Family governance and corporate resilience

The EBRD's Consumer Rules Summit, held on the 24th and 25th of April in Zagreb, brought together a diverse group of experts to discuss the latest developments and challenges facing businesses in relation to consumer spending in emerging Europe. The panel discussions covered a range of topics from climate change's impact on agriculture to the challenges facing supply chains. David Risser, Managing Director, took part in a panel on family governance and succession planning, and below are some of his insights from this discussion.

Family-owned businesses are a crucial part of the global economy, with an estimated impact of over 70% on the global GDP. These companies are also a source of growth, as shown by the University of St. Gallen Family Business Index 2023, which revealed that the largest 500 family businesses are growing at nearly twice the rate of advanced economies and 1.5 times the rate of emerging markets and developing economies.

However, succession planning and corporate governance remain key issues for family-owned companies. The lack of a single template for succession planning means that the process requires significant planning and buy-in from everyone involved with a detailed and agreed strategy. Keeping family involved is also essential, as it is what often makes companies strongest. As Alexandra Papalexopoulou of Titan stated, "company first, family second, and then individual interests."

Long-lasting family businesses have endured for centuries, demonstrating resilience and enduring success. For example, the Hoshi Ryokan, one of the oldest family businesses in the world, celebrated its 1,300-year anniversary in September 2018. In addition, there are approximately 5,000 bicentenary family companies that have managed to sail through turbulent times, surviving wars, revolutions, changes in customer preferences, and numerous successions.

Although there is no unique recipe for success, long-lasting family businesses typically share a few simple categories of shared ingredients:

- Family values drive value creation, and recognized values are proud flags that family members, customers, and employees identify with. A core value shared by all long-lasting businesses is that what is good for the company is good for the family. They invest in it and work for the next generation, even if it is detrimental to dividend distribution.

- Structured family governance procedures are essential for long-lasting family businesses, including institutionalized communication among family members, a clear definition of the role of each family member involved in the firm, and planning succession – the process of transferring ownership and leadership across generations. 

- On the corporate side, successful family businesses establish good corporate governance practices, including setting up effective boards – often opened to trusted non-family members bringing external views to ensure accountability and foresight, as well as understanding the importance of a structured approach to managing risks and risk exposure.

- Openness is another crucial ingredient for long-lasting family businesses, with several dimensions, from being receptive to new ideas and willing to open up the business and invite outsiders in, to professionalization and delegation, creating time to deal with big-picture issues that shape the future.

In today's new era, family-owned businesses face unprecedented challenges as well as significant opportunities. The balance between legacy and adaptability is a difficult imperative to achieve. Long-lasting businesses have successfully built and rebuilt a portfolio of attractive assets and activities, guided by a set of shared values.

Owners must ensure that their family businesses and families are prepared for the future. Keeping family involved is crucial, and a structured family governance procedure and effective board can help to ensure accountability, foresight, and the management of risks and risk exposure. Openness to new ideas, professionalization, and delegation can also help to create time to deal with big-picture issues that shape the future. With these ingredients, family-owned businesses can achieve enduring success and resilience.

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