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Family therapy’s influence helped advance the family business field

By Dennis T. Jaffe

Until a little more than a century ago, the term “family business” was redundant, because every family was also an economic unit. Children were taught their parents' trade and were expected to make it their career. The family business would often last for generations, but the family would not expect it to grow.

By the late industrial age, huge public businesses had begun to emerge. These companies were seen as an improvement over the small, often conflict-ridden businesses owned and run by families. The family was considered an impediment, and the family business was considered a stunted or immature form of commerce.

In the 1980s, the field of family business emerged from a realization that family relationships, rather than being detrimental, could enrich and add value to a business. Advisers and scholars began to look at the positive and negative fates of family businesses in an effort to understand what led to ongoing survival and success.

Because a family business has owners who are related, they can adhere to a set of shared values and a long-term perspective that holds the business to a higher standard than just making profits for the family. The field of family business grew up as society came to see that these virtues are frequently absent in public, non-family-controlled businesses.

As the business world began to affirm the value of family ownership, researchers discovered ways to help the family realize these benefits and avoid descending into conflict or using the business as a personal piggy bank. Family business advising has grown up with the proposition that research, models, tools and practices can help a family overcome the dangers of business ownership and enjoy the benefits.

The field of family business would not be what it is today without the application of knowledge about families from family therapy and systems theory. Family dynamics concepts enable us to understand and resolve difficulties arising in families who aspire to continue their businesses through multiple generations. From its inception, family business consulting has urged professionals — lawyers, accountants, business consultants and financial advisers — to learn the basics of family dynamics and some of the tools used in family therapy.

I want to share some of the fundamental elements of this foundation.

Insights from family therapy

First, family and business systems have different goals and purposes that can conflict with each other. In a high-functioning family, everyone is accepted, and the family will go out of its way to care for its members. Business relationships, by contrast, are conditional and structured into roles. Members of a business system are held accountable: If you don't produce, you can be fired.

Family members in a business family must learn to navigate within multiple, overlapping roles. While they are always family members, they may also be co-owners (or owners-to-be) and employer/employees. If your boss is your father, you must understand that during business hours the rules of the employee/employer relationship are in force, not those of the family. This is a challenging concept, and many families do not want to differentiate family and business roles. But a family must learn to make these distinctions in order to succeed as business owners.

A second foundational principle is that the family is a hierarchy — a pecking order with parents at the top and children further differentiated by gender roles and birth order. Family members live within the family hierarchy and tend to transfer these relationships into the business. Business families must understand the pull of the family hierarchy and take steps to diminish it in favor of very different business relationships. In the context of the business, a family member (for example, the youngest child) might have a business role and authority that supersedes their family role.

A family might need to go through an awareness and learning process to help them move across this boundary. Tools like drawing a family genogram (family tree diagram) to illustrate the hierarchy and discussing how this family structure influences family behavior are helpful. Family members might talk through the roles and practices in the family and consider whether they must be minimized or changed when entering the business environment. Siblings, for example, must transform their rivalry into collaboration when sharing ownership of a thriving business, even if some work in the business and others are beneficial owners.

A third challenge involves the tension between long- and short-term perspectives. The family wants to use its resources to help each other now, to support family members and benefit their lives. But they also must reinvest and consider what is needed to sustain the business for a new generation. This is a source of tension, where family members take on different perspectives. The family must balance these differences and reach agreement on a fair distribution of current and future resources. This has been referred to as establishing policies for “family justice.”

Family business consultants have learned from family therapists how to convene meetings that bring together family members across generations to discuss differing perspectives and create policies and structures to manage the shift between family and business roles. An effective family meeting is more than a business meeting; it must be a place where every family member feels a psychological sense of safety, and where their ideas and feelings are valued and respected. This setting helps family members build communication skills and discover together how to bridge differences.

Because of input from family therapy, family meetings have been expanded into structures such as the family assembly (a gathering of the entire family), the family council (a representative body that oversees the family's relationship to the business), and the owners council (adult family members who hold shares in the business). In parallel to the business governance provided by boards of directors or advisers, family therapy practices have been adapted to build family governance.

The key insight from family therapy is that family business encompasses both an effective business and a caring, respectful family, enabling the business and the family members to thrive and grow. These two entities do not work at cross-purposes. They harmonize, and the best features of each add value to the other. Neither is subservient to the other. Together they each contribute to a hybrid family-business institution, which can create value that transcends what each entity can do alone. That is the promise that has been fulfilled in this emerging field.