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 Business Stewardship - a model for business success

http://www.ifb.org.uk/ The debate on the principles of good ownership very much came to life at the height of the recent financial crisis. Corporate failures, such as Lehman Brothers, raised questions about the health of capitalism and whether it was always working for the benefit of society as a whole. Politicians and the media called on owners to be more accountable and to ensure that their companies treated stakeholders fairly and acted as responsible corporate citizens.

Tomorrow’s Company, a think-tank that aims to reduce the gap between business and society, stepped in to the debate with the publication of a report “Tomorrow’s Owners - Defining, Differentiating and Rewarding Stewardship”. The report, to which the IFB contributed, defined stewardship as the active and responsible management of entrusted resources now and in the longer term, so as to hand them on in better condition. The report set out four principles for corporate stewardship, and related behaviours:

• Principle 1. Setting the course: attention to clarity of purpose

• Principle 2. Driving performance: attention to performance and improvement

• Principle 3. Part of the landscape: attention to the wider world

• Principle 4. Planting for the future: coherence over time

Throughout this recession the family business sector has been held up by observers, such as the CBI, as a source of stability. Although the trading environment has been very difficult family firms have generally held a steady course. Arguably one of the reasons for the success of family firms during tough times is their adherence to the four stewardship principles.

A leading example of family business stewardship in action is Wates Group who place respect for communities and people at the heart of their business. This approach has earned them the prize of Major Contractor of the Year for a second consecutive year at Building Magazine’s awards.

The IFB Research Foundation has partnered with Tomorrow’s Company to examine empirically how family businesses function in terms of the stewardship and to find out if this is a model for business success. If you would like to participate in the debate about family business stewardship please leave a comment here or email your views to info@ifb.org.uk .You can also request a copy of the IFB Family Business Stewardship Report that will be published in June 2011.