becomes inefficient and noncompetitive owing to weak leadership.

 

Two ostensible indicators of social capital within a business are: employee satisfaction levels, and employee turnover rates. If the workers in a family business are generally unhappy with their work conditions, and if the management constantly hires and fires workers then that business arguably lacks social capital.

 

Efficient Bureaucracy

An efficient bureaucracy has six fundamental characteristics which should be applied if a family business is to be successful. These characteristics are:

 

●Hierarchical Order of Authority
This means that the business has a clear structure in terms of title ranks and roles so that there is no confusion in terms of who is responsible for what.
●Formal Appointment / Promotion
This means that appointments are made formally based upon merit, and not nepotism or favoritism.
●Expert / Technical Training
This means that roles are assigned based on their technical competency, and not based upon blood relation, age, or gender.
●Fixed Monetary Salaries
This means that employees are paid on a pre-agreed salary between the employer and employee that are tied to a pay grade system. It is notable to mention that when employee salaries are late it is a sign of organizational inefficiency.
●Division of Labor
This means that labor in the organization is divided into distinctive departments and roles.
●Impersonality
This means that all dealings within the bureaucracy and with external clients are conducted on the basis of equal treatment and according to a written rule-based procedural routine. In other words the daily conduct of business should be subject to written rules and free from any personal feelings.

 

Of course, there are challenges that affect all businesses in the country. These include liquidity constraints and a slowdown in consumerist behavior.

 

However, in order to overcome the external challenges, the family business needs to ensure that it is internally well-organized. In this light, the two key questions that every family business must ask answer are: Do you have adequate social capital? And do you have an efficient bureaucracy?

 

Tau Tawengwa

Executive Director

Email

zimrays@gmail.com

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