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Saturday, November 15, 2014

Survival of family firms

List of Hundred oldest companies have been published. You can view it here. Many of the companies in the list are more than 3 centuries old. The oldest firm is more than 1300 years old and it is from Japan. Family-run firms contribute up to 90 percent of the world's economy. Many countries' economies are highly dependent on family businesses, including Germany, the U.K. and Singapore. Leading student of capitalism always mentioned that with the advent of industrial capitalism family firms will disappear. For much of the previous century they proved right but now many family firms are defying their predictions.
This trend can be seen in number of family firms among fortune 500 companies. Family companies in fortune 500 companies have risen from 15% in 2005 to 19% this year. This trends show the rising importance of family firms. This rise can be largely attributed to rise of emerging economies. In emerging economies the institution of family is still strong. For example in India there is joint family system which successfully survived many centuries. Same is the case in many Arabian countries where dynasties are not only ruling in the business world but also in the political world. In Europe same trend can be witnessed as nearly 40% of listed companies are controlled by families.
Unlike the past now family firms groom their successors to manage effectively. They put them in tough and long series of experiment. Young one has to work from most humble position to the highest position available in the family firms.  This reduces the chances of management falling in wrong hands.
Like old money landlord families, before the advent of industrial capitalism, many of the family firms today transferred the family values which help them keep the family wealth in family hands. Inter-cousin marriage, which is common in many emerging economies, helps transfer the shared values to next generation. Another factor which let the family companies survive is the availability of entire consulting industry to plan succession and tackle the inheritance problems.  
Now the family firms are not only taking care of family fortune but also families’ human capital as well. Rich and old money families educate their young ones in best business institutions. Competition among family members further keeps the family members pressurized to perform the best.
According to wealth reports the largest transfer of wealth from one generation to another is going to happen in coming years. The control of huge fortunes may transfer hands. Many people will become millionaire without working their way to riches. This can bring back the old aristocratic age when people advanced in their lives on the basis of heredity status, rather than hard work and merit.