Article: Wednesday, 30 September 2020
Family businesses with a long history do better on average when the company name is the same as the family name, according to new research by the Erasmus Centre for Family Business (ECFB), BDO Accountants & Adviseurs and Rabobank. The more emphatically they use old brand names and trademarks, the higher on average their stock market value. And four other factors are also crucial for the longer-term vitality of family businesses: an external CEO, intensive family involvement, avoiding a generation gap at the top and avoiding radical business transformations.
For the study The secret of eternal youth (in Dutch), data from 6,500 companies, almost a third of which are family businesses, was analysed and compared. Three-quarters of the surveyed family businesses are younger than 55 years, 16 per cent are between 55 and 100 years old, and 9 per cent have been operating for more than 100 years.
The question of how family businesses with a long history can remain vital from generation to generation has only become more topical due to the coronacrisis. “For family businesses that have existed for more than a hundred years, this is not the first and certainly not the last crisis. This makes it all the more interesting to investigate the similarities between family businesses that have been successful for generations,” says Prof. Pursey Heugens, professor of organisation theory, development and change; and director of the ECFB at Rotterdam School of Management, Erasmus University (RSM). Research has identified five interlinked success factors for ‘eternal youth’:
The use of the family name quickly refers to a glorious history. The authentic and intriguing story that these older family businesses tell is enthusiastically received by the outside world. The research shows that capitalizing on brand strength and goodwill is one of the most important paths to growth for very old family businesses.
The research shows that family businesses achieve better financial results than other companies if they have an external CEO from the third generation. Assets and revenues grow on average by 35.8 per cent and 68.4 per cent respectively over a five-year period at a family business of more than 100 years old with an external CEO, while with a family member at the helm these growths are only 13.4 per cent and 16.2 per cent.
Companies that make targeted investments do considerably better than companies that radically transform their own organisation. ‘Panic football’ is a bad idea, according to the study. “Now that many entrepreneurs are forced to take action by the coronacrisis, investing in innovations that lead to new and improved products, services or processes is a better option for family businesses than radically overhauling the business model,” says Mirelle Pennings, director commercial banking at Rabobank. In the early years, family businesses do better than non-family businesses in terms of business growth in terms of assets and turnover. But, this advantage is leveling off from the third generation. Pennings: "Searching for new growth opportunities and continuing to invest in innovation will then become even more important."
As important as an outside CEO is, the research shows that continued commitment from the founding family is invaluable. That involvement must go further than just passive ownership. Participation of the founding family is particularly of great importance when it comes to important decision-making and safeguarding family values.
“Companies where the age difference between family members on the management is greater than 25 years, grow much slower than family businesses without such a generation gap at the top. Giving the new generation the reins in time after a good training and guidance in the company is therefore the motto,” says Joost Vat, partner at BDO and specialist in the field of family businesses. So it is important to develop a vision that all family members involved in the business can relate to in order to prevent older generations within the family business from being opposed to younger generations.
Two scientific studies were combined for the report. The first study examined 6,500 listed companies over a longer period. Almost a third (31.8 per cent) was a family business. In a second study, the specific characteristics of some 50 ancient family businesses of 200 years or older were studied.
ECFB, BDO and Rabobank have been collaborating since 2016 in the field of scientific research into family businesses with the aim of gaining more insight into the most important trends and developments. After the previous themes of strategy change after generational change, family values, internationalisation and employership, the fifth study focuses on the vitality of family businesses. Since this year, this collaboration has been further intensified with the establishment of a chair for family businesses. The chair is held by Pursey Heugens, professor of organisation theory, development and change at RSM.
BDO will host an online business event with a number of appealing Dutch family businesses such as Van Eeghen, Van der Valk, Merford and Mascotte on Tuesday 27 October, in which the family business research will be highlighted.
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