Family firms are determined to beat the statistics, which show that new generations tend to do less well

Family firms are determined to beat the statistics, which show that new generations tend to do less well

“By purposefully tackling the challenges facing family businesses, we will beat the statistics.” So responded an ambitious manager of a family business to the presentation given by Pursey Heugens, Professor of Organisation Theory, Development, and Change on strategic changes within family-run companies. The professor gave his talk at a round-table meeting on 28 May 2013.

Using research among family firms in eight foreign countries, Prof. Heugens advanced various thought-provoking theses. This research shows that family companies are much more profitable under the first generation than under the second. Changes to strategy and governance often result in worse performances or even the demise of the company.

Prof. Heugens’ presentation was followed by an animated discussion between the 22 attendees – current and future leaders of family businesses in the Netherlands. The event was organised by the Erasmus Centre for Family Business, one of the leading research centres in the development of research and intellectual capital on family business.

Research demonstrates that the second generation pays out higher dividends than the first, which, on average, reduces levels of investment. Those present were unanimous in endorsing the importance of sufficient investment, including R&D spending. “In actual fact, it’s a no-brainer. Who could possibly disagree with this? Of course, you need to invest in R&D. It’s not the job of our children to just keep what they have. They must act as real entrepreneurs, as their parents did.” Interestingly, the second generation recognizes the danger of giving in to the pressure to preserve and pass on what has been built up by previous generations – the possible result being that fewer risks are taken en investments are reduced. “You first need to be aware of the pressure being exerted on you and then make a deliberate decision to embrace an entrepreneurial spirit,” commented a fourth-generation manager of a family company.

Research also shows that second-generation company leadership is less receptive to corrective influences from outsiders, to the detriment of profits. However, the participants gave many examples of how they consciously used people from outside of the company (read: non-relatives) to get a fresh perspective on how they are doing. A consensus was found on the added value of an advisory board of a supervisory board. But workers’ councils, too, can offer valuable “external” input. And some family companies set great stock by having a non-family shareholder who keeps them on their toes and prevents them from over-reliance on their intuition.

Those taking part indicated that they found these types of discussions highly useful. “Sound research on these subjects keeps you sharp. These types of meetings help us to get a clear picture of the challenges a family firm encounters and to hear from others how they deal with this.”

The Erasmus Centre for Family Business 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.