book.chapter Fcbs performance history

Family-controlled businesses (FCBs) often find themselves at the mercy of the business press, which tends to spotlight any internal disputes or battles for control rather than focusing on their consistent financial achievements over the years. However, when one delves into the data, it becomes evident that exceptional FCBs not only lead their industries for extended periods but may also owe their success to their family-controlled nature rather than seeing it as a hindrance. These enterprises constitute approximately 35-40 percent of the Fortune 500 and S&P 500 companies, and they are responsible for about half of the employment opportunities in the United States, contributing to around 78 percent of the new job creation annually. This significant economic impact is even more pronounced in regions such as Asia, Europe, and South America. Notable examples of FCBs include giants like Cargill, Bechtel, Michelin, Hallmark, the New York Times Company, Timken, Fidelity Investments, W.L. Gore, Estee Lauder, S.C. Johnson, L.L. Bean, Wal-Mart, IKEA, Tyson Foods, Motorola, Corning, Nordstrom, and Levi Strauss. In terms of their approach to business, FCBs often adopt philosophies that starkly contrast with those of non-FCBs, reflecting in three main areas: ownership, business management, and social relationships. Where non-FCBs view ownership as a temporary state, aiming for quick profits and showing little loyalty to the enterprise or its workforce, FCBs see themselves as long-term stewards, committed to building enduring partnerships with their employees. From a business management perspective, non-FCBs focus on tactical, short-term gains, often at the expense of downsizing or pursuing other acquisitions to please the market. Conversely, FCBs adopt a strategic, long-term outlook, showing a keen interest in future management and investing in their business and people. Socially, non-FCBs prioritize individualism, fostering a competitive environment among staff for career advancement, whereas FCBs cultivate a collective ethos, encouraging employees to act in the firm’s best interests and maintaining strong relationships with vendors and partners. This distinct approach has led FCBs to significantly outperform their peers. In the United States, for instance, FCBs have shown an annual return to shareholders of 16.6 percent, surpassing the 14 percent generated by S&P 500 companies. Analysis of the 800 largest publicly traded FCBs in the 1990s revealed that they were 33 percent more profitable and 15 percent faster growing than their industry averages. A BusinessWeek analysis in 1987 also demonstrated that FCBs achieved a higher market-to-book value than non-FCBs. In the UK, the 325 largest industrial FCBs consistently outperformed in profit margins, return-on-equity, and growth in sales and assets. Similarly, in Spain, FCBs generated a return-on-equity of 27 percent, compared to the 6 percent return of non-FCBs. The success of FCBs can be attributed to their unique ownership, business, and social philosophies, which starkly contrast with the conventional wisdom and practices of many public, nonfamily-controlled businesses. These distinctive approaches to leadership, strategy, organization, and environmental relations are often perceived as weaknesses of the FCB form. However, they actually serve as pillars of competitive advantage for the most successful firms. The paradigm of great FCBs challenges contemporary management practices. In an era dominated by aggressive capitalism, the reluctance of executives to meet every quarterly target, the commitment to a social mission, the dedication to craftsmanship, and the loyalty and generosity towards employees are often viewed skeptically. Yet, these qualities, often criticized, are central to the success of thriving FCBs. Their independent direction, focused missions, and caring cultures not only distinguish them but also provide a competitive edge. By passionately pursuing these priorities in a coordinated manner, these winning FCBs have achieved remarkable success. Family ownership allows top managers the freedom to adopt a far-sighted, inclusive, and generous approach, offering a significant advantage in long-term management. Executives at non-family firms, constrained by the need to satisfy short-term shareholders, lack this advantage. Therefore, managers of private or family businesses should celebrate their unique position, leveraging their differences for competitive gain. For those not in FCBs, adopting a long-term perspective at all organizational levels can still foster a culture that prioritizes the organization’s long-term well-being.