Only 30% of family businesses make it through to the second generation

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A study by the Chamber of Industries of Costa Rica – Cámara de Industrias de Costa Rica (CICR), reports that 90 out of 100 companies in the country are family businesses.

These companies, a total of 57.687, of which 8.282 are industrial in nature, represent 60% of the GDP and generate 70% of all private sector employment.

Martha Castillo, Chamber VP, explained that only 30 out of 100 family businesses pass on to the second generation, 15% to the third and only 4% reach the foruth generation.

3A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being.

In some countries, many of the largest publicly listed firms are family-owned. A firm is said to be family-owned if a person is the controlling shareholder; that is, a person (rather than a state, corporation, management trust, or mutual fund) can garner enough shares to assure at least 20% of the voting rights and the highest percentage of voting rights in comparison to other shareholders.

Some of the world’s largest family-run-businesses are Walmart (United States), Samsung Group (Korea), Tata Group (India) and Foxconn (Taiwan). Family owned businesses account for over 30% of companies with sales over $1 billion.

In Costa Rica, some of the prominent family businesses include Grupo Servica, founded in 1974 by Enrique Chavarría  (now deceased); Grupo Constela founded in 1932 by Manuel Constenla Meijide, as a distributor of food, wine and liquor and today a mass consumer distributor.

Family businesses has some ineherent problems to deal with, like if the interests of a family member is not be aligned with the interest of the business. For example, if a family member wants to be president but is not as competent as a non-family member, the personal interest of the family member and the well being of the business may be in conflict.

moog1Or, the interests of the entire family may not be balanced with the interests of their business. For example, if a family needs its business to distribute funds for living expenses and retirement but the business requires those to stay competitive, the interests of the entire family and the business are not aligned.

Finally, the interest of one family member may not be aligned with another family member. For example, a family member who is an owner may want to sell the business to maximize their return, but a family member who is an owner and also a manager may want to keep the company because it represents their career and they want their children to have the opportunity to work in the company.

Grupo Servica fue fundado en