Some of the largest and most recognised brands in the world are a result of the stewardship provided by generations of family businesses. Household brands like Samsung, Tata, Volkswagen, Ikea, L’Oréal and The New York Times continue to make headlines and touch our everyday lives. However, despite having the kind of stability provided by long-term, committed and aligned shareholders, family businesses are facing increasing challenges.
On 28 June 2017, Mr Yuelin T. Yang, Deputy Group Managing Director at IMC Industrial Group discussed the performance and peculiarities of family businesses, as well as the challenges in professionalising family businesses and attracting non-family talent.
Mr Yang began by explaining that the family and business systems are two gears that must work well together and not grind in order to succeed. This will require good family governance and good family business governance.
He then showed, through studies from UBS Global Research and Credit Suisse, that family businesses have outperformed non-family businesses. Common characteristics that may have contributed to this include targeted risk-taking and doing less value-destructive M&A as family businesses are more careful with their money.
Family businesses are prevalent worldwide, and are in fact industry leaders in many sectors. A report from Mckinsey Quarterly illustrated how shares in large companies in emerging markets are significantly family-owned, with Southeast Asia being in the range of 80 to 90 percent. They have also been shown to be key economic drivers.
Such companies do have certain peculiarities that investors would need to consider such as family politics, succession planning, level of commitment and alignment with shareholders. Governance will also be necessary to ensure the growth and globalisation of the business, and smooth generational transition.
Family businesses going through such changes may be driven to bring in non-family management. Those intending to join family businesses as part of management would have to look closely at the company’s governance, especially on the family’s commitment to the company, how family members are employed, the handling of capital and who has the control over decision-making.
Mr Yang also shared what to look out for and make the most of partnering opportunities with family businesses. For example, it is ideal if the founder is in management or if the next generation is a shareholder but is not part of management. Mr Yang ended the talk by reiterating the strengths of family businesses such as the visibility and long-term commitment of owners even during hard times and consistency in decision-making thereby lowering business risks.
The talk ended with Mr Yang addressing the audience’s questions, which included family businesses’ influence in politics and how digitisation may have affected them.
Video excerpts of Mr Yang’s lecture can be viewed here.