Peter Leach, an independent business advisor, teacher and facilitator who works with family business owners around the world, says:
You only have to look at some of the world's most successful businesses today to see that family capitalism works. Not only does it work as a business model in the difficult trading conditions that we as a global economy currently face, family businesses have the potential to thrive and prosper where others might struggle.
The free banking system, perhaps the flagship for 2Oth and early 21st century capitalism, has proven that it does not work in its current form. A focus on short-term returns is no longer a viable modus operandi in the 21st century and family-owned businesses have rarely exhibited this mentality. Family business leaders understand long-term opportunities, often looking to the future to preserve their company's capital for their grand children and are not looking for a "quick buck".
What many have perceived as cumbersome conservatism has never looked more strategic now when family businesses' strong balance sheets are compared to the shaky position of those less able to weather a financial storm.
Rather, it will be the traditional listed companies which will prove cumbersome in the face of a recession. Without heavy regulation or bureaucracy, family businesses have always been able to make quick decisions. Now, unlike their non-family counterparts, this agility will translate into the ability to take advantage of previously unaffordable investment opportunities, or to pick up a quick bargain or talented individual.
That said, even the most experienced business leaders will face challenges today that they have never previously imagined and in this respect family capitalism again has an advantage. Under what other business model would it be normal practice for the current CEO to call up their predecessor and tap into their knowledge of the business and their experiences of economic difficulties?
In a non-family business, people move on and no longer contribute. In a family business, parents are there to help and give their wisdom; cousins are there to muck in. Knowledge is often accumulated within a family and now is precisely the time to take advantage of this multigenerational approach as well as exploit the work ethic that mum and dad have nurtured.
It is in times of difficulty that our values are in fact really tested and loyalty is something that family businesses often foster. Long-term relationships with customers, suppliers and employees based on an understanding that "our word is our bond" or "we treat others only how we wish to be treated" makes family businesses stand out. When you deal with a family business you know who you are dealing with and what they represent and this in stark contrast to the faceless shareholders of other business models.
In an environment of economic uncertainty, mistrust inevitably increases and it is family business alone that will be able to capitalise and market "family values" in the face of the perceived ruthlessness and lack of ethics present in the world of business today.
Family businesses often take the approach of wealth preservation and take the view that more is at stake than financial security alone. A business can act as glue for a family and this means that they take the rough with the smooth to preserve their proud traditions and heritage. This added motivation, along with the unique advantages that accompany the paradox of inextricably linked family and business systems, mean that family capitalism is the most powerful model to follow during economic turmoil and for the new emerging paradigm of the 21st century.
Tracey Pierce, head of Equity Primary Markets at the London Stock Exchange Group, says:
Using the public markets to drive the growth of your company is not for every business – many companies remain family-owned and plan to stay that way. But others may wish to take advantage of the access to capital and profile that a quotation on a globally renowned market offers. It is an appeal that remains undiminished in spite of the current financial crisis.
While equity markets have been affected by the financial crisis – they have taken a hit in valuations as investors around the world have cut back their holdings – they were certainly not the cause of the problems. In fact, equity markets offer an important part of the solution, and a way to support the continued growth of businesses through difficult times.
Unlike other potential funding options, an equity market is liquid and transparent. Where that is combined with world-class regulatory standards and a system of corporate governance that investors and companies admire as pragmatic, an equity market can become the venue where companies and their shareholders develop fruitful long-standing relationships.
Initial Public Offerings by companies always hit the headlines, but they mark only the beginning of a life as a public company. Many companies use markets to raise further capital for their business, and in current conditions, this is a particularly attractive option compared with the cost of bank debt facilities. For example, throughout last year existing public companies were able to use the London Stock Exchange's markets to access capital to maintain and grow their businesses, raising some £63.7 billion in further issues.
As well as helping companies to expand, public markets can also provide an exit route or partial exit route for families who, for whatever reason want to pull back from being the sole owners of their businesses. Many family businesses have gone on to achieve lasting success while maintaining their strong sense of identity on public markets around the world. Here on the London Stock Exchange's markets, Tate and Lyle, Sainsbury, Cadbury and Morrison Supermarkets are just a few examples.
Public markets provide companies with more than simply the capital they need to develop. The additional profile that comes with regular media coverage and analyst reports helps to establish relationships with new customers and new suppliers. The transparent nature of a public business offers a huge advantage when seeking to enter a country or market where your reputation does not precede you, and can also make it easier to develop partnerships with other companies.
Being a public company with freely transferable shares can also open up acquisition opportunities, using your shares as currency in the transaction. It can also help with the recruitment and incentivisation of key employees – which could be crucial if a family business feels that it needs to draw on external expertise in order to take advantage of new opportunities. And while a family firm relies on blood ties for advice and support, the board structure of a public company, with its separation of the chairman and chief executive role, as well as the presence of non-executive directors, ensures that there is no shortage of experienced counsel on hand.
All public companies on our markets have these advantages in common, but within the basic structure, there are some important differences. For example, the London Stock Exchange offers a choice of markets suited to companies' differing needs. The main market is home to larger, more established companies who enjoy the benefits of a high public profile, as well as access to the full depth and breadth of London's unique liquidity pool. The AIM meanwhile has been specifically tailored to meet the needs of smaller, younger, growing companies and as such has a more flexible regulatory regime than other markets.
There is no single solution to the challenges and opportunities that face a given company, and the current economic crisis has not changed that. The family business model works for many companies. But it is possible too that at some point in the development of your business, a public market can provide the right environment, the funding and the profile that your company needs.