Family business model well suited to endure economic downturn, says Barclays Wealth

Motivations behind the family business

A mixture of stability and agility provide family businesses with the structure that allows a long-term strategic view of the economic and competitive environment.

This gives family-owned businesses the edge to better endure an economic downturn. When gauging prevailing motivations for creating and protecting wealth, family business members place generating regular income - 64% responding as important or very important - amongst the highest of priorities. Conversely, only 53% of non-family business members held this view, which suggests shorter term priorities.

Strengths of the family business model

Family owned businesses are the cornerstone of the global economy and while common perceptions of the model are that of dysfunction plagued with structural issues, it remains a stalwart model that contributes to overall global economic health. Attributes such as a strong relationship with their community, long term perspectives and a dynamic approach to decision-making have made family businesses a significant part of the global economy.

Soha Nashaat, CEO of Barclays Wealth Middle East said, "Accordingly, family businesses and their long-term strategies need to be examined to explore their longevity and viability during these difficult economic times. Lessons learned from family businesses could prove to be very apt during this unprecedented time and non-family owned business could take some strategic insight from this most enduring model."

A long-term perspective means that family businesses can exercise prudence during both upswings and downswings in the economy. They are less likely than listed companies to pursue adventurous growth strategies to satisfy short-term investors during a boom and some academics have argued that they are more likely to invest through a downturn, giving them a sustainable advantage over non-family businesses for whom there are wider swings in performance and investment.

An integral role in the community

Additionally, the family business' position in its community plays an important role in its development. Philanthropy is one such example. For instance, family business members are far more likely than other wealthy individuals in the survey to consider the ability to help others, contribute to the health of their community and increase their social status as key motivations to amass and protect their wealth.

Particularly in the Arab world, philanthropy is deeply rooted and many families support initiatives involving the underprivileged. Such families are beginning to formalise their charitable activities by developing strategic plans, programmes, funding and sustainability.

"More than half of the respondents in the Barclays Wealth report see the ability to help others through their wealth as important, compared with 39% of other non-family businesses, 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," continued Nashaat.

A strong support network

The study also included what family business members deemed the most important advantages of the model. A strong support network from family members (48%) was seen as most important. Shared values and ethos (39%), ability to think long term (38%) and the ability to make decisions quickly (37%) followed.

Shared values make a particularly high impact on the direction and efficacy of a family business, which in turn influence shared objectives. According to the survey, clear and shared objectives are essential for the family business, and were identified as a key characteristic for success by 44% of respondents.

Shared values and ethos should extend into clear and shared objectives among the family members. This is particularly important because of the potential overlap between the goals of the business and the goals of the family.

Ingredients for a successful business

Where the greatest danger lies in the family business model is succession and governance. 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, which leads to undue internal conflict. In order to meet these challenges, family businesses should consider the full range of tools available to them, including a greater separation of ownership and control, and wider use of external management, which in turn aids in other governance issues.

All in all, however, it is the structure and support system within and outside of the family business that gives it its competitive advantage over its non-family business counterparts.

Soha Nashaat, CEO of Barclays Wealth Middle East adds, "In theory, one of the benefits of a family business should be the lack of internal friction and politics, compared with a big organisation where people have to fight for resources and capital allocation. A strong support network allows the family to support itself in the longer-term with both insiders and outsiders - those that don't have active roles - rallying around and working together unified as a group."