Tomorrow's Challenges
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3 things your c-suite can learn from family businesses

Family businesses are run with a good dose of commonsense in a world where commonsense seems increasingly rare

"Happy families are all alike," Leo Tolstoy wrote at the start of his novel Anna Karenina.

His observation applies to good family-controlled businesses too. They come in all shapes and sizes—from small enterprises to global companies such as Maersk, Cargill and Samsung—but the best are very similar in some ways.

This thought struck me in Rio de Janeiro last October, when I attended two big family business events. And it was the same at IMD back in September, when we welcomed more than 150 leading family firms from around the world to celebrate 25 years of family business education at the school.

My main takeaway on each occasion? Many family businesses are run with a good dose of commonsense in a world where commonsense sometimes seems increasingly rare.

Family firms aren't perfect, of course. Badly handled successions can threaten their survival, and there's always the potential for arguments between parents, siblings, cousins and in-laws.

But the good ones get many things right, and the C-suites of public companies in particular can learn three things from them:

1] Take your company's values seriously. Good family businesses certainly do. The philosophy and principles of their founders are handed down through the generations, shaping the company's culture and identity and building trust among customers and other partners.

By contrast, I'm sometimes a bit skeptical when CEOs of public companies talk about values. One problem is that they generally don't stay in the job for more than four or five years. Another is that too many companies still see "values" as an easy way to check the boxes for ethics or corporate social responsibility in their annual report.

Smart CEOs such as Unilever's Paul Polman realize that taking corporate values seriously helps companies to build public trust and attract talented people. Other leaders should do the same.

2] Try to tone down the short-termism. The best family businesses are managed sustainably for the long term and they take investment decisions with an eye on the next generation and beyond. Whenever I talk with someone from the fifth or sixth generation of an old European family firm, I start thinking about the future generations of my family too.

Many public companies, however, probably put too much emphasis on short-term results. Yes, I know that their CEOs face big short-term pressures from financial markets and competitors. But I think some top executives are secretly comfortable living in the short term, because they've been doing it for so long.

Some listed companies are trying to take a slightly longer-term view, for example by no longer giving quarterly earnings guidance and by making it clear that they don't want shareholders who are just looking to make a quick profit. Maybe this movement will gain momentum as more companies adjust their perspective.

3] Don't throw out the past. Good family businesses invest lots of effort in moving into the next generation, but they never forget what went before. Every time we run a family business program, we have participants aged from 17 to 70. Juniors learn from seniors, enabling the business to step back before moving forward.

Balancing tradition and innovation in this way is not easy, especially if there's clearly a need for a family business to change direction. With public companies too, a new CEO often feels obliged to break with the past and outline a new vision and set of priorities.

Such shifts are fine and sometimes necessary. But public companies shouldn't forget their history completely, not least because the past can be a wonderful source of emotion for a corporate brand. Like a well-run family business, the goal is to hit the sweet spot of being neither too rash nor too stuck in the past.

Family businesses may be a distinct species, but leaders of public companies can still learn from them.

Dominique Turpin is the Nestlé Professor and President of IMD.

Family businesses are run with a good dose of commonsense in a world where commonsense seems increasingly rare
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