Reprint: R1211H
Though the term “family business” may call to mind visions of local mom-and-pop firms, family-controlled companies play a huge role on the global stage. Not only do they include sprawling corporations like Walmart and Tata Group, but they account for more than 30% of all companies with sales in excess of $1 billion. And over the long term, their financial performance exceeds that of traditional public companies, according to a new study by BCG and École Polytechnique.
Family-controlled companies surpass their peers because they focus on resilience, not short-term results. During economic booms, this approach leads them to forgo some opportunities (and hence do slightly worse than their counterparts), but it puts them in a position of strength during downturns, when they shine. The researchers identified seven specific ways in which family-run businesses build their resilience:
1. They’re frugal in good times and bad.
2. They set a high bar for capital expenditures.
3. They carry little debt.
4. They acquire fewer (and smaller) companies.
5. They’re more diversified.
6. They’re more international.
7. They retain talent better than their competitors do.
Though these practices come more naturally to executives who feel an obligation to be stewards for the next generation, executives at any corporation can adopt them. Indeed, the researchers uncovered a number of nonfamily-controlled companies that mimicked the behaviors of family firms and saw very similar patterns of performance.
