That depends on what you mean by ‘dysfunctional’, and whether the term is applied to the business or the family.

Surely none of the many successful family controlled businesses would be described as ‘dysfunctional’, so it is likely that the term is being used mainly to refer to those who are accused, generally speaking, of letting family sentiment interfere with business rationality.  One of the weaknesses of this argument is that it ignores the inconvenient truth that families are often in business partly for sentimental reasons; in other words they pursue goals that cannot always be measured in economic terms.

Consider, for example, the motivation of those who desire to maintain a legacy of attachment to a product or a particular location; or those families whose vision is as to provide job opportunities for family members in an uncertain world.

These families are likely to be criticised as ‘sentimental’ by someone who feels that the singular purpose of a business is to maximise financial return for its owners, subject to abiding by the letter of the law.  That approach is fine for some businesses, but if others pursue sentimental measures of ‘success’ and can achieve it on their own terms, it is taking it a bit far, is it not, to describe them as dysfunctional?

In any case sentiment can be a source of business success as much as the cause of failure.  For example, if shareholders are willing accept a below market return on investment in order to fulfil a sense commitment towards employees, they expect that this will be reciprocated in long-term service.  A pattern of long service helps to build up know-how in the workplace and avoid the disruption caused by high-levels of staff turnover.  Maybe being sentimental is not so daft after all.

In any case, it is reasonable to question whether any type of business is run entirely on rational terms.  Exuberant optimism and fear will affect the behaviour and decision making of all business owners and directors at some time, as evidenced by reactions during the 2008 financial meltdown.  The corporate scandals that have emerged since then have indeed led to an increased discussion about a new type of capitalism.  In 2012, the UK government asked Professor John Kay, a visiting Professor at the London School of Economics, to recommend ways to transform UK equity markets.  His report recommended that there needed to be a change of culture in the stock market, away from short termism in favour of restoring relationships built on long term trust and confidence.  It also speaks glowingly of stewardship being a strategic objective for companies.

This report seems to echo the views of Professor Joel Bakan who in 2004 argued in The Corporation that businesses that are only about the pursuit of power and greed are suffering from pathological problems; they might in fact be described as socially dysfunctional.

Governance based on ‘long term’,’trust’ ‘and stewardship’?  These terms are used frequently to describe family businesses.  Could it be that the so-called dysfunctional family business model now represents the best hope for a new type of capitalism?

That debate is worth having.  For the moment we can safely conclude that families in business together come in all shapes and sizes; there are good ones and bad ones, those who are more virtuous or financially successful than others and so forth.  What they have in common is that they face a different set of challenges to other businesses for the obvious reason that the business involves a family.  We could make progress with these challenge by agreeing that ‘different’ rather than ‘dysfunctional’ is a better term to describe family businesses.

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