Family Businesses – a model for ‘new’ capitalism?

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Ken McCracken, KPMG

The approach taken to leadership and corporate governance by family businesses will be increasingly followed by other types of business, asserts Ken McCracken, KPMG’s head of Family Business Consulting.

In the context of mistrust of business by society, consumer demands for transparency in the corporate world and increasing recognition by the government and regulatory bodies that the UK’s blue chips might be better served by a longer term outlook, the family business model, with a broad range of strategic objectives and often a long-term investment horizon, may increasingly represent what good looks like in the corporate world.

The latest research to highlight the importance of non-financial concerns and achievements in business is KPMG’s 2017 CEO Outlook which finds that reputation and brand risk is now the second most significant business concern (after operational risk), named by 34% of UK CEOs as a priority risk area that is anticipated to impact their business growth over the next three years. This has dramatically risen up the risk agenda from 19% last year.

Additionally the KPMG research shares that:
• 71% of UK CEOs, said building trust among external stakeholders has risen to become a top-three business priority;
• 67% say their organisations are placing greater importance on trust, values and culture to sustain its long term future;
• 68% stated their board and shareholders placed equal importance on long and short term performance objectives; and
• 53% stated an objective to be more socially responsible was incompatible with short term performance objectives.

Ken McCracken explains: “The leadership of the country’s largest corporates recognise they have a challenge to turnaround how they are perceived. Part of the response by CEOs must be to demonstrate that they define success as being more than just generating short-term returns. Protecting the brand today is about showing they have taken on a broader responsibility for their customers, employees, society and the environment.

“This describes every family business I have worked alongside or studied. All of them have been engaged in the task of balancing their desired level of financial return with other types of return on investment to which the family attribute value.

“For example, some desire to continue a legacy of family involvement in an industry or feel attached to the place where their business is located. Others value looking after employees at least as much as shareholders’ interests or see the business as a means of keeping a family connected as individual members grow up and often grow apart.

“The actual non-financial returns that families strive to achieve do not matter as much as the fact that balancing these with being financial successful is what they are doing already – it is not new for family businesses. If those leading other types of business want really good advice about what it means in practice to run a business this way, they’d be well advised to learn from the experiences of the families who have been doing it for generations.”

In recent years, there have been other high profile proposals relating to behaviour changes by corporate citizens. For example, in 2012, a report for the UK government by John Kay, a visiting Professor at the London School of Economics, recommended a change of culture in the stock market, away from short termism in favour of restoring relationships built on long term trust and confidence. It also spoke glowingly of stewardship being a strategic objective for companies.

McCracken concludes:“Success that means more than just generating returns and seeks a deeper meaning? Governance based on long termism, trust and stewardship? With all of these at the heart of family businesses could it be that the often denigrated family business model is now gaining recognition as representing best practice for a new type of capitalism?”