‘Majority businesses worldwide are family-owned’

LAHORE: Family businesses are not only dominant in the emerging economies but are pretty much so around the world. Most of the family companies are publically traded, which is the reason 80 percent of the businesses worldwide are family owned.

According to Global Family Index 2015, the 500 largest family firms account for $6.5 trillion in annual sales.  Many renowned firms are not typically perceived as family businesses because they are now run by outside professionals; still a large chunk of their shares are confined to a family. These include Walmart, BMW, Tyson, Samsung, Kohler, Christian Dior, Mars, Ford, Berkshire Hathaway, Roche, Maersk, and Comcast.

This shows family businesses do flourish both in developed and developing markets. There are some advantages of operating the business within a family, as hiring family members gives the entrepreneurs the trust that they may not have in outsiders. Usually the financial affairs are entrusted to a close family member.

This trust is extremely useful in markets where legal and contractual framework is not very developed.  Unlike a non-family enterprise, the family business ensures long term stability. The family own control and in some cases operate a business for generations.

If we look at the situation in Pakistan, most of the large businesses are under family control. Nishat, the largest business group in owned by Mansha Family, Lucy Group is the brain child of Yunus brothers family, Din Group was launched by the father of SM Munir and now the fourth generation has joined in.

Descon and its related companies are owned by Dawoods. Habib family produces cars, runs a bank, manufactures tiles and owns a jute mill.  Packages Group headed by Syed Baber Ali has been operating since the inception of Pakistan.

These are a few of the examples. All these groups are operating for more than five decades. In many instances second or third generation has successfully taken over. If we look at stability and continuation of policies, Mian Mansha, Babar Ali and Razzak Dowood are heading their group for over four decades. This has provided them enough time to impart training to their younger generations. In the corporate world no CEO could survive half as long.

Family firms usually enjoy more financial stability because of a stable management, whereas non-family firms experience highs and lows, particularly during transitional periods from one CEO to other. The family businesses perform better because they develop long-term relationships and trust with their employees.

Family businesses also have some drawbacks. Succession in family businesses creates conflict when the founder dies.

In many cases the founder, even at a very old age is reluctant to let go of the reins. Another conflict occurs when a hired family member does not perform. Lack of communication between participating family members, and those sitting outside may also become a source of tension, particularly when the financial returns are not to their expectations.

However, these disadvantages are adequately addressed by family elders. One reason for the success of family businesses is their ability to take quick decisions instead of going through bureaucratic corporate boards. Even in the publically traded companies, the family enjoys overwhelming majority that accelerates decision making. 

One major drawback for the national economy is that a few families tend to control many important sectors of the economy, which makes cartelisation easier. These concentrations of assets can adversely affect competitiveness in the economy. Cement and sugar mills are some examples in this regard.