Each stakeholder group has different goals for the business. Meeting the needs of all three groups boosts the bottom line.

Meeting the needs of the various stakeholders of a family-owned firm is no small task. The leader must consider the needs from a chorus of stakeholders including ownership, management and the family itself. Often times, these three groups are not singing the same tune when it comes to goals and priorities of the business.

Owners may focus more on the profitability and long-term growth of the business, for example, while management might balance those goals with other priorities such as employee retention. Meanwhile family members, who may not even own part of the business but still have an influence, may be more concerned about how the business affects the family's reputation, or how the business can provide employment for children and grandchildren.

Balancing those differing needs and goals is difficult enough, but the process becomes even harder to navigate considering some stakeholders may wear multiple hats. The patriarch of the family may also be the majority owner of the business, while the daughter may be a part of the management team.

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While each of these stakeholder groups has its own set of goals and priorities, none of those goals seem to undermine the business. In fact, there is evidence from our study that incorporating the goals and wishes of all three groups gives a family business a competitive edge.

"A family's goals can strengthen a company and give it significant advantages over public companies. A family's firm commitment to long-term profitability, a good work environment, quality products and services, and the community can pay dividends." - Kathy Williams, Director of Community Relations and owning family member, Homestreet Bank

This is a hotly debated issue concerning family businesses. While it is easier to see how listening to ownership and management would have a positive effect on the performance of a business, there are two schools of thought on whether a business should incorporate the goals and desires of the family into its business decisions.

Some believe that the interests of a family are generally misaligned with that of a business, and that allowing the family to influence business decisions will have a negative effect on the company's profits. Others believe family involvement generally improves the economic performance of a family business, especially in the long term, since attending to family goals increases family harmony and commitment. There is research to support both approaches.² Our study found that incorporating the goals and desires of the family benefited a company's profits.

We used statistical correlations to draw this conclusion.³ In our study we looked at the correlation between how much the business incorporated input from each group of stakeholders and how profitable that particular business was. A more detailed explanation of the statistical correlations in this survey can be found in the Appendix. In short, a correlation score of 1 means two items are perfectly correlated to each other and a correlation score of -1 means two items are completely negatively correlated to each other. It should be noted that any positive number between 0 and 1 is statistically significant, representing that a correlation does indeed exist. If there were no correlation between two items, the statistical analysis would result in 0.

Not surprisingly, the correlations revealed that the businesses that did a better job of incorporating the goals and wishes of their owners and management into the decision-making process were also more profitable than their competitors. But what was interesting was that there was also a positive correlation of .155 between a family business's profitability and its willingness to include the family in the decision-making process.

"At Nordstrom, the culture of both our business and our family is aligned. It is the most valuable asset we have." - Bruce Nordstrom, Former Chairman, Nordstrom, Inc.

The survey also revealed that formalizing a process to include input from all three groups gave businesses a competitive edge. There was a positive correlation of .192 between a business's profitability and the extent to which that business had a distinct process for making decisions about ownership, management and family issues. Regular family meetings, councils or a family constitution are all ways to establish a distinct process to receive input from the family on business decisions. Deciding in advance how future business leaders will include family input can also formalize the process.

In order to help family business leaders better understand the different needs and priorities of these three stakeholder groups, our survey sought to find out what things matter most to each group by quantifying some of their top-ranking priorities.

For each different stakeholder group, we picked five different topics that continually surface as important issues for that particular group. Topics selected for each stakeholder group varied due to their differing role with the firm. We then asked those surveyed to rate how high a priority each issue is to that individual stakeholder group. The results shed light on what issues a family business leader may want to consider to make sure the wishes and goals of each stakeholder are taken into consideration.

Ownership
The survey found that owners of family businesses tended to have a long-term focus for the business. Family businesses are afforded this luxury in part because they are privately held and don't have to report quarterly earnings to a group of shareholders that demands to see quicker, short-term profits from the firm. When asked to rate the importance of long-term success to owners, 88 percent of those surveyed scored this issue a 10, which was the highest rating possible. Eighty-four percent of those surveyed scored the similar issue of long-term growth a 10 as well.

Family
When considering the importance of different issues to the family, it was most important to families that family members stay involved in the management of the business. The families also placed significant importance on the business achieving high profitability. While having family involved in the management process was important to the family, they placed much lower importance on the business providing employment for family members. This indicates that even though maintaining family control is important to families, they want to make sure that the future business leaders hired have the necessary business skills to maintain the company's success.

Management
When considering the importance of different issues to management, having a good work environment and the long-term growth of the firm received the highest ratings. It should be noted, however, that each of the other three issues related to management - a competitive salary and benefits package, an opportunity for career advancement and ensuring that those who contribute to firm profit are compensated accordingly - also received high ratings.

¹Used with permission of John A. Davis. The original three-circle model created in 1982 by Renato Tagiuri and John Davis uses the word business, which we have replaced with management.
²Carney, M. (2005). Corporate governance and competitive advantage in family-controlled firms. Entrepreneurship Theory and Practice, 29, 249-266.
³To accurately measure these correlations, we used the responses of all 200 family-owned businesses surveyed. All other survey results in this report are based on information from the 25 largest family-owned businesses we surveyed.

Laird Norton Tyee Family Business Survey 2008
© 2008 Laird Norton Tyee