While for non-FMBs, the criteria is immediate shareholder value, for FMBs more important is long term value creation and continuity. In non-FMBs there are silos in operations and the managers aim for local optimization often at the cost of overall interest of the company. On the other hand, FMBs focus more on holistic perspectives.
At times, some Family Managed Businesses (FMBs) hesitate to acknowledge that they are so. It seems that to be an FMB is opposed to be a well run company. They would prefer to present themselves as a professionally run company as if FMBs can’t be professionally run.
There are wide spread and oft repeated notions that FMBs are very small companies, managed without any systems, as a fiefdom of the owner and are short lived. Perhaps it is because of these notions that it is unfashionable to be identified as FMB.
What is missed out is that it is the FMBs that generally outperform their non-family counterparts. Prof. John Ward, who has been researching on family businesses for nearly three decades suggests that there are a number of reasons for the outperformance of FMBs.
High level of commitment
The FMBs have their family’s name and wealth at stake and as such they provide a 24*7 vigilant ownership. Since the business is identified with the family, they have a high level of commitment, dedication and perseverance. Their visible presence in the business leads higher productivity. Their comparatively easy accessibility to the employee promotes higher sense of belonging leading to higher job satisfaction to the employees.
They do not have to chase quarterly results and have a long term perspective and as such they can focus on quality of products and services. They can invest time and money in building customer confidence and developing business. They are personally invested in the business and so have high level of adaptability to the available opportunities. The decision making is fast and free from bureaucracy. They demonstrate high amount of prudence and have extremely efficient cost controls.
They have not only economical assets but also emotional assets. They have the biggest advantage of long continuity in leadership. The average span of CEO in non-family firm is of 4 to 4.5 years in US, it is 15 years in case of FMBs. This gives them long memory providing continuity to the business.
Long-term value Creation
While for non-FMBs, the criteria is immediate shareholder value, for FMBs more important is long term value creation and continuity.
In non-FMBs there are silos in operations and the managers aim for local optimization often at the cost of overall interest of the company. On the other hand, FMBs focus more on holistic perspectives.
One of the biggest challenges of the businesses today is that of increasingly complexity. It has to manage objectives which are diagonally opposed to each other. Thus they have to ensure high quality and at the same time cost control. They have to ensure employee satisfaction and at the same time high performance demand. Managing such contradictions is a big challenge for all businesses. As far as FMBs are concerned by the very nature they have been managing contradictions all along. They had to manage equality among family members on one hand and fairness on the other. They had to accommodate individuality and at the same time build conformity. They have to ensure liquidity and at the same time provide for growth. Regularly managing such contradictions, it becomes easier for the FMBs to manage the challenges of other business contradictions.
The major difference in management between FMBs and non-FMBs is the orientation of time. The non-FMBs are more focused on today and have targets to achieve. The FMBs are likely to be more concerned about the past and the future.
As a consequence, the non-FMBs are more performance driven and the FMBs are more value driven. They do have only the profit objective but have the concurrent objective to have harmony in the family and protecting the long established name of the family business.
FMBs – Lessons for the west
There are serious misconceptions about the succession issues in FMBs. It is being projected that often the seniors do not want to ‘let go’ and often the next generation either do not have inclination or competence to take over the charge. This may be true in western world but generally in MENA region the situation is quite different.
Here, in FMBs, the son or daughter is getting educated as well as inducted in the business from quite young age at the dinner table. They know the family history and they feel responsible for contributing to the family history. The previous generation knows well that the transition is going to take place and try to the best extent possible to groom the next generation. In any case it is generally more than two decades that the two generations work together. In the process the transfer of tacit knowledge takes place and the inductee gets groomed for the business. As a result the succession over the years becomes a natural flow.
A lot of literature is written in the west, largely criticizing FMBs about their short life and about problems of succession. While we in MENA and Asia have to learn a lot from the west, as far as the family matter goes, it is the west which has to learn from us.
We have a rich tradition of family and we have extremely strong family relations and bond. Our family businesses have been doing great and continue to do great. While the name of very big groups like Savola Group of Saudi Arabia or Majid Al Futtain Group of UAE strikes the cord immediately, there are thousands of family businesses as Small and Medium Enterprises which are doing phenomenally well.