What corporates can learn from entrepreneurs in family-owned companies

October 12, 2021
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Business owners don‘t simply run their business – they live it. They are social and economic backbones of our communities, creating jobs and serving as role models with their „can do“ attitude. Own Business Day is celebrated every year on the second Tuesday of October.

During a range of crises - the financial and Euro crises of the late 2000s and the Covid 19 pandemic - family-owned companies survived relatively easily.

Albert Froom, Managing Partner Leaders Trust / AltoPartners the Netherlands and Global Practice Leader of Financial Services, says that these strong business performers represent over 60% of businesses in most European countries. He distinguishes between company families (investors who own and buy and sell companies) and family-run companies, where a family owns a company that is run by family members - often staying in the family for many decades, and in some instances centuries. A well-known company – in the business of manufacturing and marketing distilled spirits and liqueurs – in the northern hemisphere has been owned and managed by the same family since 1695, he says.

Is there a specific secret of success for these businesses?

Here to stay – long term outlook for sustainability

No there isn’t, says Froom. “But one can see big differences when comparing these businesses with listed corporations. The family-run company has a horizon that is far longer than the three-monthly meetings of the listed companies. They are very keen on the fact that they want to operate 100 years from now. That makes decision making processes totally different. Reflection and building on the shoulders and business experiences of predecessors gives a constant line of development.”

Thomas Heyn, Managing Partner Jack Russell Consulting / AltoPartners Munich, agrees. He says family businesses are “here to stay”, while Joo-Lee Aw, Managing Partner The People At Work / AltoPartners Shanghai & Singapore, notes: “There’s less pressure to review and react to business quarter-to-quarter, hence there is breathing space for strategic initiatives which may require more time for desired outcomes to be achieved.”

Company culture – mutual trust is a cornerstone

Froom says loyalty is high in the owners of a family business. This is often combined with a high work ethic and trust in the strategic direction the family chooses. “The family feels a big responsibility towards their staff and will do everything they can to protect and help them actively, in good times and in bad. While a change in strategy might take some time… once it is set, the whole staff will follow 100%. Trust is a two-way street in family-owned companies.”

Aw agrees with Froom that these businesses recognise that staff have families and make efforts to engage those families. Aw and Heyn add that teamwork, a shared vision and a pride in one’s brand are qualities that contribute to the success of family-owned businesses and are seen as essential aspects of the company culture.

Innovation for the long run

Froom says that the loyalty that staff feel for a family-owned business might seem “old-fashioned”, possibly hampering innovation. “In my experience, this is not the case. The family typically leans on advisors who are also there for the long run. Becoming one of those trusted advisors takes time, but once in, they develop a strong bond with the family, their values and their horizon. That gives peace of mind to reflect and try out new things without the constant pressure of being listed (and beholden to shareholders) or the need to follow trends.”

Corporate social responsibility is ingrained in the business

Jana Martinova, Managing Partner Accord ECE / AltoPartners Czech Republic, points out that family businesses have corporate social responsibility programmes entrenched in their foundations. “Large corporations communicate a lot about CSR, but for most family businesses, social responsibility is a natural consequence of the fact that they were established in that local environment. Due to the many links they have to people and authorities and their accessibility as local citizens, they play a role in the town, region or state and often reinvest a part of their profit through foundations, support of sports, NGOs and education, for example.”

Are family businesses perfect?

Of course not, says Froom. “Succession is always an issue. Does the family have enough talent? Do we have family statutes that make sure that governance is well organized? Who owns shares and who doesn’t? How do we keep inactive family members / shareholders involved?“

In addition, says Aw, family businesses can develop a ‘closed culture’, which makes it harder for newcomers to break into the inner circle. Another possible stumbling block is ‘groupthink’, when people with similar backgrounds and experiences only see the world in one way. That can lead to decisions that are not as robust as they could be. Listed-entity Nokia is one of the most famous examples of the downfall of groupthink.

Another challenge for small businesses, says Heyn, is growth. “Successful entrepreneurs may be able to develop a company from 5 to, say, 50 employees. However, the next step from 50 to say 250 is a totally different ball game. You must manage managers and complexity growth exponentially. Not everybody will be able to take the next step. It is important to be aware of that and deal with the consequences,“ he says.

Aw indicates that family businesses in early days tend to have management members who are known, or trusted by the founders, so skill sets and relevant experience may not be key selection factors. However, more highly evolved family businesses may have a mix of family/professional members, or even 100% professional managers appointed.

Successful governance in practice

Froom concurs and says that a fine example of a well-organised family-owned business is a 150-year-old company with a two billion turnover, working across the globe as contractors. “The company has over 150 family shareholders. A family member/shareholder cannot work in the company unless he/she has first worked in another company for 10 years. The company has an internal ‘stock exchange’, quoting the price of the share per day. If the family member wants to leave the company, the day price of his or her share is paid instantly, but he/she will never work for the company again. Today the CEO is a family member.”

Read our Top Tips for Success From Family-Owned Businesses

Albert Froom
Managing Partner, Global Practice Head Financial Services AltoPartners Driebergen
Thomas Heyn
Managing Partner AltoPartners Munich