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Why leadership and values matter

As the ink dries on Bernie Madoff's confession, it is worth pointing out that family businesses are better prepared to handle today's business crisis than their non-family counterparts because they understand two critical ideas: the meaning of leadership and the importance of values.

If there is anything that has led us into this path of tumbling economic returns, represented by the reduced values of stock exchanges worldwide, it is the absence of leadership. Chief executives with excessive compensations, anaesthetized by their cash/money to the growing chaos around them, have not held their companies accountable for sound business practices.

Family businesses have a dramatically different perspective. When a family business is in crisis, family members "step up." As a result, the employees do, too. Distributions are cut. When salaries are cut, family members participate. Can you imagine a family business member decorating his office or giving himself a bonus in the middle of this crisis? Absurd.  

The family preserves their capital carefully because it is theirs. They think in decades, not in the next quarter, and they abhor debt rather than embrace it. Driven by a responsibility to their shareholders to maintain the financial health of the company, they would never put their businesses at risk in the same way that the financial institutions took risks with highly leveraged, complicated financial products.

In Built to Last, Jim Collins and Jerry Porras point out that companies that have survived over decades have an ability to hold on to the original values and culture of the founders.  Clearly the behaviour of our banks and other financial institutions send the message that their institutions are without values, that their only identifiable culture is one of unbridled and irresponsible greed.  

And as Woody Task suggests in Slow Money: "Money that is too fast has become so detached from people, place and the activities that it is financing that not even the experts understand it fully."

Family businesses are at the other end of the spectrum. Relationships and the quality of human interaction still matter. They see value in being connected to their families, employees, suppliers and customers; and their business decisions are influenced by those values. They also have the advantage of institutional memory, of having been through many downturns over the life of the family business. They are in the midst of strategic thinking and planning for what position they want to be in the marketplace when the economy rebounds. They see opportunity in these troubled times.
      
Yesterday, I attended the University of New Hampshire's Family Business Forum. The presentation was about governance. It was extremely well attended. Most businesspeople would wonder why and how, in the midst of this financial crisis, family members, many of whom are running their family businesses, would spend a morning considering a topic that has nothing to do with daily operations.

They were there because they are exploring every strategic tool that would make their businesses stronger in the decades to come. They are not panicking. They are dealing with their profit and loss statements every day and are making the necessary reduction in expenses in a thoughtful and measured manner. 

Despite the cuts and the gloom of the economy, the family businesses I see have positive morale. And although they have cut back everywhere, they still make sure that the coffee and other food treats remain at the expense of the company.

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