Why outsiders spark innovation in family firms but can’t finish the job alone
A lack of innovation is killing family enterprise, but new research suggests it isn’t a lack of ideas that’s the problem....
Leadership
How private and family-owned businesses can lead the way in building stakeholder value
Nine out of every 10 employees globally work for a private business, and their capitalization and turnover dwarf those of listed companies. Their challenge for the future is not only doing good, but being seen to be doing good.
The past decades have been characterized by growth and abundance. During this time, and largely due to a shareholder value creation mindset, business owners have managed to accumulate significant wealth.
Today’s world, however, looks fundamentally different, and this was reflected in the theme of this year’s St Gallen Symposium: confronting scarcity. We are being asked to deal with some of the greatest societal and environmental challenges. Never before have leaders been so uncertain about the future.
Big challenges demand far-reaching solutions
We can only tackle these problems by deploying a selection of major interventions:
- A fundamental reset and a systemic redesign in how businesses operate and how we live.
- A mindset shift from shareholder value creation to stakeholder value creation.
- Most importantly, it requires a holistic and orchestrated multi-stakeholder effort, including policymakers, entrepreneurs, investors, NGOs, philanthropists, and businesses.
In our panel session, titled: “Inclusive Capitalism: The Crucial Role of Private and Family-Owned Businesses,” we focused on the specific role of private and family-owned businesses, which make up the vast majority of businesses in the world. They form the backbone of global economies and societies. Their contributions to economic growth, employment, and community development are immense.
Our panelists
Laura Jorde, Managing Director of Vocational Education and Training at the German Chamber of Industry and Commerce (DIHK).
Alex Friedman, CEO and Co-Founder of Novata, a public benefit corporation focused on promoting universally defined metrics for ESG reporting.
Alexis du Roy de Blicquy, CEO of the Family Business Network, which is the world’s leading network of business owning families.
Emanuel Probst, CEO and member of the board of Jura, the global leader for automatic coffee machines.
While publicly listed companies have been increasingly under investor and regulatory pressure to disclose their ESG impacts, private and family businesses have been able to largely fly under the radar of external pressures.
However, this is clearly changing, and ESG is no longer a simple tick-the-box exercise. In our rapidly evolving world characterized by heightened transparency, private businesses are faced with a paradigm shift.
As regulators tighten their grip on ESG standards, customers, employees, and the court of public opinion have become increasingly vocal in their demands for responsible business practices. Private and family-owned businesses find themselves under unprecedented pressure, feeling well and truly under the spotlight.
The expectation is clear: They must not only do good but also be seen to be doing good. Failure to meet this expectation risks not only regulatory penalties but also reputational damage that could erode their social license to operate. This is a paradigm shift for many private and family businesses.
We are convinced that business owners are the most powerful catalysts for change.
Two critical ESG challenges for family businesses
Embracing this shift requires family businesses to navigate two critical aspects:
Firstly, they need to overcome their reluctance to openly report their ESG efforts. We live in an age of transparency, where information is readily available. If they fail to be proactive about this, they risk allowing others — regulatory bodies and customers — to dictate their narrative.
Secondly, we see that business owners regularly seem to be overestimating their ethical performance, meaning that they believe they are doing much more for ESG than they are in reality. It is, therefore, essential for business owners to ensure their actions align with their values and greater purpose, and that they apply rigorous methodologies to monitoring and reporting on their actions.
Business owners possess specific levers to benefit people and the planet, including transforming their operating businesses towards ESG impact, realigning their portfolio of assets and investments, as well as their philanthropic initiatives. We are convinced that business owners are the most powerful catalysts for change.
ESG as a threat and opportunity
Business owners should view ESG as both a threat and an opportunity. Organizations must assess their direct environmental footprint and consider the impact of their products and services on the world. By aligning their offerings with solutions to environmental challenges, businesses can position themselves to thrive amid shifting societal expectations.
The importance of the next generation of private and family business owners was a significant element of our discussion, and there is great hope that, if the “next gen” is encouraged to join the seniors in the business, they bring with them fresh ideas, energy, and impetus that will propel the business to future success.
Emanuel Probst, CEO of family company Jura, a world-leading coffee machine manufacturer, recounted his elevation to the board at the age of 28 and to the CEO position six years later. His children, both attorneys, have also joined the board at a relatively young age. “It should never be an option just to be a shareholder — you need to be involved in the business and understand the needs of the business, so reinvestment fuels growth, rather than paying out increased dividends to multiple inactive shareholders. We have recently reduced the number of shareholders by seven, so now we have my family, the foundation, and a smaller shareholder. This makes decision-making quicker and better for the business.”
“In thanking our excellent panel for sharing their thoughts and expertise, I reflect that private and family businesses are not just stakeholders in the global economy; they are custodians of our collective future.”
A long-term view, but changes are coming
Alexis du Roy de Blicquy said: “Within the Family Business Network, we have some 8,000 next-generation members focusing on inclusive prosperity. Some family businesses, for example, luxury goods companies, are up to 10 or more generations of owning, managing, and growing their businesses, and their approach is characterized by promoting resilience and a long-term view. The challenge for many businesses is to accommodate the new generation’s drive for transparency and translate that desire into meaningful and impactful action.”
Taking up that theme, Alex Friedman said there were three generic levers for change: government action, religion, and capital flows. As the generational drive for better ESG focus, performance, and reporting builds momentum, capital flows to businesses that perform well and transparently in the ESG area will prompt action.
“There may well be the seniors in the business who say, ‘We haven’t done this for 150 years, why should we start now?’ but those larger family businesses with private equity investors, significant lending from banks, and listed customers will find themselves pressed to be transparent on climate, environment, human rights and social inclusion. This is one of the reasons we have developed tools for business that help them, for example, understand their environmental impact, report on it, and put in place improvement programs that will satisfy lenders, investors, and customers,” he said.
In terms of succession and including the next generation in key decisions related to the future of the business, Laura Jorde shared her experience of working with next-generation business leaders who bring a new perspective to businesses and energy to evolve their family companies. “When seniors involve their successors in the business early and work together, they can achieve great and positive change, combining the generational leadership styles to become more inclusive and successful. We see this in some of the “Mittelstand” — successful, often family-owned medium-sized companies in Germany — where the successors bring their own ideas, expertise, and experience from studying and working in other sectors to grow the existing business.”
In thanking our excellent panel for sharing their thoughts and expertise, I reflect that private and family businesses are not just stakeholders in the global economy; they are custodians of our collective future. Embracing the principles of inclusive capitalism requires a commitment to transparency, sustainability, and societal impact. As businesses navigate these challenges together with society, they must remember that doing well financially and doing good socially and environmentally are not mutually exclusive goals — they are intertwined pathways to a prosperous and equitable future.
Authors
Related
What the Beckham feud teaches us about family business succession
Why the biggest family feud to hit the headlines offers a case study in succession under pressure. ...
How to scale your business and become an outlier venture
Research suggests that successful scale-ups are those that can interpret different information and spread that meaning across the organization to guide coordinated action. ...
Potong: Rethinking legacy in a family business
Chef Pam transformed a 120-year-old family business into a Michelin-starred restaurant, showing how heritage can fuel innovation and competitive edge...