Study: passing on family values crucial for competitive edge
New research by the Erasmus Centre for Family Business (ECFB) at Rotterdam School of Management, Erasmus University (RSM) shows family businesses with strong family values considerably outperform ‘regular’ firms. Their values result in a more pronounced identity, greater confidence on the part of their suppliers and a stronger licence to operate and customer loyalty. Therefore, it makes sense for family businesses to clearly express their specific family values in their policies and communication as this will strengthen the continuity of the family-owned firm.
These are the main conclusions drawn from the study (in Dutch), which researched the process of passing on values within family businesses, performed by the ECFB and published jointly with BDO Accountants & Adviseurs and Rabobank.
Companies with strong family values perform better
ECFB, BDO and Rabobank conclude that in financial terms, family businesses often outperform companies without a family contribution. On average, the financial value of family businesses is seven per cent higher than comparable non-family businesses. In addition, the average profitability of family-owned firms – in terms of ROA – is 16 per cent higher. Remarkably, this profitability premium is mainly observed in companies where the family makes an active contribution, with a family member holding the position of CEO or chair of the supervisory board.
“Values form an anchor point within family businesses – even stronger than is the case for ‘ordinary’ organisations. Both for the families themselves, their companies and for their environment,” says BDO partner Joost Vat, who specialises in family businesses. “Everyone knows what the company stands for and what to expect from it. A strong identity helps employees match their personal objectives to those of the organisation, so that they work harder in the company’s interest,” Vat said.
Foreign partners and the role of trust
“Research of the past few years consistently shows that family businesses put in a better performance,” says Pursey Heugens, professor of organisation theory at RSM and director of ECFB. “Family businesses do especially well when there is clarity about their core values.”
“Companies that succeed in authentically and consistently expressing their family values are very strong when it comes to connecting with clients and suppliers,” explains Mirelle Pennings, director corporate clients Netherlands at Rabobank. “Trust plays a particularly strong role in doing business with foreign partners. Family firms that are able to take advantage of their family values once again have an edge.”
Policy vulnerable during change of the guard
According to EFCB, BDO and Rabobank, one of the key moments when value continuity comes under pressure is when one generation is succeeded by the next. Both the world that members of the younger generation live in and their attitudes to life are different to those of their predecessors. And this new way of life does not necessarily align with the original family values.
“Family businesses are advised to pay a lot of time and attention to passing on values during a change of the guard,” said Prof. Heugens. But even when a transfer of authority has been managed with the utmost care, it is often inevitable that over time, the family business’s original values are gradually transformed and adapted to the changing times and circumstances. “This isn’t a problem, as long as the company keeps a clear link with its past. That is the main outcome of the transfer of values,” according to Heugens.
The Erasmus Centre for Family Business (ECFB) contributes to the development and long-term viability of family businesses around the world through the provision of research on family business, development of family business leaders, and outreach activities. www.rsm.nl/ecfb
Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top 10 research-based business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who carry their innovative mindset into a sustainable future thanks to a first-class range of bachelor, master, MBA, PhD and executive programmes. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl
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