Family businesses are rarely in the limelight, but they are engines of economic growth and, in the coronavirus pandemic, they have proven what research has shown for years: they outperform in disasters.
Ongoing research from Credit Suisse has found family firms recorded a stronger financial performance than other companies in 2020. The pandemic was also an opportunity for many family businesses to shake-up their business models, mostly through digitization, a source of revenue and profit growth.
They have sought to engage in long-term planning too, with some institutions enlisting the help of business schools to play to their strengths, especially during the pandemic. “In a turbulent world, executive education is required to stay ahead of the curve,” says Professor Kavil Ramachandran, executive director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business.
A number of high-ranking schools cater to family businesses with open-enrolment executive education programs that combine broad leadership skills with the specific expertise that family-owned companies require. This includes the Leading the Family Business program at IMD Business School in Switzerland.
Resilient, frugal, and entrepreneurial
Family businesses’ focus on long-term thinking and on resilience is well established, but research also shows that family firms are more frugal, community-minded and even more innovative than other companies.
“Research demonstrates that family businesses show greater resilience and achieve better results. This success can be attributed to a combination of various elements: longer-term and dynamic entrepreneurship with a conservative allocation of asset management,” says Philippe Pelé Clamour, an adjunct professor at HEC Paris.
After the 2008 financial crisis, they had far lower insolvency rates than other companies and they play an important role in the labor market, employing more than half of private sector workers in the UK alone and accounting for 85 percent of companies across the globe.
Their success comes down to their understanding of the value that a unified group of owners committed to long-term ownership brings to the business, says Professor Jennifer Pendergast, executive director of the John L. Ward Center for Family Enterprises at Northwestern University’s Kellogg School of Management.
“Those behind effective, harmonious family businesses understand that maintaining family ownership across generations requires effort and investment in building structures, processes and policies to guide the family’s involvement in business, governance and other roles,” she says.
The complexities of managing a family business
Kellogg has a suite of executive programs for family business leaders including the Family Enterprise Boards and Leading for Impact within Family Enterprise courses. Pendergast says executive education programs raise awareness of the complexity of managing a family business and the common challenges they face worldwide as they transition across generations.
“They allow family groups to dedicate time away from their daily life to think about their ownership and plan for the future,” she says. “We recommend that groups of owners come together to develop a common understanding and language around the challenges they face.”
Pendergast says the programs are also valuable for other stakeholders, including spouses, non-family executives and board members. Many family business executives will be under extreme pressure. A full-time MBA might be out of the question; an executive short course could be a better option.
“If these individuals can’t take significant time away from their career, an executive program can be a great supplement to on-the-job learning,” says Pendergast. “Moreover, executive courses can introduce future leaders to a cohort of peers that can serve as a sounding board on sensitive challenges and decisions they may face in the future.”
A different range of concerns
Family concerns are different to regular companies. For example, they typically have a concentrated ownership structure with a small number of major shareholders controlling the business. ISB’s Ramachandran says family businesses have a tightrope to walk in finding the optimum balance between the family’s goals and the business’s priorities.
“Family members tend to get priority in jobs, not always on merit, while the organizational structure may not be fine-tuned, and the dividend policy may include the requirements of the family shareholders,” he says. “The family and the business often have conflicting goals.”
ISB runs an executive course called Next Generation in Family Business, that is about successful leadership transition across generations, which is crucial for family business continuity. “The major benefits are creating awareness about the unique challenges of managing and growing a family business and coming to know of the best practices in areas of professionalization and governance that are required to build a successful family business,” says Ramachandran.
He adds that a successful family business also has high quality communication among family members who have shared goals and priorities.
Over in France, HEC Paris runs a certificate program called Governance and Management of Family Businesses, which exposes participants to practical learning with a key focus on board simulation.
Executive courses can help family businesses in various ways, according to HEC’s Pelé Clamour: “Firstly, by exposing them to a diverse set of peers. Secondly, by addressing internal issues in a safe and confidential learning environment. Thirdly, by attracting various generations in the classroom and sharing a vision and leadership values together outside of the wall of the family world.”