On Tuesday 2 February 2021 and for our fourth session of a series of webinars organized by the European Family Business Office, it was Mr Jesus Casado, Secretary General, European Family Business’ turn to give the family business community an insight into ways and means to adapt to a post Covid world.
This well attended webinar featured an average of 60 participants from 9 different representative countries.
The aim of the Module, mainly revolved around the understanding of the family business approach in the aftermath of Covid 19 and this, in essence, was done by an understanding and appreciation of various business models.
In times of difficulty such as the unexpected advent of COVID 19, businesses need to take stock of their respective operations and reflect on their modes of operation. The presentation of this session included a reflection of the modus operandi of the board of directors vis-a-vie what the family and related shareholders’ expectations are over the next 5 to 10 years.
One of the main questions which needs to be asked is ‘Have strategic plans been put in place to meet these expectations?’
The Board of Directors – Good practices in Corporate Governance
Board level decisions need to be taken with regards to the qualifications required for family members to be appointed to board and an honest assessment needs to be made to evaluate whether all board members are striving to meet the expectations of the 5 to 10 year plan.
Considerations need to also be given as to whether honest review processes are in place to assess performance of board/family members. Last but not least, an assessment on the impact on Board of Directors due succession plan in place also needs to be given due consideration.
Should the above not be attained by way of expectation in financial, professional and personal levels, then would flexible and workable plans be in place to avoid conflict and are all shareholder agreements documented, agreed upon and up to date? Have these rules of the game been effectively communicated to the board throughout so that the board can in turn support them?
Myths vs Reality – a look at Family Business statistics
In the business world, there is an underlying sentiment by way of myths about family businesses that these are in terms of small and medium sized companies at most, they are less efficient than large non family organisations, that they generally last less then non family businesses. Statistics however provided by the likes of E &Y in their 2017 survey proved otherwise. In the U.S. 20 percent of the 1000 largest listed firms are family firms. In India, out of 20 of the largest business groups operating 16 are family controlled. In Hong Kong, 15 family groups represent 84% of GDP.
Family businesses are deemed more efficient in their operation as evidenced in the E & Y 2017 survey, whereby jobs created were 5% and 13% through non-family and family businesses respectively, turnover growth was 17% and 21% and cashflow growth was 21% and 33% whereas asset renewal was 36% and 40% between non-family and family businesses.
In addition, the idea that family businesses have a shorter lifespan than non-family businesses is again proven to be a myth through the fact that 20% 3rd Generation family businesses last longer than 50 years whereas only 15% of your S & P 500 last 50 years or longer.
By and large, the longevity of family businesses can be achieved by way of reinventing the company by the likes of product innovation, etc, identifying and capitalizing on the family assets and planning the longer-term succession plan.
The resilience and success in family businesses is best seen in centenary family businesses that carve out their purpose, policies and processes. These 3 P’s can be best evaluated as follows ;
- Purpose : business is instrument to continuity.
- Policy : In advance development of family company relation
- Process : Communication, governance, decision making
The Key towards a successful family business involves:
- A defined succession plan
- Good governance
- Family employment plan
- Opportunities to participate in the business
Family problems can sometimes get in the way of a successful business. Points which one needs to ponder and address are:
- Do your family members adhere to the company policy or is the culture fragmenting?
- Do you have mechanisms in place to maintain a strong family unit for the future?
- How do you use the family to resolve or avoid conflicts?
- How accurately do processes get communicated?
- What is your family’s professionalism in separating family and business matters?
Next up, was assessing the resilience and success of long-lasting companies in Japan. The main question discussed was the recipe to their success.
A careful assessment of three thousand companies in existence for over 200 years in Japan resulted in identifying the following attributes which contribute to their resilience and success:
- These companies are devoted to earning the trust of their clients, employees and community;
- They are anthropocentric which means that they realise that the talented people are the most resilient force;
- They also believe in honesty with their clients which will bring about customer loyalty;
- The companies deliberately stay small. Only 6% of these companies have a workforce greater than 300 employees;
- They invest in the skills and loyalty of their employees;
- They are dominant in small markets;
- They have not embraced primogeniture and in most cases “ adopted “ a son to inherit and carry forward the business;
- The ultimate goal of the business is not the profit but the continuation;
Finally, the presentation focused on the hidden champions equivalent to low profile companies.
These hidden champions attribute their sustained success by regularly focusing on the right things and making a ton of inconspicuous improvements every day. The keys of hidden champions centers around globalization, focus, ambition, innovation and leadership.
As usual, the session ended with a Q & A session open to the floor.
We thank all local participation and look forward to seeing you at the next free Webinar taking place this Tuesday!
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