Worldwide, family companies create an estimated 70 per-cent to 90 percent of global GDP annually, according to the Family Firm Institute Inc.’s 2010 global data survey.

Stories about such businesses are often dramatic, featuring outsize personalities that are part of powerful, wealthy — and highly secretive — families. However, for journalists, family companies may pose difficulties be-cause of their lack of transparency.

The terms “family-owned” and “family-controlled” are often used interchangeably. But in general, family members are the major shareholders in a family-owned business, while in a family-managed company, the family may be a minor¬ity shareholder, but controls the company through kinship ties, management roles and ownership of special classes of shares that wield voting power.

These companies have several benefits, including:

• Long-term view in decision-making
• Flexibility
• Desire to build a business for future generations
• Commitment of family management to company

On the other hand, family firms have common challenges. Issues often include a board of directors that is not sufficiently independent; strategic decisions made by family members and rubber-stamped by the board; blurred lines between responsibilities of directors and management; and increased tensions among factions as the controlling family grows and matures.

The key issues, however, are:

• Non-professional management. Family members often serve in management positions without proper qualifications.

• Succession issues. According to economist Dr. Joseph Fan’s research of the Asian market: “In the five years after the company founder turns over the reins to the next generation, companies in the sample declined in value by an average of nearly 60 percent.” Given the importance of family businesses for emerging markets, this issue poses major challenges for economic development.

Many family businesses appoint a family council to co-ordinate their interests and serve as the primary link be-tween the family, the board and senior management. The council also suggests candidates for board membership and drafts policies on such items as family employment, compensation and shareholding.

Cultivating sources within the family council is key for journalists who want to stay on top of developments.

For more on family businesses and how they function, see “IFC Family Business Governance Handbook”: http://bit.ly/JNjkqO