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The Power of the Family

PorBen Schneider - 17 / 02 / 2015

 

Between the second half of the 19th and the first half of the 20th centuries, family businesses were the drivers behind the development of the so-called “American Dream”, which brought the United States great prosperity and development. Families such as the Vanderbilt (maritime and rail transport), Rockefeller (oil), Carnegie (steel), J.P. Morgan (banking and electricity) and Henry Ford (automotive), are examples of creativity, tenacity and audacity based on the family business model. Today, in the United States just 1/3 of companies listed in the S&P 500 are still under the control of their founders or members of the original family.

However, in emerging countries approximately 60% of businesses billing over $1 billion per year are family businesses. In the SME sector, this percentage is considerably higher. It is expected that this situation will remain the same for years to come. A study carried out by the consultant McKinsey suggests that toward the year 2025 another 4,000 family businesses will become members of this group. 

Family businesses are characterized for possessing an in-depth knowledge of their markets and greatly influencing their environment. They have proven to be “resilient” during crises, and make long-term plans. Family businesses demand higher levels of “accountability” (responsibility) of their members, given the implication of the family's honor being at stake. Another trait is fast decision-making. Most business schools prepare managers so that they will act as if they were the owners of the company for which they work. In the survey carried out by McKinsey, 90% of directors and managers, whether family members or not, mentioned that the family values are inherent to the company. The survey measured organizational health by interviewing almost 2 million employees from hundreds of companies and found that the organizational health of family-owned businesses was better than that of companies with a broad shareholder base.

While the position of CEO of a family company is held between 5 and 20 years, the CEO of companies with many shareholders remains in the position for, sometimes, merely 3 years. Large conglomerations under family control in China, India, South Korea and other emerging countries are accessing new businesses at a speed of one every 18 months.

However, the major problem that family businesses face is the succession in the line of command. Less than 30% of these survive beyond the third generation. Though there is today more awareness of this issue and more family groups seek advice in an opportune manner, the challenge remains. Another dilemma pending resolution is how to retain the human capital necessary to respond to these groups' growth, given the unclear career path for managers who are not members of the family, making it very difficult to retain “stars”.

Last of all, the role of regulators in emerging markets will be key to guarantee the dynamism of competition and so that more companies may undergo development and generate prosperity for their respective economies.