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What You Can Learn from Family Business

Focus on Resilience, Not Short-Term Performance
December 18, 2012 by Nicolas Kachaner, George Stalk, and Alain Bloch
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In This Article
  • Well-run family businesses focus on resilience, not performance.

  • During good economic times, family companies may have slightly lower earnings, but during downturns, they outperform their peers.

  • Family businesses use seven strategies to manage for resiliency: they stay frugal, spend no more than they earn, carry little debt, favor fewer and smaller acquisitions, diversify, go global, and retain their talent.


To many, the phrase “family business” connotes a small or midsized company with a local focus and a familiar set of problems, such as squabbles over succession. While plenty of mom-and-pop firms certainly fit that description, it doesn’t reflect the powerful role that family-controlled enterprises play in the world economy. Not only do they include sprawling corporations such as Walmart, Samsung, Tata Group, and Porsche, but they account for more than 30% of all companies with sales in excess of $1 billion, according to the Boston Consulting Group’s analysis.

Conventional wisdom holds that the unique ownership structure of family businesses gives them a long-term orientation that traditional public firms often lack. But beyond that, little is known about exactly what makes family businesses different. Some studies suggest that, on average, they outperform other businesses over the long term—but other studies prove the opposite.

To settle that question, we and Sophie Mignon, an associate researcher at the Center for Management and Economic Research at École Polytechnique, compiled a list of 149 publicly traded, family-controlled businesses with revenues of more than $1 billion. They were based in the United States, Canada, France, Spain, Portugal, Italy, and Mexico. In each business a family owned a significant percentage, though not necessarily a majority, of the stock, and family members were actively involved both on the board and in management. We then created a comparison group of companies from the same countries and sectors, which were similar in size but not family controlled. (We didn’t look at Asian companies because so many of them are family controlled that it’s difficult to find a suitable comparison group.) Then we did a rigorous analysis of the ways in which those two sets of companies were managed differently and how that affected performance.

Our results show that during good economic times, family-run companies don’t earn as much money as companies with a more dispersed ownership structure. But when the economy slumps, family firms far outshine their peers. And when we looked across business cycles from 1997 to 2009, we found that the average long-term financial performance was higher for family businesses than for nonfamily businesses in every country we examined.

The simple conclusion we reached is that family businesses focus on resilience more than performance. They forgo the excess returns available during good times in order to increase their odds of survival during bad times. A CEO of a family-controlled firm may have financial incentives similar to those of chief executives of nonfamily firms, but the familial obligation he or she feels will lead to very different strategic choices. Executives of family businesses often invest with a 10- or 20-year horizon, concentrating on what they can do now to benefit the next generation. They also tend to manage their downside more than their upside, in contrast with most CEOs, who try to make their mark through outperformance.

At a time when executives of every company are encouraged to manage for the long term, we believe that well-run family businesses can serve as role models. In fact, in our research we were able to identify several companies with dispersed ownership whose strategies mimicked those of family firms. Those companies also exhibited a similar performance pattern: below their peers during upturns but leading the pack in times of crisis. (See “It Operates Like a Family Business—but It’s Not,” below.)

It Operates Like a Family Business—but It’s Not

It makes sense that family-controlled companies would focus on resilience instead of performance, but why can’t other companies mimic that strategy?

In fact, some do. Consider Nestlé. It follows most of the golden rules of family firms. It slightly underperformed its three major competitors during the economic expansions of 1997–1999 and 2003–2007—but consistently outperformed them in periods of financial stress and crisis. Its leverage is lower: Debt accounts for 35% of its capitalization, versus an average of 47% among its competitors. Nestlé relies less on acquisitions: Annually, newly acquired businesses account for an average of 3.9% of its revenues, versus an average of 7.8% for its competitors. Nestlé is also the most diversified of the world’s four food giants, in terms of both geography (67% of its sales come from outside its home region, compared with 56% for its competitors) and product lines (which range from pet food to beverages, and from confectionary to pharmaceuticals).

Nestlé is not a unique example. Essilor, the world leader in optical lenses, is another nonfamily firm that mimics these behaviors. It has a culture of cost consciousness, maintains a very low level of debt, and has little staff turnover. Essilor is highly international—and has made many small acquisitions close to the core rather than pursuing big deals. Like Nestlé, it has weathered the recent downturn exceptionally well. In the United States, Johnson & Johnson isn’t a family-owned business, but it acts like one, with a low debt-to-equity ratio, a product line that allows its PR people to tout it as “the most diversified global health care company,” and a skepticism toward the large transformational mergers that other pharma players routinely attempt.

For years managers have been advised to “think like an owner.” The rules of family business show how to translate that thinking into actual strategies. What Nestlé and other nonfamily companies prove is that it’s possible to benefit from these rules regardless of ownership structure.

So how do family-run firms manage for resiliency?  We’ve identified seven differences in their approach: