Economic cycles and family firms: Remembering again basic values

Family Business Magazine's 20 years of publishing has corresponded to dramatic growth in the recognition, appreciation and sophistication of family businesses. During that period, the generation that grew up during the Great Depression, won the Second World War and launched the postwar entrepreneurial boom has been appreciated as “the greatest generation” and largely left the scene to their baby boomer children. Many of the issues confronting family businesses were viewed through the lens of encouraging that older generation to “let go” and dealing with conflicts between them and their baby boomer offspring, reflecting the demographics of that particular era. We increasingly take a broader, more comprehensive view of family business dynamics.

Over the past 20 years, societal trends and increasingly focused research and collective experience have led to changes in how we think about the issues confronting family businesses. Preoccupation with identifying, developing and installing a successor to the founder has been enlarged by the recognition that succession is rarely a uni-dimensional matter of replacing an incumbent. Instead, generational transitions deal with leadership in multiple dimensions; development of structures and processes to enhance management, governance and family development; and increased sophistication in dealing with strategic, financial and other interrelated business issues, as well as developing skills and perspective to more effectively build productive family relations.

In the process, we've seen both management and ownership become more team-oriented. The pace of strategic evolution, driven by technological innovation, continues to accelerate, shifting management's focus from consistency and control to innovation and continued improvement. Many family firms embraced more sophisticated financial management and, while maintaining the traditional family bias toward respect for risk, inched farther out on the limb of leverage.

The wave of MBAs gushing out of universities washed over family businesses, and both family and non-family managers are now expected to achieve higher levels of professionalism. Women have become more recognized and involved in a greater variety of roles at higher levels in family businesses, serving not only as top managers, but also in governance roles—as directors or even board chairs, and as initiators and leaders of family councils. Boards of directors have become more formalized and more likely to involve independent directors. Professional service providers have become more sensitive to the unique challenges of sustaining success across generations.

- Advertisement -

The downside of ‘professionalism'

Until recently, these trends played themselves out in a relatively benign economic environment. Despite a mild recession in the early 1990s and bursting of the technology bubble in the early 2000s, times seemed good for family businesses. With roll-ups, leveraged buyouts and vast oceans of private equity buttressed by the massive use of debt to finance purchases of businesses at ever higher multiples of EBITDA, and with capital gains rates at historic lows, selling the family business increasingly became a consideration when viewing the future.

With increasing “professionalism” in family business management and “financialization” of owners' goals, the traditional values and practices that characterized family businesses potentially had been eroding. The value of “relationships” with suppliers, customers and employees seemed to be diminishing in many industries previously dominated by family businesses. The business-owning family's long-term view seemed to be shortening. As family members were replaced in management and on boards by non-family professionals, classic values like loyalty, pride, sacrifice and stewardship may have been diminished.

And then, though we seemingly had forgotten that good times couldn't continue forever, problems surfaced in the housing industry, the credit market, the banking industry and the job market. While the problems had been building for years, the worldwide reversal in economic fortunes seemed suddenly upon us. Family businesses have been sucked into the maelstrom along with every other organization. The opportunity to sell family businesses at absurd multiples was suddenly gone. Easy credit disappeared as well. Relations with suppliers and customers became more challenging. Industries full of family firms, like car dealers and homebuilders, were slammed hardest of all.

Painful economic upheaval, however, serves important purposes. One of those purposes is to help us regain appreciation for core values and discipline, and to reestablish our sense of perspective.

While the financial value of family businesses has diminished, recognition of their value as societal institutions is on the upswing. The disconnect between management and ownership at publicly traded institutions has become abundantly clear and generally differentiated from family firms, which are perceived as more caring, less risky and more responsible.

While challenged in their own ways when pressure mounts (for example, to provide jobs for relatives who can't find other employment), family businesses may respond to economic challenge differently. Stronger cultures allow family businesses to exemplify sharing the burden, finding opportunities to identify savings and other ways to improve business, strengthening the team and opportunistically acquiring new talent, new assets and new customers.

Speech offers wise advice

Most important, tough times provide the opportunity for family businesses to remember and reaffirm their fundamental core values. Indeed, a recent speech exemplified how family businesses can respond in this economic climate.

The speaker asked his audience to eschew “greed” and “irresponsibility.” He said that “hard choices” would have to be made but urged focus on “hope over fear” and “unity of purpose over conflict and discord.” He called on his listeners to “reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift … passed from generation to -generation.”

He reminded his listeners: “greatness is never given. It must be earned” and that what we accomplish together is “bigger than the sum of our individual ambitions.”

He listed “those values upon which our success depends—hard work, honesty, courage and fair play, tolerance, curiosity and loyalty.” In “a new era of responsibility,” he emphasized our “duties to ourselves.”

These words could have been shared with the owners or employees of any family business. They represent the traditional perspective of family firms reemerging in the current economy. The words, of course, were President Barack Obama's, spoken at his inauguration. In essence, he was treating the United States of America as our family enterprise writ large.

Like every family business leader in these trying times, he sought to preserve the good, apply the proven lessons and values learned over generations and prepare a better future for ourselves and our children. These are lessons that family businesses learn anew in every business cycle. FB

Craig E. Aronoff, Ph.D. (aronoff@efamilybusiness.com) is co-founder and principal of The Family Business Consulting Group Inc., a former president of the Family Firm Institute and winner of its Beckhard Award for contributions to family business practice. He is professor emeritus of family business at Kennesaw State University, where he founded and developed the Cox Family Enterprise Center.

 

About the Author(s)

This is your 1st of 5 free articles this month.

Introductory offer: Unlimited digital access for $5/month
4
Articles Remaining
Already a subscriber? Please sign in here.

Related Articles

KEEP IT IN THE FAMILY

The Family Business newsletter. Weekly insight for family business leaders and owners to improve their family dynamics and their businesses.