If it weren’t a family business, Walmart would be in chaos by now. Following revelations of large-scale bribery in Mexico, where the supermarket business is growing rapidly, some shareholders have been kicking up a fuss. So have law-enforcement agencies, which are looking to see whether allegations that $24 million (€30 million) was paid to grease wheels – and palms – are true, and if so whether anybody should be prosecuted. There’s no doubt that in most publicly owned businesses, heads would have rolled – and probably the CEO’s. But so far the family head of the business, Sam Walton, has stuck by his board. Is that a good or a bad thing?
The brouhaha brings into sharp focus a fundamental issue for family businesses. Stability is one of the classic benefits of a family business. They aren’t swayed by the fluctuations of the markets or the animal spirits of nervous people on Wall Street worried about their bonuses, mortgages and alimony cheques. Family businesses can weather the storms of bad PR that can see chief executives ousted on the back of stories that will be forgotten in a few months.
The Waltons would no doubt say that they are battening down the hatches, ignoring the news cycle and making sure that the best man for the job is still in the hot seat. Who, they might ask, would be better placed to get to the bottom of this murky episode than a long-serving CEO? They could point out that Walmart has so far avoided a BP-style meltdown.
However, there is something that is close to stability but far more damaging: inflexibility. On another view – and perhaps this is the view that most people outside the family and board might take – standing by their man could well be an example of the Waltons bloody-mindedly ignoring the fact that something must be done. CEOs are figureheads and have to take responsibility. Family members are in a peculiar position, in that they can’t be sacked. CEOs can’t be treated as if they are family. The Waltons should think hard about the Murdochs.
One of the major criticisms of 100% family-owned businesses is that they lack transparency, compared to publicly owned ones. Businesses that are part family-owned and part public-owned (fractional companies, if you like) share some of the qualities of both models. In good cases, this means that they are open to scrutiny but have the strength not to be swayed by fickle opinion. In bad cases, they risk looking like autocratic regimes that bad-temperedly wave away constructive criticism and shut their ears to good advice.
Family businesses rely on the family making good decisions. Many of them are excellent at that – if they weren’t their businesses wouldn’t still be here. But in the fractional model shareholders sometimes have to be heeded, even if the family thinks they are wrong. Otherwise the family risks getting into a power-struggle that can only damage them. The Waltons have to tread carefully, and prove that they have learned how to listen.