Viewpoint: Outsiders can solve the growth conundrum

Professor Guido Corbetta, of Bocconi University

Professor Guido Corbetta, of Bocconi University

Businesses around the world face pressures, not least competition and consolidation, but for family businesses these pressures are in many cases more acute. Family businesses have a decision to make: do they want to compete in a niche with a very focused strategy, or to become world leaders?

If they want to become, or stay world leaders, in their sectors - and, frankly, many of them don’t have a choice, because if they stand still they will be crushed by ambitious competitors - they will need to look at ways to grow. Acquisitions and alliances are the obvious route, but for family businesses there are two big obstacles to these.

Firstly, most family businesses don’t want to use equity finance to grow their business. Mention private equity to a family business and it raises a big red flag. And few of them like the concept of listing their business on public markets. Without access to new capital, family businesses aren’t going to make acquisitions.

Secondly, most family businesses want to maintain their identity. That’s because in many instances it is to their advantage. If they grow too fast through acquisition, they feel this could hurt their identity. But they need to take a risk. Just because they get bigger doesn’t mean that they will lose their identity.  

A solution that will allow families to hold on to their ownership and identity but bring in a fresh impetus to growth is to hire non-family managers. But families are reluctant. I'd go as far as to say that the biggest obstacle to growth is the inability of most family businesses to successfully integrate professional managers into their businesses. 

Through Bocconi University’s work with some of the biggest family businesses throughout western Europe, we have found that many top management teams are still family-dominated. In Italy, for instance, almost 40% of family businesses in the country still have all-family boards of directors. This is a serious barrier to their growth. 

Too many family firms have failed to  address the issue of hiring high profile managers from outside of the family. True, it is difficult to integrate a manager who has come from a different culture and/or a larger company, and there is no doubt that it is a challenge to bring outside managers into family businesses. But if they fail to do so, family businesses risk their future.

Guido Corbetta is Professor of Strategic Management and AIdAF - EY Professor of Strategic Management  in Family Business at Bocconi University in Milan