What if family firms have got it right?
The family business model is making a comeback, and one of the main reasons is that these companies are highly resistant to the vagaries of the economic cycle thanks to their entrepreneurial dynamism and the natural financial prudence of their shareholders. This model is largely built on a core set of specific features: the ability to galvanize a long-term vision between shareholders and management, based in particular on powerful values; “patient capital”; deep local roots; a “natural” responsibility for the surrounding environment; and on-going innovation.
By Jonathan Chaignon, Pierre-Emmanuel Costeux and Laurent Allard from Family & Co: experts in supporting families and family firms (March 2022).
Family firms are forward-looking (but keep their feet firmly on the ground)
The nature of family businesses (and their family ownership) lends itself to long-term commitment. Shareholders and managers pursue long-term goals both for themselves and the company. This relationship also gives family-run firms a genuine modernity at a time when there is widescale agreement about the damage caused by short-termism and the need for companies and all their stakeholders to prioritize the long haul.
This relationship to the long term is expedited via a system sometimes known as “heritage” management. Family shareholders, for instance, prefer a reasonable level of dividends not just so they can re-invest over the long run, but also so that employees have a direct interest in the firm’s performance (payment of profit sharing or access to capital). It follows that these companies are less prone to the pressures of very short-term profitability.
Family firms create commitment
A family business comes with a heritage that is guaranteed by the firm’s shareholders and managers. This heritage – which has an even higher profile when the company bears the family name – is made up of certain values and a way of being and doing things (including the way business is conducted).
According to a 2018 PwC survey,1 most family business leaders (whether they are part the of the family that owns the company or not) have a clear sense of the firm’s values and objectives (97%). These directors believe that the owning family has a distinct set of family values (81%) and that these shared values have a positive impact on building the company’s reputation and the quality of the work environment, as well as facilitating the recruitment and retention of talent.
Similarly, a 2022 report by a French research center devoted to family entrepreneurship2 concluded that: “The commitment to the company is much stronger among managers when they work for a family group, with 97% identifying enormously with the family mindset that is specific to family businesses. This attachment to the company is backed up by transmitting and communicating strong values such as mutual trust (86%) and relations between colleagues (77%).”
These values that are passed on promote a sense of belonging, loyalty, trust and commitment in all the company’s stakeholders.
Family firms are responsible and innovative (which is the right solution, given the context)
Family businesses have always assumed responsibility for their immediate environment since they have historic roots in their localities at the crossroads between heritage issues and economic interests. Many of these firms have played a structuring social role at local level.
This “natural” CSR usually survives when a founding director passes on. It is built to last and becomes a unifying factor for the company’s stakeholders who are collectively committed to this purpose. Such was the case with Jean-Baptiste Godin, founder of the eponymous factory, who created what he called a “familistère” in the town of Guise in northern France in 1859. This consisted of a vast complex of services and housing units specially designed for Godin’s workers, who benefited from social advantages that were ahead of their time, including health insurance, retirement and so forth. And then there have been numerous family directors, such as Adrien Allard, founder of Allard Emballages in Brive-la-Gaillarde, who paved the way for the Corrèze family allowance fund in 1932.
This commitment to a firm’s “raison d’être” is developed and renewed until it becomes an integral part of the corporate project. It plays a role in the collective identity, defining the company above and beyond its business lines, and also makes it possible to look towards the future. It opens up new avenues and encourages a different way of doing things and to embark on new markets and in different activities. It helps to modernize the image of a group and enhance its attractiveness.
Take the example of a cosmetics brand that is a pioneer when it comes to its CSR commitment: Groupe Rocher. With its healthy DNA, deep roots and history, Rocher was one of the first international groups to take the step to becoming a company with a mission. This commitment has borne fruit, since the group is regularly voted France’s favorite cosmetic brand and, more recently, it came top of the FEVAD rankings “as the favorite e-commerce site of the French”.
Family firms are far removed from their old-fashioned image: backed by their history and strong sense of responsibility, they are resolutely modern and innovative.
“It’s different with us”… are you sure?
In the end, it’s up to you to answer the question: can these specific characteristics be transposed to your organization? Without idealizing the family business, some of its unique features do mean it is more modern than you might have thought. At a time when a crisis can unnerve traditional business models in a matter of months, and when the new generations are in search of a purpose (or even landmarks), why not draw inspiration from the family business?
“The way you achieve results is just as important as the results themselves”.
(Francois Michelin, Michelin institutional presentation).
Family & Co is the only French consulting firm dedicated to supporting shareholding families in three key areas:
1: The motivation to be a shareholder individually and collectively
2: based on an ambitious group project
3: and the right organization for delivering it.
Created in 2004, Family & Co supports 25 shareholder families a year with it team of 15 staff.
1 Global Family Business Survey 2018: The Values Effect.
2 Second Observatoire National de l’Entrepreneuriat Familial Français study by OpinionWay for Audencia and FBN France, 2022.
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