Why family businesses thrive

solutions to community problems.
Their products and services meet day-to-day needs of communities. These businesses respond to societal needs and are therefore relevant.
Family-owned businesses enjoy benefits of sustainability, based on the fact that as long as people exist, they too can remain relevant, if they are governed well.
These non-economic goals protect family enterprises from economic storms such as the crisis being experienced globally.
Companies do not fail because they lack profitability, but for lack of adequate cash to finance operations. Since 2008, large public corporations worldwide have been receiving severe financial and liquidity blows.
Large corporations, which had been accustomed to securing large credits from financial institutions, are struggling.
Family-owned businesses (FOBs) seem to be less affected. Research is now showing that FOBs are in a better position than their larger publicly traded counterparts to ride out of the current economic crisis.
People and communities are standing out as the factor and strength behind this success.
Commercial “uncreditworthiness” of FOBs is also turning out to be a blessing in disguise. This is so because, for a long time now this family-centred type of businesses, have become skilled in managing cashflows through communities.
They learnt to borrow from other businesses in their communities, families and friends, not from commercial financial institutions.
FOBs also learnt to offer flexible credit terms to customers, which is now being perceived as more effective than debt collection.
The close proximity with society trained FOBs to be quick in responding to changing customer needs and behaviours.
FOBs have also grown accustomed to saving for that rainy day. All these and more are weathering FOBs from the liquidity storms, which are crippling large corporations.
Subsistence or extinction of businesses in these difficult financial times seems to be now dependent, to a large extent, on the capacity of boards of directors to create value for the entire community, rather than for shareholders and executives only.
There are lessons coming out of these unique characteristics of firms run by one or various families.
It is about being responsive to communities.
Priorities of keeping the firm in family hands, as well as strong links with the local community, its social commitment to that local community, and the high reputation of the owner family in that community are factors responsible for keeping these firms successful.
As opposed to large public corporations, whose main objectives are to increase shareholder value, these non-economic goals in addition to financial objectives make FOBs well-prepared to survive long periods of crisis.
Regardless of the size of its business, a business entity without strong non-economic goals succumbs when hit by the first strong financial or liquidity or credit crisis.
Strong and stable ties, with family, the local society, and community cause family firms to, not only commit to increasing shareholder value, but of even more essence, to add value to the entire community.
This is made possible through long term relationships, through ties with communities. The trust between the business and the society places strong reliance on each other.
On the other hand, growing tendencies in gauging corporate returns in terms of short-term objectives, as well as lack of long-term vision, has had some negative effects on the development of economies.
In contrast, successful family entities have a corporate governance system whose main objective is creation of value for the entire corporate community, such as understanding owners, suppliers, customers, and employees.
It has long been the view of many corporate governance discussions, that good governance attracts investors. While this is a factual statement, this statement makes corporate governance seem like some decorative make up, which make corporations or nations look attractive to investors.
It seems more like a superficial condition, which can be put on and off. In this way corporate governance appears as short term conditionality, upon which, when attained then the organisation achieves its long term goals, of creating value for investors.
It is this dichotomy which now sees large corporations being persuaded to practice corporate social responsibility. Thus this mutually exclusive view towards economic and non-economic goals could have caused some corporations to become socially irrelevant.
Researchers such as Hafner (2011) are now highlighting the fact that there are lessons from family owned entities which large corporations and businesses in general could learn from. Social responsiveness is beneficial to the long term sustainability of corporations.
One such lesson coming out is that FOBs have access to family capital. Family capital, also called patient capital, is not subject to the daily scrutiny of financial markets nor is it submitted to strong pressure on the part of shareholders to yield positive quarterly results. With patient capital, the investor is willing to make a financial investment in a business with no expectation of turning a quick profit.
Instead, the investor is willing to forgo an immediate return in anticipation of more substantial returns down the road. The trust and relevance of FOBs to family, society and community, is the collateral for the investor. The long-term objectives of owner families, which are society or community based, are susceptible to have very little market fluctuations, if any on business strategies. Therefore, family owned enterprise can withstand losses over the financial course while keeping their strategies intact. Short-termism which is common in large corporate strategies avails only expensive capital, which demands a quick return and certainty. In an era where certainty is becoming more and more elusive, given for instance, the climate change and the many natural disasters, it seems that quick returns and profitability are now a thing of the past. Large corporations need patient capi tal to recover from liquidity struggles.
Successful family enterprises have capacity to integrate the entire organisation, including shareholders, directors, management and employees, into their economic and non-economic goals.
Interest of family owned businesses tend to be particularly focused on keeping family values alive for generations. This is attained through social responsiveness and trustworthiness.
It is possible to observe best examples of corporate survival and its dependence on social responsiveness.
Corporations, both large and small, are struggling to survive. It is prudent for corporate leaders to find alternatives and to be willing to experiment new ideas.
Without experimenting it might take corporations longer than necessary, to come up with new breeds of corporate governance and overcome this crisis. More and more questions need to be asked.
As large corporations try to narrow the gap between economic and non economic objectives, it is important to ask if large corporations stopped paying more attention to social responsiveness and therefore have become socially irrelevant.
Although succession remains one of major corporate governance challenges for family enterprises, the current economic crisis, which has led to high levels of unemployment, is forcing younger generations, to look to family businesses for employment