As a skilled middle class emerged in market after market, generational ownership of workshops, sales stalls and other enterprises was common, eventually encompassing farmland as well.
Before there were stock markets or investment banks, before quarterly reports or external audits, these businesses formed the bedrock of advancing economies. Most catered to a small market of customers within maybe a day’s journey.
Today, the scope of family-owned businesses has expanded to include some of the world’s largest companies and their economic weight remains massive. In all markets, family-owned businesses form the bulk of the economy and in terms of numbers of individual enterprises they account for a significant proportion of GDP in their markets.
As they grow, family-owned businesses face the same challenges and pressures as any major corporation. To thrive, they must remain ahead of the competition through innovation, build strong relations with suppliers, develop a profound understanding of their customers and skillfully navigate through market changes. In addition, these businesses face distinct obstacles centred on family dynamics and expectations.
CGMA designation holders are uniquely positioned to help the leaders of family-owned businesses address these trials. Whatever their title, CFO, chief accountant or internal auditor, finance professionals are often the highest ranking non-family executive within the organisation. They bring distinct advantages to the table.
First, as an outsider, they may be aware of family squabbles but they are not emotionally affected. This allows them to remain objective as they work with all parties to resolve any disputes and find a balance between family and business interests.
Second, they often offer a broader range of experience from various companies than by executives who are members of the owning family. They may also have a stronger formal business education than family executives, at least in the first generation or so of a company’s lifecycle.
In addition, they can quickly develop a third vital asset – trust. “The most important thing for a family is trust,” Dr Randel Carlock, INSEAD Professor and co-author of the book, When Family Businesses are Best, said in an interview with us. “The non-family person becomes a very credible, trusted advisor because a family doesn’t want to share and work with people they can’t trust.”
Indeed, a 2007 survey led by MassMutual, a US based financial services company and Kennesaw State University in Georgia, found that among the respondents, accountants were the second most trusted advisors, topped only by spouses. A 2002 survey by the same group ranked accountants first among the advisors and spouses fourth. The ranking of lawyers dropped from second to fifth between the surveys. The group reported, “Additionally, when considering their top three advisors, business owners ranked their accountants first, just as they did in 2002.”
This report will look at the place held by family owned companies in modern economies, paying particular attention to their advantages and disadvantages. Next, it will consider four areas vital to the success of family-owned businesses – communicating clearly within the family, balancing business strategy with family expectations, creating appropriate governance and organisational structures and planning leadership succession. It will conclude by underscoring the pivotal role finance professionals can play in building and sustaining successful family businesses.