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How to navigate the complex landscape of emotional ownership in family businesses

How to navigate the complex landscape of emotional ownership in family businesses

16 January, 2024

Emotions wield significant influence in decision-making, especially in family businesses, where personal and professional relationships overlap and can lead to family conflicts. In this article, we explore emotional ownership, what it means, the benefits, challenges, and how it can be managed.

What do we mean by emotional ownership in family businesses?

Emotional ownership in a family business refers to the deep, affective connection family members feel towards ‘their business’. Emotional ownership in family businesses often extends beyond mere financial interest, encompassing a profound connection driven by identity, pride, and personal attachment. This emotional bond, often rooted in the business's history and generational involvement, shapes the business's operations, succession, and long-term sustainability.

What are the benefits & challenges of emotional ownership in family businesses?

Emotional ownership can be a catalyst for commitment, creativity and long-term success. Family businesses with high emotional ownership often have a strong set of core values and a distinct culture, which can be a significant competitive advantage in the commercial environment and attract and retain talent.

The personal attachment, passion, and story behind family businesses often enhances its brand and appeals to customers valuing authenticity, stability, and tradition. Fostering emotional ownership in the next generation through education on the family history, values, and legacy can educate the younger family members about the business and nurture emotional ownership and commitment from a young age.

All this considered, emotional ties can cloud judgment, leading to decisions that aren't in the best financial interest of the business. This is particularly evident in succession planning where strong emotions can clash with rational considerations. The next generation often doesn’t share the same level of emotional attachment as family successors, merely viewing it as a weighty burden. It is often argued that family dynamics within business operations are the second largest fault line after succession planning for generating conflicts, which can lead to poor commercial performance.

How can emotional ownership be managed in family businesses?

Balancing creative and destructive forces of emotional ownership requires a thoughtful approach and each family has its own ecosystem that needs to be carefully mapped out and navigated. That said, we believe any effective family business management strategy is underpinned by three pillars:

1. Robust governance structures

Implementing formal governance, such as a board with a mix of family and non-family directors, helps balance emotional and business interests.

2. Clear vision on succession plans

A transparent, well-structured succession plan eases transitions and ensures business continuity, mitigating conflicts arising from emotional ownership.

3. Open, collaborative communication

Encouraging open and honest communication within the entire family addresses emotional issues, avoids fake harmony, and prevents conflicts.

How can Ocorian help with effective family business management?

While emotional ownership can fortify a family business, it necessitates a delicate equilibrium with professional practices to ensure longevity and success. Recognising the power of emotions is paramount for family businesses, setting the stage for future discussions on topics like succession, leadership, and operating models.

Ocorian’s primary focus is to work with families, assisting them in setting up their structures and putting processes in place to protect their wealth for the next generation. Ocorian has decades worth of experience regarding the issues that come with family businesses and intergenerational wealth transfer and succession planning and works closely with the second and third generations of many of our client families.

Contact our team today to find out more about how we can support your family business.