Trust, innovation, and legacy: The enduring strength of family enterprises
Sam Walton established the first Walmart store in the heart of Arkansas in 1962 and tenaciously built the retail business into a household name. More than six decades later, Walmart’s continued success and status as one of the world’s largest and most successful retail chains has been largely attributable to his vision.
Walton’s strategy for the successful continuation of Walmart’s operations had been inspired by an idea: to make the company a family business. Before he passed at 74, he bequeathed 50% of the company’s equity to his wife and children through the Walton Enterprise, a company which had been set up to manage the family’s fortune.
Today, Walmart stands strong as a retail giant, with many members of the Walton family contributing to its sustained growth, either through employment or board service, throughout the years.
Family business is not a peculiar concept to the Waltons. Businesses rooted in familial bonds in their operations have transcended time. The world’s oldest existing family business, for instance, is Hoshi Ryokan, a Japanese hotel that has been owned and operated by the same family for over 1,300 years. There are also notable family businesses that continue to thrive across the globe, including automobile companies BMW and Ford Motor Company, technology company Dell, investment company Berkshire Hathaway, and many others.
But, for all its appeal, managing a family business can be tricky. The complexities of establishing and growing a business with core familial roles can create unique and often more challenging dynamics due to the need to navigate a delicate balance between professional and personal relationships. Transcending the emotional attachment is particularly crucial if family businesses are to inculcate the highest level of communication, trust, and resilience required for a successful business operation.
Although an emotional attachment in a family business can be rewarding as success is celebrated as a collective achievement, setbacks may be felt more intensely and lead to business failure. An oft-cited statistic, in fact, provides that just 30% of family businesses survive to the second generation, while a mere 3% endure for more than four generations or beyond owing to the inability to sustain them.
Yet, when family businesses are able to prove their ability to adapt, innovate and endure, they create a lasting legacy that makes the venture a deeply fulfilling endeavour. More recent data indicate that, on average, family businesses have a significantly longer lifespan compared to typical companies, as they consistently feature at the top of lists for the world’s longest-lasting companies. Their resilience, for instance, was put to test at the height of COVID but they survived and according to predictions, they are also well-positioned to maintain competitiveness in the 21st-century economy.
But what is it about family businesses that boast such resilience? As history shows, many factors contribute to this show of enduring strength.
As shown in the success story of a global entity like Walmart, trust and shared values are critical to the success of family businesses. When trust and shared values — often rooted in a family’s ethos — are at the core of a family business, establishing and maintaining open communication, collaboration, and a collective commitment to the cause become easier in guiding the decision-making. This would ultimately reflect in the long-term vision and inspire the resilience necessary for business longevity.
Interestingly, the Rothschild family adopted this strategy to become the most famous banking dynasty in Europe today. In his vision to grow a prominent and enduring empire, Mayer Rothschild trusted and assigned his sons to different parts of Europe including London, Paris, Vienna, and Naples to establish banking operations, while also retaining one son in their home city in Frankfurt. And his judgment proved accurate.
Successful family businesses that have withstood the test of time have also crucially demonstrated the importance of adapting through innovation. Perhaps no family business exemplifies this trait better than global tech giant, Samsung. Rooted in its founding principles, the company marshalled for decades by the Lee family has managed to strike a balance between honoring tradition and embracing innovation. The family’s commitment to adaptability and progressive thinking has allowed Samsung to thrive in the fast-paced tech industry, giving Apple a run for its money.
Beyond answering critical questions around professional adherence to governance principles as witnessed in the operations of LVMH by the Arnault family, family businesses require succession plans for longevity. Rothschild’s stipulation in his will that titles and property could only be inherited by male heirs, albeit controversial for encouraging marriage among family members, shows the importance for family businesses to develop such plans. Although a deviation from Rothchild’s, the succession strategy adopted by the Agnelli family whose automobile business, Fiat Chrysler is being successfully led by Giovanni Agnelli’s grandson, John Elkann, is another testament to the significance of well-thought-out succession plans in ensuring enduring successes.
History also shows a combination of these highlighted factors is undoubtedly a critical recipe for family businesses to show resilience in the face of challenges. When ArcelorMittal reported nearly $8 billion in losses in its financial statement in 2016, primarily due to falling steel prices, the Mittal family was made to dig into its power of resilience. The company would leverage the trust in its values and long-term vision to seek $3 billion in new capital from its shareholders to shore up its finances.
It’s crucial to note that the trust and goodwill ArcelorMittal enjoyed from its shareholders were predominantly attributed to the company’s dedication to ethical corporate governance practices and transparent stakeholder and community engagements.
Responsible stakeholder and community engagements, often overlooked by many corporate businesses, are particularly pivotal to family businesses’ ability to build resilience. By aligning their business objectives with the broader needs of the community, family businesses can build trust, strengthen relationships with stakeholders, and create a sustainable impact.
In Africa, for instance, Honeywell Group, a Nigerian-based investment company, is a quintessential example of family businesses showing resilience through robust community and stakeholder engagements. The company, founded in 1972, continues to illustrate the profound impact that family businesses can have on society through strategic Corporate Social Responsibility (CSR) initiatives. These initiatives by the Otudeko family-owned business address critical social issues in Nigeria, spanning areas such as education, healthcare, and environmental sustainability.
Honeywell Group also continues to thrive on the back of the trust placed in its ability to transparently deliver value to shareholders. It’s no surprise that, more than five decades in, these factors have ultimately secured the company’s place among the most influential family businesses to be reckoned with on the continent.
The story of Ford Motor Company is another that also further encapsulates the resilience of businesses rooted in familial bonds. During the 1970s, the automaker encountered a multitude of challenges that tested its resilience and required strategic efforts to overcome. A significant hurdle was the impact of the oil crisis in 1973. Rising oil prices and fuel shortages adversely affected the automotive industry after members of the Organisation of Arab Petroleum Exporting Countries (OAPEC) instituted an oil embargo on nations that had supported Israel during the Yom Kippur War.
Ford also faced increased competition from foreign automakers and a shifting consumer demand towards smaller, fuel-efficient vehicles. These challenges would result in a decline in market share and financial instability for the company.
While Henry Ford II played a pivotal role as the company’s leader during this period, making tough decisions that included restructuring Ford’s operations, implementing cost-cutting measures, and diversifying its product line to adapt to the changing market dynamics, it was the Ford family’s collective efforts that were instrumental in steering the company back on track.