The viticulture sector is paradigmatic of family businesses. First, because traditionally companies in that sector are and second, because they knew how to adapt to the new world that was making its way at a time of deep crisis. At the end of the 19th century, the Phylloxera plague broke out, so, after devastating effects, much suffering and loss, companies adapted. They cultivated new variants resistant to the plague and moved to fertile plains. Those who reinvented themselves were those who prospered.
As in grape growing, family businesses in other sectors have shown a great capacity for resilience. They represent between 80% and 90% of global companies and are the pillar of most economies, according to the Global Family Business Index prepared by the Family Business Center of the University of St. Gallen, in Switzerland, an entity which analyzes the 500 largest family businesses in the world in relation to their revenue. A study that Julius Baer, a leader in private banking worldwide, cites when studying this type of business.
The importance revealed by the data makes the adaptation of these companies to the modern world transcendental for the proper functioning of economies.
Like those winegrowers who looked for new lands and varieties to plant, family companies have to be open to change and the ability to innovate. Precisely, this is the most important challenge identified for the next five years, according to the PwC survey on family businesses, which is also compiled by Julius Baer in its analysis of the sector. “Second-generation leaders would have to emphasize innovation to preserve their legacy,” says Marc van Essen, professor at the University of South Carolina and professor at the Global Center for Entrepreneurship and Innovation at the University of St. Gallen.
He adds that family businesses invest less in innovation and have smaller R D budgets. But at the same time, he has detected that family companies are more efficient in their innovation processes. Van Essen explains that by investing in a single company, they can generate new, more precise ideas. Furthermore, these are companies with high control of procedures that allows them to influence the entire process and, finally, also the result. “For every dollar invested in R D, they obtain more innovative production measured by the number of patents, new products or the income generated.”
On the opposite side, according to Julius Baer, these types of organizations have a challenge to overcome in family conflicts. Doing everything possible to avoid and/or prevent them is key to guaranteeing good family governance - based on communication, transparency and joint decision-making - that favors its long-term survival.
One of the attitudes to adapt to the times is to think long term, an intrinsic characteristic in most family businesses. In this sense, Marc van Essen has detected that the strength of this type of company lies in its focus on the history and tradition of the company, as well as its long relationships with suppliers, customers and workers. Factors that lead to greater commitment and loyalty.
These companies, according to van Essen, can allow themselves to be patient and thus be able to develop long-term strategies, an attitude that other types of companies find difficult to maintain, since they require short-term results. Likewise, the teacher points out that this long-term attitude allows them to learn from the failures that occur.
In 2015, family businesses employed nearly 21 million people and contributed $6.5 trillion to global GDP. Part of his success is based on his efficiency, which arises from his long-term focused leadership.
They are companies that achieve a high degree of commitment and loyalty with the different groups with which they relate and at the same time have simple decision-making mechanisms. This way they remain agile and flexible. Some characteristics that are more important than ever in the modern world in which we find ourselves where situations are constantly changing.
We have seen a clear example with the Covid-19 health crisis. It has become clear that the balance and values of the family can be altered by very immediate external events and having everything - from asset structures to access to liquidity - well defined has become imperative.
“Seeing the effects of the pandemic so closely has made many people aware of how important it is to have things “in order,” says Ana Queipo de Llano Argote, head of Estate Planning for Iberia de Julius. Baer. In this context, “those family businesses with a robust family governance framework have demonstrated better adaptation and resilience to this crisis,” she adds.
If there are different visions or objectives in the transitions between generations, there may be internal conflicts and problems in succession. Indeed, "leadership transitions are a major cause of family business failure," says van Essen, although it appears that companies are correcting this.
According to the 2016 PwC Family Business Survey - collected by Julius Baer - 43% of respondents do not have any succession plan or an expert to accompany the family business in this process, something that can compromise the stability of the family business. the company. “Undertaking a succession planning process involves a significant emotional burden. Also make decisions that can affect the future family balance by revealing differences that many times you would not want to make evident,” recalls Ana Queipo from Llano Argote.
The role of the wealth advisor is especially necessary in situations in which it must be defined who will lead the business or how resources should be distributed among the children, since it will be done from a global, technical and partial point of view. Thanks to his intervention, fluid transitions can be guaranteed and a very strong position can be achieved, which other companies would envy.
The characteristics for surviving in the modern world that have been reviewed, based on Julius Baer's exhaustive study, allow family businesses to plan their actions and help them find the best advisors for managing their assets. Just as those winegrowers did at the end of the 19th century, who, faced with the absolute disaster of the Phylloxera plague, made quick decisions, innovated and had the determination to think in the long term.
