Good, bad news for family businesses
First, the good news. Family businesses will face the next 10 to 20 years with confidence, in terms of ownership, governance and strategy.
This, according to more than half of the 791 family business executives surveyed by Deloitte Private in 58 countries from January to March 2019.
Take the Terberg Group, which started in 1869 as a blacksmith’s store in the Netherlands. Today, this $1-billion behemoth, with 60 family shareholders, supplies specialized vehicles through almost 30 companies in a dozen countries.
The fourth-generation heads the company today, with a couple of fifth-generation already working with their elders.
The Terberg Group sees itself as conservative in structure, with a long-term vision that will not be sacrificed for short-term growth.
Governance mechanisms are professionalized. “Decision-making in a family business can be very emotional,” George Terberg tells Deloitte, “but you can’t live on emotions … Our structure enables us to act very quickly and decisively. Decisions are made by the board; if an issue has greater impact, we also need the approval of the supervisory board and the … small committee representing the shareholders. Very important decisions, such as a large acquisition or the discontinuation of a large operating company, are made during the general meeting of shareholders.”
Now for the bad news: succession. Almost 60 percent of the respondents do not believe they currently have proper plans in place.
The youngest generation needs to meet strict standards in order to join the Terberg Group, such as a university degree or its equivalent and a minimum of five-year work experience outside the family. Aspirants will be assessed after they apply for the position.
“These are high thresholds,” says Terberg, “but it is also a better way to guarantee the continuity of our family business. Ultimately, my generation is responsible for properly passing this company on to the next.”
More bad news. Among the families prepared for the future, only 35 percent fully agree that their goals for the business are in line with those of the family. Even worse, less than a third say their families are in agreement about the future development of the business.
To sustain the business, “agility in adapting to changing environments” is ranked as most vital (61 percent), followed by “innovation capabilities” (39 percent), “financial position” (32 percent), “fast and flexible decision making” (29 percent), “diversification of the business” (26 percent).
Reflecting the rapidly changing market of today, customer loyalty did not rank high (21 percent), even if many family businesses traditionally depended on this for their core enterprise. This is in line with the fact that most respondents pinpoint to the ability to adapt and innovate as essential for survival.
Ironically, many family businesses avoid innovation and risk, falling victim to the “ability and willingness paradox.”
“Compared to non-family firms … family businesses, although they usually have a lower impulse to engage in innovation, tend to achieve better results,” says Deloitte. “If [they] can overcome any initial reluctance to embrace … opportunities, [they] may reap the rewards of faster and more effective innovation than their competitors.”
Innovation is central to the SCM Group, which began in Italy in 1935. Today, with 4,000 employees and 30 business units in 10 countries, SCM makes machines for wood, plastic, glass, marble, etc.
“Innovation is based on our family tradition,” president Valentina Aureli tells Deloitte. “It is a link between our heritage and the future. We leverage tradition to develop new products. We can reinterpret sources and knowledge from the past with today’s insights and technologies. We stay close to our DNA.
“We need to continue to recognize our customers’ needs. If we lose this … it is impossible to maintain the right route to the future.”
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