Why family business matters

The term “family business” may remind you of that restaurant where all the staff shares the same surname, or that mid-size business you read about that went bust when the son of the founder took over.  Well, you find such family businesses, but you also find some of the biggest, most effectively managed companies in the world, like Samsung, Louis Vuitton, and Codorniu, the Spanish wine company with more than 460 years of history. Indeed, two-thirds of total businesses worldwide are family own businesses. In Greece, families control around 80% of the economy.

Contrary to what many people may think, over the long term, family business’ financial performance exceeds that of traditional public companies, according to a new study by BCG and École Polytechnique. Family businesses tend to be more conservative in hiring and firing because the business is more than a business. It represents the family, its values, beliefs, reputation, its way to make a difference in society. In general, family businesses aim for continuity, not maximizing short-term share price.

But family businesses also face challenges, and not only business-related ones, but also family-related ones, including nepotism, inadequate grooming of the next generation, conflicts within the family, and the most common of all, an ill-prepared succession.

A study by Beckhard & Dyer estimated that approximately 70 percent of all family businesses are either sold or liquidated after the death or retirement of their founders. This has serious social and economic consequences in the local communities, because most of the time, once these companies are integrated into large firms, they lose the characteristics of a family business and their ties with the community weaken.

This is something to keep in mind as more family businesses than ever before are about to pass the baton to the second generation. The reason, as a study by Joe Astrachan, of the Cox Family Enterprise Center at Kennesaw State University in Georgia, shows, is that many family businesses were created in the first two decades after the Second World War. So they are now on the verge or in the process of a change of leadership bosses.

If the family has done proper planning, succession should be a smooth transition with no major dramas.

So why do so many family businesses fail to plan for succession? One of the most common reasons is the inability of the leader to let go. Many times these are entrepreneurs that have spent most of their lives working to make the company a success. They feel that nobody is better able to run the business than them and that they have the right to do so as long as they want to. Planning for succession is recognizing that the company can live without them and that there are others who might be better prepared to lead in the future. Most of these leaders go through an inner battle between what’s good for the company (planning and preparing for succession) and the desire to keep control.

One way to change this pattern is to get counseling and education about how to deal with family business challenges as well as what are the key learnings from companies that have been able to survive over generations. Also, family businesses themselves have created global associations like the Family Business Network, with the objective to learn from each other and fight common problems.

Family businesses matter because they are a big part of the world’s economy, their way of doing business takes a long-term view and values their communities—things that corporations often find difficult to do.

Related links:

http://www.fbn-i.org/fbn/web.nsf