The determinants of family harmony in family businesses

Abstract

Small and medium-sized family businesses are the most common form of business structure in the world and they are becoming increasingly recognised as the main economic drivers in local and global economies. South Africa is no different to the rest of the world and approximately 80% of the businesses in South Africa are classified as family businesses and 60% of companies listed on the Johannesburg Stock Exchange are also classified as family businesses The family business is a unique, complex and dynamic system that consists of a blend of two very different poles. On the one end there is the performance-based world of business and on the other end the emotion-based domain of the family that creates potential conflict and confusion. About 70 percent of all family businesses do not survive transformation from the first to the second generation and therefore cease to operate and close down before or after succession takes place. The longevity of family businesses are thus a major concern. The main objective of this study is to determine and evaluate the determinants of family harmony of family businesses and to make recommendations to enable family businesses to obtain family harmony to ensure future continuity. The study will focus on the investigation of the determinants of harmonious relationship between family members in family businesses. The research was conducted by means of a literature review and an empirical study. The literature review formed the basis for identifying the determinants influencing family harmony and to gain insight into the dynamics of the family business. Based on the literature review, 13 constructs, the independent variables, determining family harmony (the dependant variable), were identified. The variables were empirically tested at 31 family businesses by means of a structured measurement instrument (questionnaire). The reliability of the research instrument (questionnaire) was determined by means of Cronbach alpha coefficients. None of the constructs' Cronbach alpha coefficients were lower than the routine cut-off value of 0.70. This indicates that the questionnaire used in this study conformed to the criteria of acceptable reliability and can be regarded as internally consistent. The evaluation of the constructs determining family harmony yielded an average mean score of x = 5.605. The highest mean score calculated was for the construct Family commitment (x= 6.144) and the lowest score for Governance (x= 4.663). This means in practice a high level of agreement with the statements / items concerned with Family commitment and a relatively low agreement with the statements / items concerned with Governance. The evaluation of the construct Perceived future continuity was discussed and the average score for the construct Perceived future continuity was x 5.841. The coefficient of correlation for the construct Perceived future continuity was calculated at ( r = 0.557), which also indicates the relatively strong linear relationship between the construct and Family harmony. The correlation between the independent variables measuring the dependent variables were determined and it revealed that based on Cohen's rules, it is evident that the independent variables, Non-family members ( r = 0.288), Inactive family members ( r = 0.289), Governance ( r = 0.384) and Financial ( r = 0.479) have a medium or visible effect on the dependent variable, Family harmony. The rest of the independent variables have a large or practical significant effect ( r > 0.50) on the dependent variable, Family harmony. No practical significant differences could be found between the means of selected demographical variables on any of the variables. Practical recommendations are suggested to improve family relationships in family businesses to reduce the impact of conflict on family harmony and to improve future continuity of the business.