Family businesses are Italy's economic engine but face governance challenge

Family businesses are the backbone of Italy’s economy but governance seems to be their biggest challenge, with many family firms struggling when it comes to integrating non-family executives and expanding the business, according to a leading academic.

Guido Corbetta, professor of family business at Bocconi University, told CampdenFB that companies with concentrated ownership and leadership structures, typically with few family members involved, tend to work best.

“Things start going bad when the company becomes bigger, the ownership more dispersed – more than eight family members – and when non-family members join as managing directors or sit in the board,” he added.

His comments follow a study on Italy’s family businesses by Bocconi University, in collaboration with Italian family business association Aidaf, banking group UniCredit and Milan’s Chamber of Commerce.

The research analysed Italy’s 3,893 family businesses with revenues of at least €50 million, equivalent to 57.1% of the country’s medium and large-sized private businesses.

It found that governance seems to be the biggest challenge for the future, as Italian business owners find it difficult to effectively manage large and structured companies.

“Since every company – and family businesses in particular – needs to grow, complete acquisitions, expand [into] international markets and find new talent, the challenge seems to be that of learning how to better manage more complex governance and leadership models,” the study said.

According to the research, 80.1% of Italian family businesses are headed by a family member and often obtain good economic results. However, non-family members prove to be better managers in the case of large, complex companies.

The study also found that Italian family businesses were hit harder than other companies by the economic downturn but managed to recover faster and largely contributed to the creation of new jobs in the country in recent years.

Between 2007 and 2009, in the middle of the financial crisis, they increased their workforce by 12.1%, compared to a decrease of 14.3% in companies controlled by private equity firms, a 10% reduction in state-owned companies and a 4.3% decline in multinational firms.

Family businesses now employ 52% of employees working for medium and large-sized private companies in the country, the study said.

In addition, during the economic downturn, few family businesses were involved in extraordinary corporate operations, such as sales of the company and liquidations. The report found that family-controlled firms represented only 4.7% of companies that went through such processes.

According to the research, Italian family businesses grew more than non-family businesses in 2010, with an average growth rate of 7%. They posted combined revenues of €437 billion last year, accounting for 41.1% of the turnover of medium and large-sized businesses.

Companies operating in sectors such as transport and retail performed better than those in real estate and finance.

In the future, Corbetta, who co-authored the study, thinks family businesses should receive more support from both the government and banks.

“[By] increasing the number of employees, these companies [make] an important social contribution,” he said.

“Banks should be selective in supporting family businesses, choosing those that perform best and making sure they don’t lack financial resources. In addition, government and chambers of commerce should help these companies expand internationally, in Latin America, Asia and eastern Europe.”

Confindustria, the Italian employers' federation, recently forecasted a 1.6% decline in the country’s GDP for 2012. According to Corbetta, this will affect family businesses – companies that are well managed will expand abroad, but those that are badly managed may have to consider selling the business.

“I expect companies in the food industry and in the soft drink sector, such as Campari, as well as pharmaceutical companies, to keep growing,” he added.