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Family Business Success: The SEW and FIBER Approach to Strategic Acquisitions

In the intricate realm of family businesses, a transformative concept has ascended to prominence: Socioemotional Wealth (SEW). Over the past 15 years, this term has experienced a surge in significance, evolving into a pivotal element for comprehending the behaviours of family enterprises. Far from being a mere buzzword, Socioemotional Wealth serves as the non-financial lifeblood of a company, tending to the emotional needs of the family at the helm— encompassing identity, the ability to wield influence, and the perpetuity of the family legacy.

Traditionally, economic perspectives have depicted family enterprises as risk-averse participants in the acquisition game owing to their concentrated ownership and absence of diversification. However, this narrative overlooks the crucial non-financial objectives steering the decisions of family businesses.

Enter prospect theory and the behavioural agency model: instrumental tools that unveil the reluctance of family firms towards acquisitions are not solely about financial risk. Instead, it forms a complex amalgamation of financial gains and losses intertwined with the preservation of socioemotional wealth, requiring family firms to delicately balance both facets.

While empirical research has probed the connection between family firms and acquisitions from a socioemotional wealth perspective, a pivotal question remained unanswered—how do family enterprises safeguard their socioemotional wealth during acquisitions? This is where the FIBER model comes into play, providing theoretical insights into why family firms might engage in fewer acquisitions and how the inclusion of former politicians on their boards can facilitate these strategic moves. Industry conditions also play a pivotal role in accentuating or mitigating these dynamics.

Former politicians, armed with their distinctive skill sets, emerge as central figures in the family business narrative. Their influence positively moderates the relationship between family control and the volume of acquisitions. Essentially, the presence of seasoned politicians on boards becomes a strategic manoeuvre for family firms, presenting a potential game-changer in navigating the intricacies of acquisitions.

However, the introduction of a new player into the equation—the velocity of the competitive industry—unveils a hitherto unexplored dimension. This industry velocity, representing the ebb and flow of industry population size over time, emerges as a decisive factor in the acquisition landscape. When combined with family control and the inclusion of former politicians on boards, it significantly impacts the volume of acquisitions. High-velocity industries, marked by rapid changes, can diminish the advantages brought by former politicians, leading to potential socioemotional wealth losses and a diminished inclination for acquisitions.

Stepping back from the intricacies, the interplay of socioemotional wealth theory, former politicians, and industry velocity paints a dynamic landscape. It’s a landscape where family firms meticulously make choices, not just for financial gains but with a discerning eye on preserving their socioemotional wealth—a delicate equilibrium between tradition and progress.

For family enterprises contemplating acquisitions, the composition of their boards emerges as a critical consideration. Former politicians surface as strategic allies, influencing family firms to embrace acquisitions while navigating the complexities of a competitive industry landscape. What was once perceived as a valuable asset has evolved; former politicians are now recognised as key players in family firms’ strategic planning.

These implications are not confined to a singular corner of the globe; they reverberate globally, particularly in countries where politicians frequently hold seats at corporate tables. As we unravel the complexities of family business governance, industry dynamics, and the acquisition landscape, one thing becomes abundantly clear—a tailored approach to corporate governance is indispensable for family enterprises navigating the ever-evolving business environment.

In the evolving saga of family business strategy, SEW, former politicians, and industry velocity are the characters rewriting the narrative. It’s a story of resilience, adaptability, and the strategic choices family firms make to ensure their legacy withstands the test of time in a fast-paced business world.

Insights by: Dr Jay Wasim and Parnia Ahmed