A Family Thing

To what extent has meritocracy taken root within family businesses? How is economic crises and competition making meritocracy essential to family-owned firms at all levels? We interview Guido Corbetta, Full Professor of Strategic Management and Aidaf-Alberto Falck Professor of Strategic Management in Family Business, at Milan’s Luigi Bocconi University.

WorkStyle_1_BrownFamily

Brown family from American Historical Society

cm Meritocracy and family business: what is the international trend?
gc I think that across the globe, many family-owned businesses are adopting a meritocratic logic. This trend was clearly noted by participants at the 2008 New Delhi conference organized by the Family Business Network.

cm To what extent can family-owned companies overcome the issue of ‘hereditary rights’ in the area of managerial leadership?
gc They are able to do this when they reach a certain size and are able to attract talented managers. A second factor is the hard competitive setting which necessitates either, promoting the most talented family members to top management, or attracting talented managers who are not family members. A third factor is family culture which, if very protective of its members, is unlikely to give up managerial power to outsiders.

WorkStyle_1_HoshiFamily

Hoshi Grandfather from Japan

cm Does meritocracy have a cost?
gc In the short term meritocracy means differentiating pay and giving different career paths to members of the same family, and potentially creating family disharmony. In the long term, however, it is a great benefit and all the more so during crisis situations. Difficulties drive the search for solutions, innovations and promotion of the best people to top management regardless of family status. Crisis also makes available surplus managerial talent from other firms or sectors across the economy.

cm What are the main differences between the United States and Europe in the way family-owned businesses are managed?
gc The United States is a big economy and most of us are more familiar with their well-known corporate brands. Beyond these, the Us has an enormous number of family-owned companies that are similar to those in Italy. The only difference that I see is their relationships to equity capital. American firms are more willing to hand over equity shares. Apart from the Uk, equity capital plays a much smaller role in the ownership and management of family-owned companies across Europe.

cm Will meritocracy establish itself in future family companies?
gc Meritocracy is hard to introduce into many of these firms because it involves the skill of assessing people and being able to say yes or no. This is harder when people are also related to each other in and out of that business. Some family companies are able to be more meritocratic while others find this much harder. Over time, however, the logic of the marketplace and competition will necessitate promotion by merit.

[W  aidaf.it]

Published in the hard-copy of Work Style Magazine, Spring 2009