The more I live with family firms and analyze the environment, the clearer I have that the concept of family firms must be transformed to adapt to a new reality. We live in a society in permanent change in which, what remains stable, is the change. A society in which paradigms change. A society tremendously impacted by the double effect of globalization and digitalization.
Just to illustrate the impact of these changes. The life expectancy of Fortune 500 companies is 40-50 years, just over a generation. Since 1999, almost half of the Fortune 500 companies have disappeared. More evidence; Professor Mark Perry from the University of Michigan points out that only 12 percent of the Fortune 500 companies listed in 1955 survived in 2104 (2014). Professor Richard Foster of Yale University points out that the life expectancy of a listed company in S & P is aged 15 today when they were 67 years old in the 1920s.
On the contrary, in Japan there are more than 20,000 companies with more than 100 years. Professor Makoto Kanda of Meiji Gakuin University points out that the reasons for this are: their small size and flexibility, being family-owned business and focused on a higher purpose rather than pure profit-making. In the opinion of the Japanese teacher these characteristics must be maintained to continue their long life.
Interestingly the values traditionally linked to family business such as commitment, honesty or long-term vision are a trend. There are more and more funds that only invest in family businesses because their greater profitability in the long term is evident.
While recognizing the extraordinary value and contribution of the family business, I can not fail to stress that this context forces business families to think differently. To consider classical paradigms. In my experience, the family business has been too often engaged in internal debates; In resolving family matters; In managing conflicts, even artificially created; or putting personal problems on the table that overshadow the general good. The more inbred business families have these behaviours more present. The lack of vital and professional experiences outside the scope of proximity and of the familiar business potentiates these situations.
In this “Society of Change” that we have to travel in, many times the family legacy is going to experience important mutations. Without that, for me, it would alter their status as a family organization. I believe that the concept of family business, such as family, today must be much more flexible and open. If my grandfather was born in Cáceres, I cite my hometown precisely so that no one is offended, and put a hat shop in his Plaza Mayor, the rest of generations are not prepared to continue developing this same activity. There are families that started marketing crude fish and today lead the telephone and technology industries. This would be Samsungs’ case.
Others have sold the family business and their legacy has become more liquid while waiting to identify new business opportunities in which to invest. Some others have kept the company created by the founding generation but have diversified into several other businesses. Increasingly, there are more cases of family businesses that open up to talent or external capital. Many, more and more, have evolved, according to academic terminology, from family firms to entrepreneurial families. In an entrepreneurial family , unlike what happens in the classic concept of family business, many of the family members end up creating new businesses. This proposal allows the Family Business Group to grow and diversify risks. At the same time, with a very open and positive attitude, the potential of the members of the family is developed, who dedicate themselves with special enthusiasm and passion to the activities that most excite them and in which they will most enjoy being able to deploy their particular strengths. Therefore, we are faced with a much more flexible concept of family business. Of course, with another very unique feature: family control.
But I would like to go one step further. Transforming an entrepreneurial family to an enterprising family. In the family / business ecosystem, it is too often confused the respect for tradition and stability with immobility. It is not enough to realize that the current scenario of business competition forces us to act under a much more pragmatic, rational, flexible, and professional prism to act with agility and forcefulness to new challenges.
Many family businesses leaders, today, have understood this new situation and should serve to set the tone for the rest. They are the leading family companies of the 21st century, which I often call “family businesses 4.0”., In many cases already governed by those who have been around before; they have found very successful formulas for management in which they blended academic learning, work they did in other companies with the experience gained working side by side with the founders. Definitely, avant-garde entrepreneurs who have respected tradition, have preserved values and on this basis have innovated in business models, in forms of management, or in products and services. It is the wise mixture of values and adaptive innovation. We are talking about true family entrepreneurs and entrepreneurial families who have understood that their companies had to face new challenges.
Closer economy contexts allowed for the existence with some success of family SMEs managed in an artisan way, although with a huge commitment. Today that is no longer a sufficient condition. You have to reach excellence levels. But, the same thing happens with the management of a family, it is every day formed by members with varied cosmovisions and with structures that move away from the classic biparental mononuclear family.
In the entrepreneurial families it is demanded to add talent. The succession processes do not suppose getting rid of the previous generation so that the next generation uprises to the throne of power. There are so many challenges that need to be addressed today that they will need multiple roles to exercise with singular responsibility. Let’s think openly and holistically. There will be needed family members who assume classic roles: shareholders, executives or members of the governing bodies. But it will also require family members who are responsible for leading the family’s patrimonial management, giving it coherence with the global strategy of the family / company ecosystem.
In the same way as family members who promote philanthropic action and / or social entrepreneurship; With a clear perspective of creating shared value for different stakeholders and particularly of society as a whole, focusing on the contribution to the resolution of the major issues on the global agenda (environmental sustainability, unemployment, social inequality, socio-economic / political uncertainty, …). And, of course, family members must be found for family management, a reference stakeholder, in this type of organization.
The traditional family business has been very inbred and little given to establish connections with the environment. It is very closed to the entrance of partners of any nature. Today I believe that model will not work. Any organization is building networked organizational schemes to meet the demands of these new scenarios. It is not difficult to imagine family companies that, from their holding company, tackle different projects. In some cases with local partners to help develop international expansion more fluently, in others with investor partners to take advantage of narrow windows of opportunity. Constructing globally its value chain, and with global and diverse teams, with much more institutionalized structures and active presence of independent directors.
On the other hand, a more open spirit is also required to make it easier for the members of the family to also undertake so that they coincide in the foundational project but can address others. The traditional business cow, with some exceptions, can hardly give milk for all, as its family multiplies.
Business families must control and like change management processes to reposition itself in this new time, be able to transcend its founders, and realize the dream of continuity that gives meaning to these organizations.
I am talking about processes that demand a strategic vision and a strong leadership to put all the puzzle pieces in the right place. The management of change does not know about shortcuts, it is an important task that goes from less to more.
The business family needs to start a strategic conversation between its members to set solid bases for its present and, especially, for its future. Where are we and where do we want to go. What do we want to be and what we do not want to be. Without this shared reflexion process, all the tools available for the project will be like wet paper. I am talking about undertaking a project with a holistic scope that goes further than writing a family protocol.
One main objective of the entrepreneur families must be growth. A big challenge of the national diary in a country like Spain, whose average company is still much smaller than their homologous countries. My thesis is that the family business is specially obliged to grow. First because of competition reasons in a high crowded and every day more global environment. It has to be reach a scale to compete and the growth provides tools to keep on investing in key resources. Secondly, to go on being a relevant source of income and/or patrimony of a family that expands more and more with the passing of generations. This last issue is specially important in latin contexts where the family core is very wide and their vocation and reality is to stay united.
For all this we consider that the entrepreneur management gets an essential role to ensure the competitiveness, the profitability and the evolution of the company that should lead to the leader family business. Leadership that should start as local, but after should be national, regional or… global. Do not forget that leadership is a source of comfort for companies that generates great advantages. For example, for talent recruitment. We already know that the more talent, the more competitive a company will be. The growth is determined by the impact of the management of successives entrepreneur leaders by generations. The biggest fortune or intelligence in the succession process.
Definitely, the darwinist thesis are in full validity nowadays in the business world. The traditional family business has to transform into an entrepreneur family. With that vital attitude owned by an entrepreneur that leads to the creation of a legacy.
Of course the organizational transformation has to start with a personal transformation. The first rule will be that the set of mind of the leader has to change. The scaling up processes have to start with personal scaling up. After that, the management and good administration tools of the family/business/patrimony/philanthropy environment will come.
Manuel Bermejo is actually the director of Programs of high direction and family business in the IE Business School and President of The Family Advisory Board’…