Research Reveals the Powerful Impact of Emotional Ownership on Family Businesses
Emotional Ownership Report - Overview
Supported by the private bankers Lombard Odier Darier Hentsch & Cie, a seventh generation family business, the report looks at the origins of EO and how to create family capital and emotional engagement in the family firm. Following in-depth interviews conducted with 600 Next Generation members of family firms in 67 countries, it became apparent that the position in the family – being first born or a younger sibling – does not have an impact on Emotional Ownership.
Emotional Ownership needs to be fostered from a young age, and the process increased so that the business becomes part of the person. The research found that EO is strongest between the ages of 31 and 40, when it rises to a mid-life peak. Stimulating EO comes from social inclusion, proactive engagement and close involvement in the family business through work experience, business workshops and philanthropy; family culture, pride and values also play an important role. Furthermore, proper ownership and governance structures are essential to avoid conflict. A fair, flexible and transparent governance structure, which gives all family members the opportunity to make decisions, will help ensure the business continues to thrive in succeeding generations.
“Family businesses contribute over 30% of UK GDP and account for over 40% of private sector employment in the UK,” said Grant Gordon, Director General of the Institute for Family Business. “Estimates show that only one in ten family businesses survive beyond the third generation, highlighting the importance of and need for better succession planning.”
“The resounding message of this research is that the bond between the Next Generation and their business is very much a product of the family,” said Thierry Lombard, Managing Partner of Lombard Odier Darier Hentsch & Cie.
“As a seventh generation family business, we know that the loyalty and passion people feel towards a family business can be a source of competitive advantage. Emotional Ownership thrives on informality as well as close involvement and inclusion. Few elements can stunt the growth of Emotional Ownership once the bond is achieved, however, badly managed conflict is one of them. For family businesses to be successful over the long-term, this commitment and passion needs to pass down through the generations.”
“Emotional Ownership is the golden thread that underwrites a family business’s future existence. EO is a natural state of mind in a healthy family, but it needs to be nurtured from quite early on and can be easily disturbed by bad parenting and lack of engagement,” said Nigel Nicholson, Professor of Organizational Behaviour, London Business School.
The key findings of the study are as follows:
· EO is not a “fair weather factor”, which people only feel when the family firm is doing well. EO comes from deeper sources and factors such as proactive exchange, open communication and governance.
· EO is not compromised by having critical thoughts and feelings about the family business. Conflicts around strategy, organization and management are unrelated to EO, however “ownership conflict” lowers EO.
· The higher the shareholding of the family member, the higher the EO tends to be, although it does not guarantee it. Having an ownership stake raises EO for five reasons:
- the connection becomes tangible;
- more knowledge of the organization;
- statutory responsibility;
- rights of an owner;
- financial investment.
· Males have higher EO. This could infer families having different expectations about the careers of men and women in the family business.
· EO increases with the number of siblings. This has a positive effect on EO because a “buzz” around the business is more likely to arise.
· Spain showed the highest levels of EO. There is a strong family business culture that is connected with Latin cultures such as Spain and South American countries, including Argentina, and Caribbean nations.
· Sweden had the lowest levels of EO. This was the same for the Middle East and Africa. Europe, India, the U.S. and Mexico were in the middle.
About Emotional Ownership
EO is defined as a combination of two elements. Firstly, a sense of closeness and belonging to the family business – what psychologists call “attachment”, and secondly, the penetration below the surface of the mind into the identity of the person who experiences EO. EO captures the idea that the business is, in some sense, part of who you are as a person. This is what psychologists call “identification”. Click here to read the full report
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