The art of family business- a hand on the tiller

http://www.ifb.org.uk/ The family business sector has been noted for its steady performance and is arguably coming out of the recession with fewer scars than the corporate sector generally. Such seeds of resilience that exist were sown during good times when family firms grew more slowly than their non-family counterparts; this might have cost them ground by not grabbing every new slice of business, but their caution has helped strengthen the sector’s balance sheets.

In an example of this a recent Financial Times article showed how family businesses have gained an advantage in the world shipping industry and this time it’s the Greeks showing the Germans how it’s done.

When business boomed prior to the recent recession, Greek shipowning families set aside funds to build up cash reserves ready to weather any downturn that struck the industry. Their main rivals from Germany, who mainly rely on investing other people’s money, made risky bets borrowing excessively which put many firms on course to sink into insolvency. Greek family business shipowners have therefore strengthened their grip on this industry by the careful stewardship of their resources and by keeping a tight hand on the tiller.

As every business leader knows a cautious approach to finance is not a sufficient platform for success; new research argues that one of the keys to performance is the behaviour of owners. Experts are beginning to say that the correct governance approach in firms involves the active engagement of owners - this applies particularly to family firms.

Professor Ajay Bhalla, of the Cass Business School, puts down much of the success of the leading German family firm Merck KG, now in its 11th generation, to the family’s hands-on approach. Prof Bhalla also cites other firms (see video) who have gone off track when the family has retreated from active involvement in setting strategic goals and monitoring performance.