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Family businesses need to have adequate professional management practices in place.
This is advised to mitigate the risks arising from undefined roles and
responsibilities, lack of adequate training and development for family members, and
ineffective decision-making practices.
It entails the practice of hiring or promoting family members over non-family
professionals. This can lead to demotivation, low accountability, and resentment
among non-family employees.
It is important to note that not all instances of nepotism are not harmful. In some
situations, family members could be the greatest candidates for a post since they
have the appropriate qualifications and expertise. To prevent the risks of nepotism
family enterprises must have clear policies and processes in place to consider the
contribution of both family and non-family professionals in the business.
Family businesses can exhibit resistance to change, often hesitating to replace
conventional practices or update processes/technology. This can make it difficult
for family businesses to adapt to new market conditions or technological changes.
Many family businesses tend to be reluctant to explore external funding
opportunities as they fear loss of control of the business or dilution in their
ownership stake. Therefore, financing long-term business ideas or scaling up the
business becomes a constraint, thereby limiting the growth / diversification of the
Founders and owners of family business might be reluctant to appoint non-family
professionals for important positions in the business due to several reasons like
fear of losing control, lack of trust, fear of failure etc. However, there are
several global family businesses that have experienced success by appointing
non-family professionals to critical positions in their companies.
The absence of sharing vital information among family members can impede informed
decision-making for the business. It can also create trust issues and lead to
confusion / delays owing to different viewpoints based on limited information.
Attracting and retaining external talent can also be another challenge, as
accomplished professionals tend to value a transparent and open organizational
When family members work together, there is a possibility that personal
disagreements among family members spill over into the business decisions. This is
more likely when there is a high diversity of age group and number of generations in
a large family. It is important for family businesses to have necessary support
systems in place to proactively address minor differences before they escalate into
The absence of a well-defined succession plan can complicate the continuity of the
business in the event of the sudden passing away of the founder or current family
leader. Moreover, nurturing next generation to develop into capable future
successors is also an important factor.
Family enterprises represent a distinctive business model characterized by complexity and
vulnerability to risks due to multifaceted roles and familial connections. Nevertheless, they can
achieve success by identifying and effectively managing these risks.