Family business model is well suited to endure economic downturn as it has certain attributes that could withstand the turbulence, to survive in a downturn, said a report published recently by Barclays Wealth and the Economist Intelligence Unit (EIU). The report entitled “Family Business: In Safe Hands?” said a close network of family members who control the business helps with quick decision making and maintaining an agile strategic approach. It noted that “most family businesses have a long-term focus, steady leadership, and a strong identity and vision shared by a close network of family members leading to sustainable growth.” A mixture of stability and agility provide family businesses with the structure that allows a long-term strategic view of the economic and competitive environment, giving family-owned businesses the edge to better endure an economic downturn. When gauging prevailing motivations for creating and protecting wealth, family business members place generating regular income - 64 percent responding as important or very important - among the highest of priorities. Only 53 percent of non-family business members held this view, indicating shorter term priorities. Family-owned businesses are the cornerstone of the global economy and while common perceptions of the model are that of dysfunction plagued with structural issues, it remains a stalwart model that contributes to overall global economic health. Attributes such as a strong relationship with their community, long-term perspectives and a dynamic approach to decision-making have made family businesses a significant part of the global economy. Soha Nashaat, CEO of Barclays Wealth Middle East, said: “Accordingly, family businesses and their long-term strategies need to be examined to explore their longevity and viability during these difficult economic times. Lessons learned from family businesses could prove to be very apt during this unprecedented time and non-family owned business could take some strategic insight from this most enduring model”. A long-term perspective means that family businesses can exercise prudence during both upswings and downswings in the economy. They are less likely than listed companies to pursue adventurous growth strategies to satisfy short-term investors during a boom and some academics have argued that they are more likely to invest through a downturn, giving them a sustainable advantage over non-family businesses for whom there are wider swings in performance and investment. Additionally, the family business' position in its community plays an important role in its development. Philanthropy is one such example. For instance, family business members are far more likely than other wealthy individuals in the survey to consider the ability to help others, contribute to the health of their community and increase their social status as key motivations to amass and protect their wealth. “Particularly in the Arab world, philanthropy is deeply rooted and many families support initiatives involving the underprivileged. Such families are beginning to formalize their charitable activities by developing strategic plans, programs, funding and sustainability. “More than half of the respondents in the Barclays Wealth report see the ability to help others through their wealth as important, compared with 39 percent of other non-family businesses, and there is a similar difference in opinion regarding the ability to increase social status. These findings reflect the widely held view that family businesses often have a strong relationship with the community and have broader motivations when starting their business than merely making money,” Nashaat added. The study also included what family business members deemed the most important advantages of the model. A strong support network from family members (48 percent) was seen as most important. Shared values and ethos (39 percent), ability to think long term (38 percent) and the ability to make decisions quickly (37 percent) followed. Shared values make a particularly high impact on the direction and efficacy of a family business, which in turn influence shared objectives. According to the survey, clear and shared objectives are essential for the family business, and were identified as a key characteristic for success by 44 percent of respondents. Shared values and ethos should extend into clear and shared objectives among the family members. This is particularly important because of the potential overlap between the goals of the business and the goals of the family. Where the greatest danger lies in the family business model is succession and governance. Survey respondents identify succession planning as the most important characteristic of a successful family business. Yet all too often, plans for the transition of the business to the next generation are not made early enough, which leads to undue internal conflict. In order to meet these challenges, family businesses should consider the full range of tools available to them, including a greater separation of ownership and control, and wider use of external management, which in turn aids in other governance issues. However, it is the structure and support system within and outside of the family business that gives it its competitive advantage over its non-family business counterparts. Nashaat further said “in theory, one of the benefits of a family business should be the lack of internal friction and politics, compared with a big organization where people have to fight for resources and capital allocation. A strong support network allows the family to support itself in the longer-term with both insiders and outsiders - those that don't have active roles - rallying around and working together unified as a group.”
