Keeping it in the family

Much like the closed economies of the Soviet era, it seems family-run businesses are less likely to be adversely affected by global economic downturns. A recent report titled Family Business: In Safe Hands? by Barclays Wealth and the Economist Intelligence Unit has given credence to the family business model suggesting that such businesses have key attributes which better equip them to ride out a period of economic slowdown. The study concludes that family businesses are less likely to pursue irrational growth strategies to satisfy short-term investors during boom times, giving them a sustainable advantage over listed companies.

Says Satya Bansal, CEO, Barclays Wealth: “Although family businesses differ widely in their objectives and motivations, it is clear that many of them have certain attributes in common.” The report is based on a global survey of 2,229 individuals, including high net worth individuals (with up to £10 million in investable assets) and ultra high net worth individuals (with up to and in excess of £30 million in investable assets).

A mere 10 per cent of family business owners said they have or would consider selling their business. Although an exit strategy, such as an IPO, is a goal for some family businesses, the vast majority, it seems, prefer to keep it in the family.

The survey notes that the biggest advantage of the family business model is its long-term perspective. Without a stock market listing, family businesses are insulated from the need to respond to short-term demands of investors. On the other hand, a serious disadvantage is the chance of a conflict between family members. “Over the years, there have been numerous examples of quarrels in family businesses,” says Bansal. The survey also points out that succession planning is the most important ingredient for a successful family business. Lack or delay of succession planning can result in failure of a business. The surveyed individuals included 850 respondents from the Asia Pacific region, including 197 Indians.