As the pandemic abates and we move into the recovery phase, a picture is emerging that family businesses seem to have weathered the storm better than publicly-traded companies. It is important to understand the reasons for this relative success to ensure that we rebuild the economy to ensure that everyone benefits.
Pilita Clark, the Financial Times columnist, suggests that a major reason for why family businesses have outperformed during the pandemic crisis seems to be that family enterprises tend to be more community-minded, thus representing
a kinder face of capitalism. She further reports that family businesses take a longer-term view and are focused more on resilience. And, while they tend to have lower R&D budgets than their public counterparts, they generally seem to be more innovative and focused. So, for each dollar spent on R&D, more patents and new products are created. Finally, she reports that successful family firms tend to avoid aggressive over-expansion, and instead tend to focus on their basics. This means they are less likely to have high levels of debt.
Peter Brabeck, the legendary former CEO of Nestlé, argues that this might have a lot to do with the typically more action-orientated leadership in many family firms. He contrasts this “can do” attitude from the “cannot be done” way of thinking
that can be found in so many public firms. He emphasizes that, while successful management must clearly understand the past, they must, nevertheless, abstain from looking back too extensively.
Thus, a forward-orientation is key, embracing change and flexibility. Family firms seem
to excel here. What were keys to success in the past might not work so well in the future! To always improve, to be ready to embrace rapid changes when called for, is crucial. When making mistakes, some of which being inevitable, to learn from these are also important. To repeat the same mistakes should be avoided. Family firms seems to be able to cope with this in a better way!
What are additional lessons to those already highlighted by Pilita Clark and Peter Brabeck? First of all, virtual innovations seem to come about much more rapidly now, in light of the pandemic, compared to before. It has been said that important virtual approaches to the ways in which we work seem to have been reached in, say, a period of six months compared to what might have taken, say, up to ten years in pre-pandemic times. Cost-savings are achieved. And time is saved!
A second issue relates to how many family businesses have been able to develop effective portfolios of business engagements, thereby being able to spread the overall risks, including also to generally being able to react more promptly and decisively than many of their public corporate counterparts. There is often less ceremonial “fuss” regarding getting out of business, and higher speed in the seizing new opportunities. There are typically much fewer constraints at work when it comes to internal executive committees behind decisions as well as when it comes to stock market reactions. Public companies are typically at an even higher handicap when it comes to these issues today than even before, given the added turbulence, unpredictability and risk of the business sector.
A third area where family businesses at times seem to thrive during the pandemic, relative to their public counterparts, comes as a consequence from many public corporations being forced to spin off what for them might be non-core businesses, to maintain healthy financials and protect their stock price levels during these difficult times. Such businesses often indeed quite healthy, can then be picked up by others, often by family businesses. A healthy long term growth platform is thus being built. Again, family businesses tend to come out on top.
Finally, the rapid changes in many businesses coming about largely as a consequence of the pandemic has opened up for an earlier entry of the so-called “next gen” into responsible management positions in many family companies. Younger minds are often better at coping with such often entirely new business realities. Here, public companies seem to be having handicaps too, in that executives shall continue to have to rise through the organizational ladder, typically a rather slow as well as an organization-political process.
All in all, family businesses are generally coming out as winners relative to most public firms. and are even more critical today than ever! This should be kept in mind when it comes to assessing which countries may be coming out of the pandemic crisis in the best way, and for politicians to create regulations that foster business freedom for family firms, for our educational sector, and for investors, of course.
course.
