Introduction
Almost all businesses are suddenly and hard hit by the coronavirus. The challenges vary widely, from managing drastic demand dropouts to dealing with staff downtime due to illness or corona measures. What does this mean for family businesses in particular? What can we learn from previous crises, such as those in 1997 and 2008? And are the challenges different for family businesses than for non-family businesses. I delved into the (recent) literature and compiled an overview of the main conclusions and supplemented them with my experience with and at family businesses.
Family businesses structurally better out of a crisis than non-family businesses
An important general conclusion of many studies is that family businesses generally emerge from a crisis structurally better than non-family businesses. This involves both business economics and “softer” issues related to leadership, the role of the family, commitment and adaptability.
A 2008 Italian study by Minnichilli indicates that “we observe a significantly and consistently better performance of family-controlled firms during the financial and economic crisis (of 2008), a finding that proves to be robust to several analytical specifications, as well as to different performance measures (ROA, ROE).”
A 2012 study by Bruno Amann on the 1997 Japanese crisis indicates the following: “According to the results, family businesses achieve stronger resilience both during and after an economic crisis, compared with non-family businesses. They resist the downturn better, recover faster, and continue exhibiting higher performance and stronger financial structures over time.”
Do’s and don’ts for family businesses in crisis
Diving further into the literature and my experience, there are a number of do’s and don’ts specific to family businesses. Here are six key lessons:
- Family directors often manage their businesses from a combination of business and social aspects. In times of crisis, families can sometimes be too slow to react and not remediate deeply enough. Confronting the negative social impact on staff and the surrounding area can be (too) hard. Especially in abrupt situations like this, perseverance is essential: “gentle masters make sore wounds.”
- The combination of a non-family CEO and many family (remote) shareholders leads to significantly worse performance during and after a crisis, according to research. It seems that in this situation, the external CEO’s ability to act and act is limited and a kind of toxic mix is created. Precisely a crisis requires decisiveness and the confidence in and explicit support for the leader by shareholders.
- A strong family CEO or “family-involvement” with short lines of communication, family and employee trust is one of the most important assets of the family business. But, that doesn’t mean the CEO has to do it all alone. Precisely not! See points 4 and 5 above.
- The resilience of (family) businesses is the basis for success in times of crisis, according to research. Resilience consists of three elements:
- Facing reality based on pragmatism and optimism.
- Seeking meaning even in these difficult times (and sharing this with co-workers and family members)
- The (re)invention of so-called ritualized resourcefulness: the ability to suffice or improvise with whatever is at hand
Many family businesses respond from paternalism by requiring the family in particular to be resilient. The challenge is precisely to take the organization with you in these times, challenge it for resilience and maximize its commitment to new options and business models. Use the creativity of the entire organization and, above all, as CEO and board, make sure that ideas are properly channeled and that the right support is provided to turn ideas into action.
- Create an organization that is “two-handed” (or ambidextrous): a team and organization that is both efficient at managing operations (exploitation) and adaptable to today’s challenges (exploration). Again, this especially requires family businesses to challenge AND give comfort to their employees. The reflex in many family businesses is often to keep employees out of the wind and take care of them. This time and crisis requires the ability of families to connect, challenge and allow everyone to get the most out of themselves and the business. Paternalism does not (no longer) fit this in this era.
- Go back to the original (family) values, share the stories of the past with employees (and younger family members) and make the values, mission and vision concrete (if this has not already been done). Within this framework, management and employees can innovate and show creativity to resist the crisis. This framework is also used to clarify with each other what you expect of each other in terms of culture and behavior. A crisis situation requires frameworks and clarity AND at the same time entrepreneurship and ownership from the entire organization. This starts with the (family) values and behaviors.
Despite the difficult and perhaps bleak situation we find ourselves in now, there is certainly light room for optimism and inspiration. As always with entrepreneurship, it often takes a dose of luck to be successful. But doing nothing is not an option. And many family businesses have dealt with the axe before and can put their entrepreneurial DNA to full use and serve as examples.
Dirk Harm Eijssen
Gwynt B.V.
d.eijssen@gwynt.eu | 0626108966
Literature
- Bruno Amann & Jacques Jaussaud (2012), Family and non-family business resilience in an economic downturn, Asia Pacific Business Review, 18:2, 203-223
- Jonathan Bauweraerts (2014), How Do Private Family Firms Face the Crisis? Empirical Evidence from Belgium, International Business Research; Vol. 6, No. 8
- Jarn Block (2010), Family Management, Family Ownership and Downsizing: Evidence From S&P 5OO Firms, Family Business Review 23(2) 109-130
- Consuelo Dolz, Maria Iborra, Vicente Safón (2018), Improving the likelihood of SME survival during financial and economic crises: The importance of TMTs and family ownership for ambidexterity, BRQ Business Research Quarterly (2019) 22, 119-136
- Alessandro Minichilli*, Marina Brogi and Andrea Calabrò (2015), Weathering the Storm: Family Ownership, Governance, and Performance Through the Financial and Economic Crisis, Corporate Governance: An International Review,
- Job Woudt (2020), Five tips for the captain in the corona storm (2020), Het Financiële Dagblad, March 21, 2020
