How Family Businesses Create Value With a focus on continuity rather than short-term gains, family businesses can invest in innovative strategies that may take longer to yield results.
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Often overlooked as big corporations grab all the headlines, family-owned businesses (FOBs) are nonetheless the bedrock of economic health.
Family-owned businesses are the ones where one or two members are majority owners, and, needless to say, it's the oldest form of organization. In such businesses, the founders or subsequent generations of the family typically hold significant positions of authority within the company. The businesses can vary in size and scope, of course, ranging from small to large corporations. But what sets them apart is they prioritize long-term sustainability over short-term gains.
According to a report by McKinsey, family-owned businesses account for more than 70% of global gross domestic product (GDP), and they generate turnover of between US$60-70 trillion annually. They are also responsible for about 60% of global employment, and they play a critical role in supporting education, healthcare, and infrastructure development across their communities around the world.
To take the UAE as just one example, financial wealth generated by ultra-high-net-worth individuals and family offices is projected to increase to 46% of the economy by 2026. The enormity of this is apparent when you see that the UAE's financial wealth is set to grow at a compounded annual growth rate (CAGR) of 6.7% to reach $1 trillion by 2026, as highlighted in the recent The 2023 Family Office Compensation Benchmark Report: UAE Findings by KPMG and Agreus.
But it's not all about money.
There is a saying that "families have values, and companies have cultures," and McKinsey research shows that 93% of survey respondents from the highest-performing FOBs believe their company has a clear purpose beyond creating value for their shareholders. A strong sense of culture and values is an integral trait of family-owned businesses, primarily because the focus is on cultivating loyalty, trust and commitment for the employees.
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In my experience, as the second generation managing and growing the Hashoo Group, family businesses do indeed excel in clearly expressing their purpose– and purpose in the modern era has become pivotal in both attracting and retaining talent. This purpose can manifest internally, emphasizing the cultivation of the company's heritage through upholding a stellar reputation, safeguarding brand integrity, or creating a robust corporate culture. But it can also extend externally, prioritizing the maximum value for customers, or the creation of positive societal impact within communities.
Now, as we move into an eco-conscious era, FOBs can also play an important role in the move towards sustainable practices to impact investing and philanthropy. A recent report by KPMG titled A Road Well-Travelled: How Family Businesses Are Guiding The Sustainability Journey gathered data from 2,439 family businesses across 70 countries and territories. It highlights how these businesses are powerful agents of change, including when it comes to a nation achieving its sustainability agenda. The report showed that family businesses often have a "first-mover advantage" on the path to sustainability, as their commitment to creating value for all stakeholders has been deeply embedded in their values and business models across multiple generations. It's back to that word "purpose" again.
When it comes to impact investing, family-owned businesses are community-focused. Their positive contribution to their environment is critical for the success of their businesses. Therefore, any opportunity for impact investment creates more value for a community. Whether it's education, healthcare, or any other impactful business that uplifts a society, it is more likely to be first supported by a family-owned business anywhere in the world.
Another way that FOBs create immense value is by being good at industry innovation. In this area, they also have an advantage due to their deep-rooted values, long-term vision, and flexible and quick decision-making processes that are less bureaucratic, but more democratic. They take on a more holistic approach to decision-making, considering not only financial factors, but also the impact on family members, employees, and the community. The result: a more balanced and sustained outcome.
With a focus on continuity rather than short-term gains, family businesses can invest in innovative strategies that may take longer to yield results. Plus, the close-knit nature of FOBs ensures efficient communication and collaboration, enabling them to swiftly adapt to changing market trends and customer needs.
It's time we paid them more notice- and learned from their strengths as well.
