Company News » Editor’s letter: Generation game

Editor's letter: Generation game

The corporate sector could learn a few lessons from family-run businesses

Andrew Sawers

There’s a traditional view of family-run businesses that they are
old-fashioned, conservative, paternalistic, riven with feuds, rivalries and
petty jealousies, and ripe for takeover by ‘proper’ companies if only they could
prise the strictly limited number of voting shares out of the grasping hands of
the strong-headed, weak-brained seventh son of the seventh son.

Well, we’re sure there are companies like that and we’d love to hear from
their finance directors (strictly off-the-record, of course). But there are many
more family businesses that are not only busily creating value, but actually
outperforming their peers. Research conducted in Britain and America shows this
to be true.

As the chairman of the BDO Centre for Family Business told us, “Family
businesses are less worried about short-term performance because they see
themselves much more as stewards or custodians rather than having to perform to
the stock market.”

So there’s one irony, for a start: by not being beholden to the stock market
you increase your chances of outperforming it. (Some other day we can discuss
whether that’s because of confusion on the part of analysts and investors or on
the part of companies.) The longer term horizons that are built into the
multi-generational outlook of family businesses isn’t contrary to shareholder
value creation, it’s actually fundamental to it.

Contrast that with the belief that FTSE-100 companies – companies which ought
to be big enough to know better – engage in quick-fix cost-cutting, failing to
take an appropriately strategic view of their cost-base.

Two points: first, it would seem that family businesses provide interesting
and challenging opportunities for FDs looking for a change of career. Of course,
you don’t get the thrill of telling 26-year-old City analysts how well things
are going, nor do you have some of the cut-and-thrust that goes with trying to
figure out how to pay your investment banker’s bill.

But there are clearly other compensations. (The one caveat we would make is
that going into the family sector may well create problems for FDs wanting to go
back into the FTSE or private equity arena later on – it may not go down so well
with headhunters’ clients, no matter what you try to tell them.)

Second, we wonder whether companies that regard themselves as hotshot
corporate players shouldn’t try to learn a few lessons from the family sector.
Focus, for example. And customer service. And, at the risk of being branded
paternalistic, perhaps a more sensitive approach to stakeholders such as
employees, suppliers, customers and the community. You never know, you might
start to outperform your more ‘commercial’ peers.

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