Family businesses are renowned for their resilience, their emphasis on the long term and their ability to pivot quickly in a crisis. However, like publicly traded firms, family businesses now face a tough macroeconomic environment with inflation and interest rates rising. But more than other companies, they face special challenges related to corporate governance, including succession.
To help family enterprises navigate these trials, many business schools now offer family business courses in their executive education departments. That is a recognition of the need for the specific expertise that family-owned firms desire, combined with broader lessons in leadership.
For schools, family businesses are a massive market of potential students and an important economic driver, too. “The majority of businesses around the world are family controlled including in the United States, Europe, Asia, the Middle East and South America. Family businesses play an important role in employment and the gross domestic product of every country. So, it is important that these businesses are well prepared to deal with the challenges they face,” says Randel Carlock, the Berghmans Lhoist Chaired Professor of Entrepreneurial Leadership at INSEAD, a business school in France, Singapore and Abu Dhabi.
He says the demand for family business courses has been “very strong” since the impact of COVID-19 has been reduced in many parts of the world. Research shows that family businesses weathered the pandemic better than most other types of companies, making fewer layoffs, reducing their expenses, and renegotiating contracts. But many now face tougher economic times ahead.
“The turbulent, 21st century external ecosystem requires everyone to continuously improve their knowledge and skills because the world is changing so fast,” says Carlock. That is why INSEAD offers the Family Enterprise Challenge, an executive course designed to meet the special learning needs of enterprising families. The course is experiential and makes each family business a live case study, so the participants all learn from one another.
Systemically important businesses
INSEAD is far from alone in catering to this large and systemically important group of business leaders. The IÉSEG School of Management in France offers the Program in Management of Family Businesses. Delivered in partnership with the Luiss Business School in Rome, this program is designed to identify opportunities for growth and development of family businesses.
There is a growing demand for the course from family businesses coming from emerging countries such as India and Colombia. “Each family-owned business is unique. It must constantly open up and be inspired to question a model that has worked for a generation,” says Antoine Decouvelaere, Executive Education Deputy Director at IÉSEG.
He adds that they also face major challenges in terms of succession, and question themselves about their business model, in order to align it with the values of the family. “Intergenerational issues are at the heart of their decisions. The differences in points of view raise questions about strategy, governance and also management of the company,” says Decouvelaere.
Family enterprises endure the same business and macroeconomic challenges that all others face, but they have additional tensions, experts agree. “The struggle to establish rules around the benefits of the family enterprise like dividend policy, employment rules, ownership transfer and use of company assets adds extra intensity to working within a family enterprise,” says David Simpson, Director of the Business Families Centre at Ivey Business School in Canada.
Communication is typically the biggest challenge, he adds. In partnership with the professional services firm KPMG, Ivey Business School offers the FamilyShift program to provide strategies and tactics for addressing family business issues.
Nurturing the next generation
One focus area is the next generation. “Many of the young adult generation who are beginning their careers have grown up in a socially conscious world and have disdain for the businesses their parents created,” Simpson says. “They may yet be active in their family business, but they see that their family name is attached to projects extracting oil or minerals at the expense of earth’s health, or cutting down old growth forests or exploiting labor forces in unregulated countries.”
Ivey helps establish “family councils” which facilitate communication channels and lessen friction and establish clear guidelines, principles and values. “An overall understanding of the governance mechanisms that help families transition and grow is the outcome of our initiatives,” says Simpson.
He adds that family enterprises ultimately outperform other ownership structures on most key metrics, in terms of stronger employee relationships but also shareholder returns and revenue growth. “Simply put, family enterprises have a long-term view, and are steeped in values and prepared to weather economic storms better than other forms of business ownership. So, it is essential that we educate them.”