FB News

The family business: A valuable model of resilience in extraordinary times

By Rania Labaki

Hoshi Ryokan from Japan, C Hoare & Co from the United Kingdom, De Kuyper Royal Distillers from The Netherlands and Mellerio dits Meller from France are some of the oldest companies in the world. While they represent diverse industries, from hospitality and banking services, to royal heritage distillery and luxury jewellery, they all share one common model. As family businesses, they managed to navigate multiple crises and build resilience over generations.

So, what characterises the model of resilience of family businesses and what lessons can be learned for the current Covid-19 pandemic?

When adversity strikes, financial, emotional and social factors come into play and shake the equilibrium of organisations. Their continuity requires them to adapt and/or recover towards the initial equilibrium or a new equilibrium, also called system “homeostasis”. Unlike those controlled by dispersed shareholders, family-controlled businesses need to address this unstable situation not only at the business level, but also at the intersection of the family, business and ownership. While this adds another layer of complexity, crises allow family businesses to forge a multidimensional resilience, to transfer it and to strengthen it over generations.

Entrepreneurial resilience: Innovative projects born out of crises

Crises tend to accelerate change and innovation. The long-term viability of family businesses stems from their higher ability to innovate than other businesses. They are also more agile in adapting or innovating their business models to continue serving their clients and communities. When the Covid-19 pandemic hit, numerous family businesses, such as Michelin or Clarins, were among the first to transform their production lines and produce masks or hydro-alcoholic gels. Others, such as Dolce & Gabbana or Versace, looked after their local communities, hospitals and research laboratories, through donations or other means. Family businesses, such as Fernand Hosri Group, also seized the crisis as an opportunity to reinvent organisational processes, launch new products and services, or diversify into new markets, with the stakeholders’ value creation in mind. The crisis also allowed to accelerate the launch or the development of sustainable solutions as is the case for EKKI Group.

Emotional resilience: The family as a multigenerational system

Family businesses are also known for their tendency to allow more space for emotional factors than other types of businesses do. Emotions flow from the family to the business and vice versa. These features can offer a significant advantage in times of crisis.

During crises, anxiety emerges and sometimes paralyses decision making or reveals conflicting interests among family members. Family governance appears therefore as a valuable vehicle to make decisions on behalf of the ‘we’ rather than the ‘I’. This is the case of Jacto Group which pursues a tradition of family reunions along with a family charter and other governance bodies. These offer invaluable occasions and frameworks through which the current and next generations learn how to manage their emotional dynamics, channeling the anxiety and generating positive emotions. The family can also relate to family narratives to replicate healthy patterns of emotional regulation rather than reproduce past mistakes.

Each generation plays a role in cementing or adding a building block to emotional resilience, leading the family business to lift the head above the waterline quickly and head safely to the shore.

Social resilience: Overcoming adversity altogether

Over time, family businesses develop loyal relationships that can span generations. This is the case for Banque Hottinguer, with its employees, partners, customers and allies as influential factors within this sphere. These affinities help develop trust, which becomes the basis on which family businesses and their loyalty circles support each other in times of crisis. As such, family businesses are preserved in a conciliatory environment that facilitates adaptation with indulgent partners and employees. In turn, this increases the level of engagement with their relationship circles and strengthens them over time. 

Financial resilience:  A future based on distinct preferences

Family businesses have a particular hierarchy of financing preferences, starting with self-financing, followed by debt, then financial markets. They tend to have low rates of dividends distribution, in line with their long-term investment strategy. It is not uncommon for family businesses to have nearly zero debt and a cushion of liquidities. Still, prolonged times of crisis can lead to financial difficulties. This is where their trustworthy relationships with the bankers play out, making financial resources more accessible. It is also not unlikely for family shareholders to sacrifice part of their dividends, as in the case of Solvay, or to renew their commitment by providing financial support to the family business as in the case of Simone Perele.

The family business on all fronts

These four markers of resilience enable family businesses to survive over generations by building in every crisis on the organisational memory and developing it. The markers serve to maintain a certain homeostasis during crisis periods, by presenting the next generation with the solutions to deal with the problem and to stabilise the business over the long term. Family businesses are hence able to grow by consolidating their advantageous position as innovative and responsible businesses, through their extraordinary vision and ability to forge trust relationships over generations, both internally and externally.