“We now need to understand, engage and, longer term, shape the thinking of family businesses.”
By John Elkington
Like it or not, as the focus of the global economy shifts to Asia, we all need to pay greater attention to family businesses. Why? Well, the Financial Times reports that families control two-thirds of Asia’s biggest businesses. And over 70 percent of Hong Kong’s listed companies are controlled by either their founders or by members of the founding families – so the global sustainability movement depends for its long-term success on whether or not these people buy in.
While in Singapore a few weeks ago, I visited the Pacific-Asia (which is the way they put it) chapter of the Family Business Network, whose membership includes some of the world’s oldest and most reputable business families, with more than 4,000 member firms across 45 countries. Their vision, as executive director Caroline Seow shared, is to create a vibrant community of family businesses that serves as a model of sustainability. “Family values,” the FBNPA believes, are a “pathway to sustainability.”
Such arguments resonate strongly because the core of the sustainability agenda revolves around intergenerational transfers of wealth—or problems. But the uncomfortable fact is the contributions of family business are often precariously short-lived. As FBNPA itself notes, “three in 10 family businesses survive into the second generation, and a mere one in 10 into the third.” Nor is this simply an Asian problem: “across the globe, family-owned firms have been vulnerable when it comes to handing down the business.”
The perils of family ownership were dramatically spotlighted as I wrote this piece by events in Macao, where the gambling tycoon Stanley Ho – who controls about a third of the casinos in Macao, the world’s largest gaming market – was being tracked like a character in a TV soap opera. Worth around $3 billion, the ‘rags-to-riches’ tycoon is 89, in poor health and living with his third wife, and is now faced what some see as a fraudulent transfer of shares to other family members, including the five children of his second marriage.
Even more striking, Professor Joseph Chan of the Chinese University in Hong Kong has studied 127 family successions in Hong, Singapore and Taiwan between 1987 and 2005, and – according to the Financial Times – found that companies’ market-adjusted share prices dropped an average of 56 percent in the five years before – and the one year after – a generational change in ownership and control.
All of that said, family businesses are the backbone of many economies – and will remain so. And they can return good value for the discerning investor. A 2010 study by McKinsey, for example, showed the stock prices of family businesses significantly outperformed their peers between 1997 and 2009.
Which suggests that we now need to understand, engage and, longer term, shape the thinking of family businesses. It’s a nice idea that multi-generational businesses are, by their very nature, going to be more in sympathy with the intergenerational agenda of sustainable development, but we will need to test out the reality over time and in different parts of the world. Another New Year’s resolution.
About John Elkington
John Elkington is Executive Chairman of Volans and Non-Executive Director at SustainAbility. He is also a Board member at GRI and an Advisory Board member at IIRC. Elkington blogs at johnelkington.com and tweets at volandia.
Talkback Readers: Can you share a story about a family business? What helped it thrive through the generations? Share on Talkback!
