The Sale of the Family Business - Entrepreneurial Project, Strategic Decision, or Expropriation?

What conditions most commonly lead to sales of family businesses in Western countries? Are there discernible patterns that are not only consistent, but also help to predict - or possibly even avoid - selling off family enterprises? Former INSEAD Research Fellow Sabine Klein and Senior Research Programme Manager Christine Blondel present one of the most comprehensive studies ever undertaken into this typically emotion-laden and complex phenomenon. Focussing on family enterprises in Britain and Germany, the study attempts to further understanding of the long-term effects of family firm sales.

by Christine Blondel,Sabine Klein
Last Updated: 23 Jul 2013

<em>If families and businesses truly are as inextricably intertwined as we have claimed, then not only should family systems affect business systems, but the reverse should also hold. That is, business systems should also affect family systems.</em> H. E. Aldrich and J. E. Cliff: The Pervasive Effects of Family on Entrepreneurship (2002)

While there is ample academic literature on the sale of family businesses, little research has been conducted on how the aftermath of such transactions affect families as functioning systems. What conditions most commonly lead to such sales? Are there patterns that are not only consistent, but also help to predict - or possibly even avoid - selling off family enterprises?

Former INSEAD Research Fellow Sabine Klein and Senior Research Programme Manager Christine Blondel present one of the most comprehensive studies ever undertaken into this typically emotion-laden and complex phenomenon. This working paper consists of three parts: a theoretical background, details of the elaborate empirical study, and details of the authors' developmental theory on the sale of family businesses.

Focussing on family enterprises in Britain and Germany, all firms were in at least the third generation of family ownership The study attempts to further understanding of the long-term effects of family firm sales. Which questions come up after these sell-offs, and how can they be addressed most appropriately? Also, under which types of conditions and mediating factors are certain questions more or less important, and more or less complicated to answer?

Klein and Blondel concentrate on the stage immediately following a sale or strategic exit. Specifically, they concerned themselves with determining how long this stage may last before a given family might take decisions to formalise their asset management; to decide on a formal reorganisation structure, to articulate their future goals, etc.

According to the authors:

"We learned during the research process that there were some critical questions, important to be asked, but not willingly answered. One of these questions was about how the interviewee felt right after the sale. Another was ... the family's reaction; whereas questions concerning the reason for the sale were answered voluntarily and frankly. What was astonishing for us was the open way the interviewees analysed family conflict as a reason for the sale, while family conflict following the sale was somehow a taboo."

The study revealed a consistent pattern of certain factors being mentioned when interviewees were asked to comment on the family business system in place. These categories consisted of engagement/disengagement, hierarchy, trust, fair process, and the "age" of the family, (i.e., established vs. "young" family, generation-wise).

The authors also present an Integrated Family Business Framework, based on interviewee responses. This Framework integrates the three core elements: the individual, the action taken, and the surrounding system. (As the function of these elements can vary in each case, they are structured non-hierarchically.)

The Framework is intended to offer a structure in which "different reactions, costs, benefits, risks and opportunities of the action undertaken can be located and set into relation with each other". After the initial research, the authors came to feel that it was obvious "that each interviewee [needed] two maps; one describing the situation before the sale... and one after.

Klein and Blondel then charted all pairs of pre- and post-sale maps, and analysed their findings for similarities, contradictions and patterns. Their conclusions should be of great interest to anyone studying the peculiar dynamics associated with family-run enterprises.

INSEAD Fontainebleau, 2004

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