‘Family-run businesses are more future-oriented, profitable in the long run, dominate key sectors of the economy’
Family-run businesses, on an average, are more future-oriented with long-term strategic goals, and more profitable in the long run even as they outperform non-family businesses, according to Professor Peter Vogel, Director Global Family Business Center at the IMD Business School.
He was addressing the Family Business Network chapter of the Confederation of Indian Industry (CII-FBN) in Pune recently. Citing global research, he also said, “Family businesses are less likely to lay people off despite a potential economic downturn more likely to… engage in philanthropy.”
He also pointed out success in multi-generational family enterprises stemmed from resilience and the ability to adapt. He cited their tendency towards, “long-term thinking, financial prudence and deep-rooted values and loyalty.”
Credit Suisse, in its annual reports on family-owned businesses, has said that the balance sheets of family companies are typically less leveraged. “This inherent risk aversion remains the case in our latest data [released in 2018]. This, of course, provided a degree of insulation in [a] financial crisis.” It added that they were also inclined to reduce leverage much more quickly during the early years after a crisis.
In its September 2020 report, Credit Suisse noted that family businesses’ “more conservative financial model built on lower leverage and strong cash flow generation has proved an asset.”
At the CII session, Prof. Vogel also pointed out areas in which the now-gen – or the current generation – that is actively running the business and the upcoming generation – also referred to as next-gen – could work together: new entrepreneurial ventures and social responsibility projects that fall under the CSR ambit.
Participants in the session included members from the Kirloskar, Thermax, Forbes Marshall, Ekki, Bajaj, Gits and Rasna families.
According to Kanishka Arumugam, co-CEO of Ekki Water Technologies and chairman, Next-Gen Committee, CII FBN India, “Family businesses dominate key sectors of the economy. Critical to the successful evolution of any family business is the development and fulfilment of the next-gen members.”
He pointed out that the upcoming generation within family businesses had value to add as they could bring together a unique intrapreneurial skill set and a wealth of knowledge. “The next-gen community is better positioned to drive growth, sustainability and build world-leading digital companies.”
On the goals of the CII chapter, he said, “CII-FBN Next Gen aims to transform the community into a dynamic learning platform, inspire each other and help next-gen members become responsible family business leaders of the future.”