The second pillar is that a CFB has a ‘dominant family head’. CFBs usually are controlled by a dominant family head who has the final say on all important decisions for the business and has maximum flexibility in his action. This person may have advisors who will be family members or close friends who will provide the head with most of the information they need. Managerial ideology is shaped by Chinese cultural values such as clear hierarchy, reciprocal vertical obligation, benevolent autocracy etc. (Tsang, 2002). Often a lower level manager will go straight to the head without going up through the chain of command.
This emphasis on family-cantered decision making can lead to difficulties within the business that can affect their business performance. For example, business responsibilities are sometimes vaguely defined, and CFB’s emphases on family loyalties makes it difficult to form close and cooperative relationships with non-relatives and conscientious managers can often lead to them feeling left out and frustrated and therefore leave the business when opportunities beckon. More importantly the lack of transparency can be discouraging for Western businesses who do not understand the principles of how CFB system functions (Chen, 2001; Whyte, 1996).
Though the family head has complete control over the businesses’ capital, it is not his personal property. He is just a trustee of the CFB assets which ultimately belongs to his children. So the emphasis is on the continuation of the family line rather than utilising capital to its maximum for highest profit gains (Wong, 1985). The third pillar is that a CFB focuses on ‘family obligations and enduring roles of members’. The importance that the Chinese place on family is most clear when a family business is passed down from one generation to the next.
Heirs feel a sense of responsibility and respect for their family and its business and it is seen as more than a financial support for the heirs. It is seen as a connection to their parents and further into their past. Chinese pride is as critical as economic success and prosperity (Chen, 2001). This therefore can lead to actions or decisions being taken that do not benefit the economic success or prosperity of the business but rather for their pride and their families’ pride. This again demonstrates how CFB’s place family before business success.
A clear example of how family is placed above business profits is shown in the inefficiency of a CFB due to nepotism, meaning favouritism shown to family members in employment. CFBs cannot appoint, reward, discipline, and fire business members according to their qualification and performance because individual treatment is always skewed by the obligations attached to family roles. Even if no family members are has the required skill to manage the business, family members or extended family members are always preferred over outside professional and skilled managers.
This can therefore have an impact on the success of the business as unskilled, ill-knowledged managers may reduce profits and wealth, so showing the families’ disregard for profits and emphasis on the family. Furthermore, the CFB may take on many extra relatives as employees, even when those relatives contribute very little or constitute a drain on resources. Even more importantly, if the head of the family and business is no longer able to make wise business decisions, he or she cannot be replaced very easily (Whyte, 1996; Chen, 2001; Wong, 1985).
The fourth pillar is that a CFB is a ‘family financed and a family accountable corporation’. CFBs do not wish to rely on external institutions such as banks but prefer to rely on the family and be self-reliant. The formal accounting for CFBs tends to be for tax reasons, with the actual books kept within the family members. However, this overemphasis on keeping everything within the family such as the accounts can lead to non-family professionals not being able to make well-informed decisions for example business deals with that firm.
This can lead to a loss of business prosperity and profits (Chen, 2001) Wong (1988, p134) argues the case of modernisation theorists that “[The family] provides shelter and food for all its members, regardless of their individual contributions, so that he indigent and indolent alike are cared for…. Working members are expected to pool their earnings for the benefit of everyone; individual saving is discouraged…. Family loyalty and obligations take precedence over other loyalties and obligations.
Thus, the extended family tends to dilute individual incentives to work, save and invest. ” This then will lead to a lack of investment and so reduced business prosperity due to this emphasis on family. A further indication of CFBs focus on family over profits is the high premium placed on family loyalty is, filial piety, and reverence for ancestors conflicts directly with the entrepreneurship, risk taking, and innovation that are required for business success in modern industrial societies, (Whyte, 1996).