Analysis Summary

In this section, I use the three-dimensional developmental model as the analytical tool to examine the stages the case company has gone through. Gersick et al (1997) proposed that family firms would progress into the different stages in all three dimensions as the business grew in size, the first generation aged and the second generation grew up. However, this analysis showed an unparallel progression among the three dimensions. As shown in figure 2, the family dimension has progressed through the stages of young business family, entering the business and working together, the business dimension has likewise progressed through the start-up and expansion/formalization stages; however, the ownership dimension shows a stagnant growth and remains in the first stage of controlling owner. This analysis showed that the cause of this biased development is due to the founder’s overpowering character and his unwillingness to delegate power to others because

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of distrust. The founder’s reliance only on his own wisdom makes it difficult to balance unitary control with input from stakeholders and his retention of ownership hinders the establishment of an ownership structure for the next generation. The family business’ inability to overcome these challenges prevents it from entering the next stage of development. As leader of the business, the founder’s character is an important factor that will determine and shape the organization’s behavior and development. This framework failed to consider the effect that the founder’s character can have on the development of a family business. Therefore, two propositions can be derived from the analysis above:

Proposition 1: If the founder has an overpowering character, the progress that a family firm makes in each of the three dimensions does not necessarily synchronize.

Proposition 2: If the founder has an overpowering character, the firm will make a stagnant progress in the ownership dimension and will remain in the controlling owner stage longer.

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Figure 2: Three-dimensional developmental model of the case company Source: Modification of Gersick et al’s (1997) Model after Analysis

Gersick et al (1997) also suggest three guidelines to ease the transition between the stages of development within the ownership dimension. The authors suggest that shareholder meetings must be established in order to create an environment for discussing specific issues regarding ownership. A board of directors and advisers must also be developed in order to provide a long-term strategy that will help the founder by broadening their perspective. Lastly, planning in the firm should take the form of strategic plan, management development team, contingency plan and continuity plan. As mentioned in the analysis section, the family firm holds yearly stockholder meetings which are also considered as a board meeting. However, these meetings prove to be ineffective due to the fact that those on the stockholder group/board are not familiar with the textile industry and only serve as financial contributors. The founder seeks only financial assistance from these family member investors. His overpowering character leads him to believe and rely only in his past successful experiences, rarely taking advice from other members in the family or in

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the firm. On the other hand, the analysis shows that although shareholder meetings and a board of directors and advisers is ineffective, an informal communication mechanism has been established as an attempt to ease the negative effect that the founder’s overpowering character is having on the communication with the second generation. In this informal communication mechanism, the wives of the founder and the eldest son act as third party liaisons. While communicating with each other is difficult, the founder and his eldest son are more comfortable voicing their thoughts and ideas to their wives, who in turn share these with one another. This results in an informal “board of advisers” where ideas are shared and disagreements are resolved. Therefore, two more propositions can be derived:

Proposition 3: If the founder has an overpowering character, the firm will find it less effective by using shareholder meetings and a formal board of directors to ease the transition between stages in the ownership dimension.

Proposition 4: If the founder has an overpowering character, the family firm can avoid communication conflict between the first and second generations by having an informal board of advisers composed of third party liaisons such as close family members.

The ownership dimension’s stagnant growth has its effects on the family dimension as well. The founder’s overpowering character has directly slowed the developmental process of the ownership dimension and indirectly inhibited some of the challenges while hindering others to be overcome in the different stages of the family dimension. At the entering the business stage, Gersick et al (1997) suggest

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that the key challenges all involve establishing a succession plan for the children and developing a career path for them. However, due to the ownership dimension’s state, the founder has not considered such succession plans and thus these challenges have been inhibited. Currently, the family dimension is already at the working together stage and will eventually lead to the final stage: passing the baton.

The lack of a succession plan at such a late stage may lead to bigger challenges at the final stage and may also have its impact on the other dimensions. Furthermore, the controlling owner stage has hindered the challenge of cross-generational cooperation and communication in the working together stage to be completely overcome. The family’s inability to overcome this challenge inhibits it from experiencing the challenge of productive conflict management which is crucial at this particular stage because it is the source of innovative ideas necessary to propel the growth of the family business. Therefore, through this analysis, two more propositions can be derived:

Proposition 5: A stagnant growth of the ownership dimension will inhibit the growth in the family dimension.

Proposition 6: On the family dimension, cross-generational cooperation and communication leads to more effective productive conflict management.

The effect of the stagnant growth of the ownership dimension also extends to the business dimension. On this dimension, the case company is at the expansion/formalization stage where organizational procedures and policies must become more formalized and professional and a formal reporting hierarchy should

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be set up. The firm has grown to an extent that non-family employees are increasing in numbers, surpassing family employees; therefore, formalized procedures concerning hiring new talent and daily operations are required for better management. However, due to the fact that the ownership dimension remains at the controlling owner stage, much of the company’s strategic decisions are still dictated by the founder himself; therefore, non-family employees have minimal freedom to make their own decisions and must carry out tasks without any questioning. In this case, formalizing organizational procedures and policies and setting up a reporting hierarchy becomes a challenge. From the analysis, it can also be deduced:

Proposition 7: A stagnant growth of the ownership dimension will hinder the firm’s ability to formalize organizational procedures and policies.

Gersick et al (1997) suggest that to ease the transition between the stages in the business dimension, family firms should implement a management development team. This management development team should be composed of the owner and top managers with the purpose of acquiring new talent and to determine what is best for the business’ welfare and must also consider developing family members as valuable resources. It should develop a procedure of how to hire, when to do it and how to train the employees. This team should also consider what areas of business will grow, be aware of what stage the business dimension is facing and be in sync with the changes in the environment and the career management process. However, as this analysis shows, the founder’s overpowering character has instilled a sense of trust only in himself, and a management development team has been difficult to implement. Nevertheless, this analysis has found that the case company has resorted

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to other measures as an attempt to lead the organization into becoming more formalized and professional-oriented. By seeking quality management certifications, the firm has learned to adopt more formalized organizational procedures and policies. Additionally, through close affiliation with government aided institutions such as TAITRA, TTRI and the Taiwan Trade Association, the firm is able to offer a comprehensive training program for employees. From the above analysis, the following propositions can be derived:

Proposition 8: A stagnant growth of the ownership dimension will hamper the implementation of a management development team.

Proposition 9: A family firm that acquires quality management certifications will adopt more formalized organizational procedures and policies.

Proposition 10: A family firm that has a close affiliation with government aided institutions is more able to provide a training program to develop current employee skills and to attract new talent.

Gersick et al’s (1997) three-dimensional developmental model of family firms has provided a detailed framework for the analysis of the case company. Although it warns of challenges that family firms may face during different stages of development, this research contributes to this framework because it finds that the founder’s character and attitude is the cause to many of the challenges that affects all dimensions of this model. Furthermore, it also contributes in finding that challenges at later stages in the family and business dimensions are caused by the

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stagnant growth of the ownership dimension. Therefore, even though this model allows a complete view of all the dimensions of a family firm, it lacks interconnectivity between them. This study finds that the challenges suggested by the authors are not stage-specific. They will overlap, trigger, hinder or inhibit one another.

This research makes another contribution to Gersick et al’s (1997) study concerning the guidelines suggested to ease the transition between the stages of the different dimensions. The guidelines suggested by the authors include carrying out formal shareholder meetings, establishing a board of directors or advisers, establishing a family council and implementing a management development team.

Most of these were implemented in the case company; however, challenges were not overcome and the ownership dimension remains at its first stage. From the analysis, it can be concluded that the suggestions made by the authors can be more effective when the family firm already has some degree of professionalization and when the founder has delegated power to the second generation. In the case of this family firm, setting up shareholder meetings, establishing a board of directors or advisers and implementing a management development team are futile because the founder has an overpowering character and much of the strategic decisions are still dictated by him.

It contributes to the set of guidelines to follow by finding that a communication mechanism through close family members acting as third party liaisons can create an informal board of directors where ideas are shared. This informal board of directors can be further developed into a management development team to

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formalize organizational procedures and policies. Nevertheless, members of these teams must be composed of close friends and business partners who are acquainted with the industry. They must be members from the circle of acquaintances of the first and second generation whom they trust. This will provide an open space to discuss differing point of views through minimizing familial sentiments and making these more objective. Another measure taken by the case company is the adoption of formal procedures and policies through quality management certifications. Lastly, through the close affiliation of government aided institutions, the firm provides a comprehensive training program for employees.

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