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COLUMNISTS
Financial PHILIP DELVES BROUGHTON

Family constraints have their

benefits
By Philip Delves Broughton
Published: December 13 2010 23:12 | Last updated: December
13 2010 23:12

One of the keenest criticis ms of modern business is

that it places unreasonable burdens on families.
Demanding employers and the proliferation of always-
on communication devices, such as the BlackBerry,
plunder whatever morsels of family life remain. Children
are left to scratch out their own emotional educations
when both parents must work to sustain a middle-clas s
way of life.

And yet just last week, the latest round of investment in

the fast-growing Brazilian bank BTG Pactual revealed
that alongside the private equity firms and sovereign
wealth funds were four families: Britain’s Rothschilds ,
Colombia’s Santo Domingos, Italy’s Agnellis and
Panama’s Mottas.

It seems paradoxical that the micro-problems of making

a living while raising a family seem to be intensifying
while the macro-benefits accruing to families that pile up
wealth over generations seem to be expanding.
Technology was supposed to threaten elites by making
information and networks freely acces sible. Yet families,
those most impenetrable of secret societies, remain as
strong as ever in the bus iness world. What can the
managers of non-family businesses learn from their
success?

Randel Carlock and John Ward, professors at Insead

and the Kellogg School of Management respectively,
have studied family busines ses around the world and
report their findings in a new book, When Family
Businesses are Best. The best family business es excel
at two things : balancing emotion and reason; and
retaining a long-term perspective.

“Families are about love and emotions, and businesses

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are about making money and accomplishing tasks,”
Prof Carlock told me from Hong Kong, where he was
lecturing to groups from Asia’s many family-run
busines ses. “These two systems operate on completely
different views of the world. So if a family is to run a
busines s they must become ‘professionally emotional’.”

Non-family businesses can fool themselves into

thinking that they only make decis ions based on reason.
A chief executive can initiate a merger telling the markets
it makes hard financial sense, says Prof Carlock, when
all along it’s about his ambition. Family bus ines ses do
not have this luxury as any confusion between reason
and emotion can destroy not just the business but the
family as well. Consequently, they are compelled to find
ways of acting that are more emotionally mature.

The recent feud and resolution between the L’Oréal

heiress Liliane Bettencourt and her daughter, Françoise,
demonstrated how toxic family relationships can
become when poorly mixed with business and
questions of inheritance.

Profs Carlock and Ward argue that family businesses

exist to achieve four kinds of goal: a financial one; a
social one, linked to a family’s reputation and legacy; an
emotional one, achieved only if the business
strengthens rather than frays family relationships; and a
spiritual one, linked to how we create meaning in our
lives. “Public companies focus 99 per cent of their time
on the financial goal,” says Prof Carlock. “Very few CEOs
get bonuses bas ed on their company’s reputation or
how they make people feel,” he adds , unless the
achievements are tied directly to financial metrics such
as customer or employee retention.

Another way to think about it is to ask how many CEOs

spare a moment to consider the effect of their behaviour
on employees 20 or 30 years in the future. The founder
of a family business may consider exactly this when he
holds his newborn grandchild. Profs Carlock and Ward
call this sense of long-term responsibility “stewardship”,
a desire to create a business that is important to one’s
family, employees , customers and community for many
years to come.

One of Prof Carlock’s favourite examples is Beretta, the

Italian firearms maker, which has been owned by the
same family for 500 years. It is still headquartered in the

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Lombardy valley where it was founded and employs
both traditional, local craftsmen and the latest
technology to make its guns .

Similarly, Cargill, the Minneapolis-bas ed multinational,

is 90 per cent owned by des cendants of the families that
founded it in 1865. One of the secrets of its success has
been the family’s detailed attention to governance,
balancing the needs and interes ts of the family with
outside expertis e to deliver financial results.

Pictet, the family owned Swiss private bank, has clear

criteria for family members wanting to join its
management, partly because if it gave preference to
underqualified sons and daughters, it would struggle to
hire the best people to fill other positions.

The lesson from all these companies is a class ic tale of

constraints leading to better decisions. If your
employees are your family, and your shareholders your
grandparents, it forces you to make decis ions of far
greater emotional depth than if s uch ties did not exis t.
And such depth of consideration tends to lead to much
stronger businesses over the long haul.

philip@philipdelvesbroughton.com

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