The business of family business

Governments are always trying to perform a balancing act between what policy promotes and what economic participation requires. But instead of winning here and sinning there, Stefan Kemp argues that a simple adjustment would deliver more sustainable lives without compromising financial security.

Governments throughout Europe have discovered that supporting families as a top priority on their political agenda: among them national and intra-national entities, such as the British or the German coalition governments and the European Union. The broad consensus is that functioning family structures form a foundational principle of our social world. Families are seeing their renaissance as a target of political initiatives.

Promoting family means the promotion of its content, the core values. Political initiatives inevitably translate into the stimulation of what family embodies; the values implied to family as a social entity. Family is an interpersonal system of lasting responsibilities and succour. There is a degree of inward orientation, gradual change, and unconditional acceptance in pursuit of tasks, such as to nurture, to grow and also to develop self-esteem and to provide fulfilment and meaning.

Why do politicians reinforce such a value set? Because they see its importance to the functioning of our communal life and that its constituent values may seem under threat.  This does not seem to be such a long shot if we look, for instance, at the properties of the recent economic crisis. The plain and excessive power of capital, the broad degree of enthusiasm for terrific business values, such as high outward orientation towards financial markets, change in the rhythm of stock market valuations. Subjected to a financial performance imperatives, the market overrides businesses' tangential responsibilities.

The bottom line is that the maximisation of financial profits through 'shareturners' seeking higher market prices and dividends leaves us where we are. Despite signs of economic recovery, the burden for national budgets remains significant and turned out to be a mortgage which cannot be returned with ease. Yet, the financial race re-accelerates. Confusingly enough, this development is seen with relief and delight by the same governments promoting family.

This circumstance makes us, the observers of the political arena, somewhat perplexed. While policy promotes family values to be inhaled and lived by individuals they appear misaligned with the values in the economic world. I think there is a contradiction prone to produce schizophrenic societies and split personalities at the individual level. Will anyone be able to withstand the strains deriving from being Jekyll and Hyde? But, does the promotion of family values lead us down an anti-capitalistic route? No, but we do need a focus shift!

While a small subgroup of a small subgroup, namely corporations from the US and increasingly from around the world, captures academic and media attention, and is furnished with a heavy kit of management tools, the species of family businesses is in a secondary role. This is remarkable; family firms are the prevalent form of enterprise in the world.

In western economies such as the US, the UK and Germany, family businesses have significant macroeconomic importance. More than 30 per cent of the Fortune 500 companies are family owned or controlled, family businesses account for more than 60 per cent of the American labour force, for about half of the total wages paid in the US, and for about half of the country's gross national product. A differentiation between family business and non-family businesses is useful to understand economic life.

Family businesses, also those under the legal form of plc, are a different kind of capitalism, far removed from the anonymity of the market. It is another way of conceiving and conducting business, and a way to contribute to society. Profitability targets of family businesses are geared towards continued achievement of adequate returns. They understand that asset preservation and conduct are related to positive family state and reputation and tend towards taking a long-term and generational view of risk and performance.  Family businesses perceive themselves embedded in their environment of customers and employees.

This sets them apart from anonymous organisations that essentially must meet the demands of institutional investors relentlessly driven by a craving for attention through outstanding financial news. Non-family business act rather disengaged from their wider environment: 'Shareturners'  and the management rank among the most important stakeholders. The logic of entering higher risks for higher returns is perceived essential; the immediate exploitation of hidden profit potential has to prove right within the timeframe of a management tenure.

From the owner and management perspective family businesses represent a rather social institution than a disposable asset. Unprogressive voices might therefore argue that systemic connections between family and business are a lovely romanticism, less effective in regards to their economic capacity. However, academic and practical evidence suggests that anonymous corporations lack stability and are financially less successful than family businesses. Practically, this translates into existing and modern financial products that separate family businesses from others to benefit from their superior return profile.

Promoting family, and therefore its core values, could be consistent with economic success and the major economies of the world. Removing anonymous corporations from the centre of attention and broadening the perspective towards family businesses will not only provide conditions for seamlessly consistent support of important political initiatives. Indeed, the research suggests that family businesses are on the ascendency. Perhaps the model of anonymous corporations will turn out to be a mutation in economic history.

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Dr Stefan Kemp's professional background comprises various international marketing and key-account management occupations in family businesses. He lectures in family business courses, pursues post-doctoral research projects in the family business field and contributes to international research conferences.