Success of Family Company: Critical Evidence from the United States

TRENDY EKONOMIKY A MANAGEMENTU TRENDS ECONOMICS AND MANAGEMENT ISSN 1802-8527 (Print) / ISSN 2336-6508 (Online) 2016 27(3): 57–66 DOI: http://dx.doi.org/10.13164/trends.2016.27.57 Success of Family Company: Critical Evidence from the United States Anastasia Petlina Abstract Purpose of the article: The purpose of the paper is to define the point of family company’s success. The object of research is family business as an economical phenomenon. There is a double subject of this study: firstly, to find out the main resources, from which information about successful companies can be detected and, secondly, to analyze one big family company as case study for identification its key success factors. Methodology/methods: The article was prepared on the basis of general theoretical scientific methods, in particular analysis, synthesis, analogy, comparison, generalizations, deduction and methods of expert estimates. In the first phase secondary research of scientific literature and electronic resources about the paper topic was conducted. On the base of that result, the primary research was conduct, which is based on analysis of family company E. & J. Gallo Winery. Based on the received information, the key success factors were identified. The sources of the research are internet web-pages of the company, articles about company in famous Czech business magazines and scientific journals form Emerald database, reports of company and financial data from Amadeus database and The Global Family Business Index. Scientific aim: The aim of scientific research is to improve the understanding of family company’s success from the perspective of difficulties faced by family company. Findings: The results of this study allowed the finding of a main point for the family company’s success based on review of key sources about successful family companies. In addition, activity of E. & J. Gallo Winery was analyzed as the case study for critical evidence that phenomenon. Conclusions: This study has contributed to the theoretical body of family business research providing an important first step to gaining insights into the family company’s success and its key factors which influence effective functioning of family company. Keywords: family, family company, success, winery JEL Classification: D10, M50, R1 57 Anastasia Petlina: Success of Family Company: Critical Evidence from the United States Introduction famous of them is Fortune or Forbes. For example, Fortune magazine annually compiles the Fortune Usually, it is said, that performing of companies 500 ranking, which ranks the US private and public can be measured by its success. But what success of companies by gross revenue. Other rankings include company means? This paper describes an attempt to Fortune 100, Fortune 50, etc. (Fortune 500, 2015). explain what the success of the company is and what They are well-known also in the Czech Republic. At factors affect it. For determination the success fac- the regional scale the most popular are “Company tors for company, first of all, it is necessary to find of the Year”, “Entrepreneur of the Year”, “The best out the meaning of that term. One of the term is next: Czech 100”, “Personality of the Year”. “A successful company is one which, behaving ethi- Besides that, competition “EY Entrepreneur of the cally and legally, creates value, independent of the Year” (EY Podnikatel roku) is very popular in the owners’ efforts. This usually results in a sustained Czech Republic. That is the world’s most prestigious stream of profit, and a positive market value, re- competition of entrepreneurs, which pays tribute to presenting the anticipated future profits” (Russell, exceptional individuals. It is founded by EY in the 2014). Some companies are just better than others. It United States in 1986. Its aim is to show the public could be name recognition, innovation, market share exemplary individuals in the field of business, which or any number of other attributes that makes a good can be as example model for aspiring entrepreneurs. company stand out from the herd (Schmidt, 2016). EY Entrepreneur of the Year competition is conce- As concerns family companies, they are widely ived as an international competition, so are criteria seen as the backbone of the economy – they crea- by which they are judged on individual participants, te wealth, they provide jobs, they are locally rooted comparable in every country. The winners are se- and connected to their communities and they seem lected by an independent jury consisting primarily to be around for long periods of time. Yet, despite of previous winners of the competition. Currently, the many positive aspects of family companies, there the only internationally recognized competition of is also a darker side. Family conflicts, incompetent its kind regularly held in nearly 60 countries on six members of the next generation and flamboyant life- continents. The main motto of the competition was styles are just some of the more frequent criticisms the slogan: “The key is to have the courage” (EY about family companies (Schwass, 2013). It is very Podnikatel roku, 2015). The main mission of similar difficult to determine what exactly success of fami- competitions is not only a comparison of turnover or ly company is, because the term “success” is very company’s profit, but also benefits of company for subjective impression, and what is success for one the society, relationship to the environment and a fo- person is not the same for another. Thereby, in the cus on business sustainability (Von Schantz, 2005). beginning it is important to establish criteria, accor- In reference to family companies’ ratings, the ding to them, the success is considered (Christopher, magazine Forbes makes different ratings, for exam- 2011). If summarize this proceeding, the company ples, “The 500 Largest Family-Owned Companies success could be term as selection of corporate stra- in the World”. The Global Family Business Index, tegy and defining corporate goals. For determination published by forbes.com compiled by St Gallen of success of family company, we should add the University, with the support of EY, ranks the world’s family factor, as Michael Porter noted in his work, biggest family businesses in terms of revenue. The the company can choose the development direction. ranking also quantifies who owns the business, how But if company will not choose exact way or will much they own, how many people they employ and follow several strategies, it can lead to failure. This when the business was founded. The index underli- paper analyzes the factors of success of E. & J. Gallo nes the sizeable role that family businesses play in Winery as the largest family-owned winery in the the world economy. In 2013, the top 500 contribu- world today. ted more than half of what the entire Fortune 500 companies did in terms of revenues (Bain, 2015). Although Forbes provides the “Top 25 Largest Fa- 1. Short Review of Sources about Family mily-Owned Companies in The World” and “The Company’s Success Best Family Businesses”, which describes the list of the America’s Largest Private Companies to come On the market there are a number of organizations up with a collection of the 15 best family companies, that value companies based on various criteria. The- in terms of both size (revenue) and longevity (year re is a lot of information about companies’ value in they were founded), with these variables equally magazines based on success of companies, the most weighted (Eichenberger, 2011). 58 Anastasia Petlina: Success of Family Company: Critical Evidence from the United States Determining of company’s success depends on and that subsequent generations continue to manage the formulation of subjective and objective further (Schwass, 2013). objective methods. Success can be seen as a con- tinuation and even the survival of the company in difficult times, when the company is still able to 2. Critical Evidence of Family Company’s realize their strategic objectives. For objective cri- Success from the United States teria could be a different assessment. Assessment of the success can be performed by many methods. As it is known, the wine family business is a bright An integral part of most companies is currently representative of the oldest and traditional economic controlling department, which is responsible for in- activities. Thus, it was decided to use case study ternal evaluation of the plan with reality and after from wine sector, which describes well collabora- department transmits feedback to management. Sta- tions of family traditions and business innovations. tistical evaluation may be other method, which de- As an example company E. & J. Gallo Winery was pends on the size, industry, location of the company, chosen as the best representative successful fami- Quicktest, liquidity. Companies are often evaluated ly company in wine international trading business, through cash flow (Čížek, 2014). see Figure 1. This is largest winemaker in the world Interesting opinion according to family business from the United States, with production of nearly success belongs to Don Schwertzler. He claims, that 900 million bottles per year. the alignment of personal and professional values Gallo produces one in every three bottles of wine is a hallmark of thriving family businesses. “Su- ccessful family company tends to have the family’s values and culture deeply embedded into their business strategies, policies and practices,” says Don Schwertzler, co-founder of the Atlanta-based Family Business Institute. Schwertzler suggests that these Figure 1. The logo of the E & J Gallo Winery brand. values must be clearly defined, communicated and Source: E. & J. Gallo Winery, 2016. reinforced with family-business employees understanding the critical importance of standards and made in the United States. While best known for leaders possessing the ability to confront behaviors its inexpensive jug wines and such fortified varie- that violate the standards (Levit, 2015).

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