Why family businesses are better equipped to deal with a fractured world
business meeting
Article

Why family businesses are better equipped to deal with a fractured world

Short-termism is failing
5 min.
November 2018
PRINTABLE PDF – Less than 1MB

For many years, there has been a perceived clash of values in business practice, between the quest for an ethical and sustainable business model, against the more conventional emphasis upon maximizing financial returns to shareholders. However, recent research reveals that some of the most sustainable and ethical approaches to business turn out to be successful in commercial terms. Conversely, sometimes a quest for maximizing short-term returns ends in scandal and/or bankruptcy.

There is overwhelming evidence that a short-termist business culture, guided predominantly by financial indicators with a bias towards maximizing profit and growth, is failing. It is not only causing social and environmental distress, but is also unsuccessful in pure business terms. It has undermined business and planet sustainability through heightened risk and lack of vision.

A large number of family businesses have avoided the fad for short-term growth maximization, and instead committed themselves to sustainability, adopting an approach that aims to be both principled and long-term. They seek to do the right thing for their business, the communities they serve and the environment. It is a philosophy of partnership, not exploitation. Counterintuitively, it has brought them better financial returns than those of other firms over the last decade, as recent studies have confirmed.

One of the reasons for this is that business-owning families have always treated legacy and the next generation as important. Their view is occasionally expressed as: “for us, a quarter is 25 years”. The most successful ones tend to be conservative on debt and avoid speculation.

They have a mindset closer to the one required for sustainability than that which has overseen the more expansionist, debt-funded business models fashionable in recent decades. For these families, it’s a short step to embrace a 21st-century definition of sustainability, incorporating an understanding of climate change, pressure on resources, protection of habitat and so on.

Achieving the apparent “best of both worlds” – sustainability and strong financial returns – requires considerable discipline at all levels of the organization. It is a different philosophy, and a radically different mindset and business model, to the one that was predominant in the 20th century. It is not just a new set of tactics and competencies. This is the very reason why owners, and in particular owners of family businesses and wealth, are best positioned to achieve this shift.

Seated at the top of the organisation and having concentrated ownership, they have the power and the responsibility of purpose and decisions. They can impose their vision and empower the whole organization to work toward a common, responsible direction to achieve radical change.

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