Paradoxically, such crisis was caused by abusive corporate practices adopted by corporations established precisely in the countries which carefully elaborated the standards of best corporate governance practices. In time, these standards have become the mantra of politically (and economically) correct corporate speech.
The corporate practices adopted by companies in emerging economies, on the other hand, were always seen with mistrust, mainly because the incipient stage of adoption of modern principles of governance and transparency seemed to indicate such corporations might be more inclined to see to the particular interests of their controllers rather than to the general interests of stakeholders.
However, the outcome of the recent succession of crises and scandals in the globalised economy is the emerging economies and their corporations did a lot better than their counterparts in developed economies. Although it has been argued
a higher involvement of the state in the emerging markets may have exerted a softening impact in the effects of the crisis in countries such as China, Russia, and Brazil, another fact certainly contributed to reduce risk exposure: the prevalence of family businesses in emergent countries.
Access to the capital market as a means of financing businesses has only recently started to become an established practice in emerging economies. As a result, the dispersion of sharing control is not a key feature of such companies. Therefore, corporations in emerging countries are either state-controlled or family-controlled.
In Brazil, for instance, 80% of all businesses are owned by families and 21% of GDP comes from family-controlled companies. Decades of high inflation rates and exorbitant interest rates have deprived Brazilian businesspeople of access to cheap financing and to capital market.
This circumstance has underscored the need to make intra and extra-families alliances as a means to augment financial power and to do new business. The formation of family-controlled corporation groups, present in several economic areas, has become a very peculiar feature of Brazilian capitalism.
Some aspects of the Brazilian culture and character, such as their conciliatory spirit and their skills at alliance making around programmatic interests, are always mentioned. A clear example is given by the recent announcement about the agreements reached through Brazilian mediation, on Iran´s nuclear program. When coupled by the recent economic growth and enhanced regulatory policies in Brazil, these aspects grow in importance.
The fact is the Brazilian example has shown that keeping corporate alliances between family businesses relies on affinity and trust established among the head members of the families. Trust is an atavic need of human beings and it can be more easily built among groups which know one another and who organise themselves around common needs and affinities.
In contrast, impersonal corporations managed by temporary heads of boards who are not controllers do not allow for the formation of direct long term bonds of trust. In impersonal corporations, the reputation is the mediation factor that warrants the trust between the company and stakeholders. When the reputation is at stake, as we have seen recently, the bonds of trust disappear and businesses suffer tremendous consequences.
It is in this scenario that corporate alliances among families gain importance and are up-to-date: they foster trust in the common interest of perpetuating the business. Therefore, the conservative take in decision-making processes and the aversion to extreme debt leverage are common views which mutually reinforce the feeling of comfort and safety.
Family business alliances make both the negotiation of interests and the decision-making processes more agile and direct; they enable face-to-face interactions between two (or more) heads of family who hold decision-making power and authority to influence and align their respective family groups around consensus.
In contrast, the decisions of huge corporation are usually the outcome of lengthy and complex processes. The several and varied stages of decision making and power sharing have always been regarded as a guarantee of staving off personal interests and preserving corporate interests above all. However, the complexity of some decision-making processes in big corporations seems to have backfired in a great deal of cases.
The emerging economies are made up mostly by family companies. Nowadays such economies have the huge task of keeping consuming the world’s production of goods and services. While the USA are starting a slow process of recuperation, and Europe is overwhelmed by yet a second wave of crisis, it is the emerging markets, such as the Brazilian and the Chinese ones, among others , which are sustaining the globalised world’s growth and seeking new business opportunities.
Such growth is leading a great part of family corporate groups in emerging economies to take their businesses international. Entrepreneurism in new markets adds a range of risk factors to a business, for national societies differ profoundly in their cultural, legal, and regulatory characteristics.
In a scenario of uncertainty and risk, trust is the antidote for overriding hesitation. The direct access in negotiation, the fast decision-making process and the good reputation of families and their heads are qualities regarded as fundamental for family corporate groups in emerging markets. When such qualities are mutually acknowledged between potential business partners, the bonds of trust are shaped and the partnership becomes highly feasible.
We believe the establishment of partnerships and strategic alliances among family corporation groups in emerging markets can guarantee, above all, the continuity of business. In Brazil, energy, infra-structure and agribusiness are promising examples where successfully alliances were reached between Brazil and other emerging markets family business groups.
Goodwill matters considerably in business and the current generation of decision makers will influence the next generation to keep up with the family reputation. Reputation, as we all know, is highly dependent on keeping up the word given. Corporations with no face and fluctuant command are not able to maintain long term commitments, because commitments are dependent on trust and trust is a face-to-face exercise.
