Taking the long view

http://www.ifb.org.uk/ Recent press comment in the Financial Times by Sir Richard Lambert laments the myopia of the UK stock market’s obsession with short-term performance. He cites Rolls Royce as a special case that was sheltered from market predators by the UK Government’s golden share. It allowed the firm the freedom to make investments that would take years, if not decades, to yield returns in terms of a strong cash flow. Shielded from mergers and acquisitions style short-term behaviour and a policy of robust investment in R&D, people and capital equipment, Rolls Royce has gone from strength the strength to become a world leader in its field.

Similarly family firms often eschew the public markets to retain the independence that enables them to take bold investment decisions that might not yield strong results in the short-term. Danny Miller and Isabelle Le Breton-Miller argue in Managing for the Long Run that family businesses that pursue a long-term agenda derive competitive advantage. However there is a real danger in this debate that we lose sight of the need to achieve a balanced focus on the short, the medium and the long-term. Near-sighted goals are vital in any organisation. People in modern organisations are appraised regularly and held accountable for goals that stretch over different time horizons. Each business sets its own pace, but like athletes in a long-distance race the runner who wins is able to release effort in a calculated manner with short bursts of speed balanced with stamina.

In successful family businesses there will be short-term aims and objectives sitting alongside a well articulated long-term strategy, where owners strike a balance between short-term return and a willingness to apply their financial capital with patience. It's a subject that we address in further detail in the IFB Family Business Stewardship report, in partnership with Tomorrow's Company, which will be published on 9 June at our 10th National Conference.

Family values and shareholder value

http://www.ifb.org.uk/
There is an even greater sense of anticipation now for the speech of CBI director-general Richard Lambert at the Institute for Family Business National Conference, in June, following the publicity surrounding his recent speech at the Royal Society of Arts. In comments that made the lead story in the Financial Times he explained how the relentless pursuit of shareholder value has helped to undermine the reputation of business. Richard will be tackling this question head on at our conference and will explore how family firms can develop trust as a source of competitive advantage.

His thesis, put forward at the RSA, is that the irresistible drive to reduce costs at any price has fractured the relationship between companies and their employees and local communities. An open capital market for control generating pressure in the form of hostile takeovers has further fuelled the trend. Another driver is excessive levels of high octane debt piled onto balance sheets. Crowning it all in the public’s eye is the widening pay disparity between top earners and the shop floor which has created a gulf between the haves and the have-nots in society.

Are family businesses any different? Does long-term stewardship which characterises the approach of much of the family business sector make for more moderate outcomes where employees have greater satisfaction at work and communities are not left abandoned? The answer is that at their best family firms can achieve this, but it’s not automatically the case. Every firm faces the relentless pressure of globalisation; family-owned factories have been shut and production has been moved offshore. But family business owners often have strong values which they wear on their sleeves and these set the tone for corporate behaviour.

To be the employer of choice in a town, or region, the best family firms create high trust organisations where individuals come to work feeling valued. They invest above and beyond the strict minimum that shareholder value principles would dictate because they want to be best in the business. Profit maximisation is not their sole mantra. Owners balance the requirements of the company for reinvestment with their expectations for liquidity. While the sector does face many challenges family firms can be role models by valuing stewardship above shareholder value.