Written by the Economist Intelligence Unit on behalf of Barclays Wealth, this eighth volume of Barclays Wealth Insights examines the characteristics and motivations of family businesses, with particular emphasis on today’s challenging economic environment.
Family businesses possess certain attributes that could mean they are well positioned to survive and even thrive in a downturn. Respondents to our survey who represent family businesses perceive a long-term perspective to be among the most important advantages of the family business model. They also exhibit greater risk aversion and are less motivated by money than other wealthy individuals in the survey. In combination, these traits can lead to a conservative financial and business strategy which, while it is rarely favoured during boom years, comes into its own when the economy enters a downturn. A methodical and careful approach, it seems, can lead to sustainable success.
Philanthropy and a close relationship with society are key motivations for the family business. Family business members are far more likely than other wealthy individuals in the survey to consider the ability to help others and increase their social status as key motivations to amass and protect their wealth. More than half see the ability to help others through their wealth as important, compared with 39 per cent of other survey respondents, and there is a similar difference in opinion regarding the ability to increase social status. These findings reflect the widely held view that family businesses often have a strong relationship with the community and have broader motivations when starting their business than merely making money.
Family relationships are a double-edged sword for the family business. The key advantages of the family business model, according to survey respondents, are the strong network of family relationships and clear and shared objectives among family members. These are indeed important benefits, as they enable the business to forge a strong identity and common purpose. Yet the closeness of family relationships can also lead to disaster, as respondents themselves admit when they point to conflict between family members, and the difficulty separating home and work life as being the biggest disadvantages of the family business model.
Experts questioned for this research suggest that external management can be a powerful tool to offset governance weaknesses. Strong governance is the bedrock of any business, yet all too often, there is a tendency among family businesses to be complacent about this vital capability. Less than one in five survey respondents from family businesses consider a strong governance structure to be an important characteristic of success for their business. They also tend to think that the family business model compares favourably with other types of business when it comes to governance, whereas non-family business respondents largely disagree with this statement. Experts questioned for our research point to the importance of bringing external management rigour into the business to offset some of the governance problems associated with family businesses.
Planning for the next generation is an essential component of success. Survey respondents identify succession planning as the most important characteristic of a successful family business. Yet all too often, plans for the transition of the business to the next generation are not made early enough. A related risk is that family businesses can be prone to nepotism – indeed, survey respondents see this as the third most important disadvantage of the model. As well as representing poor governance, a nepotistic approach to succession can lead to deficiencies in corporate performance and lead to lower retention rates for talented non-family employees.
