Why big in family businesses isn’t always good

Photo by daizuoxin/iStock / Getty Images
Photo by daizuoxin/iStock / Getty Images

The 500 hundred biggest family businesses in the world had revenues of USD 6,561.7 billion in 2015 - nearly twice the size of the German economy. Most of them function pretty well, as a business and as a family connected to the business. But not always.

A very good insight into how the second largest family business in the world works from a family perspective was portrayed by this recent Bloomberg article on Volkswagen. What emerges from the story is a family not particularly at ease with itself and with the company it controls. Of course, much of this has been brought about by the current emissions scandal affecting Volkswagen. There’s nothing like a big problem in a business to bring any festering issues among the family members to the surface - and that looks to be happening at Volkswagen.

OK, the Porsche and Piech families might be able to sort the problems out, and it appears that some members of the fourth generation want to play a bigger role in the future of the company and help sort the mess out. But it remains to be seen whether they can.

The Volkswagen saga should be a wake up call to every business on the list of top 500. That’s because many of them might only be a crisis away from the situation today confronting the families managing Volkswagen.

Size isn’t something family members can hide behind. To read the Bloomberg article, the impression is that the family might have felt that the enormous size of the firm they control might just be something to hide behind. Inevitably the problems would go away, many of them probably hoped, and the family could go back to its various pursuits outside of the family business. And the dividends would return. But that isn’t proving the case. Dividends have been cut and that’s causing some tension.

Andre Hoffmann, a member of the family that owns the pharmaceutical company Roche, the 21st biggest family business in the world, according to the St Gallen index, has said in the past that when families see their business just as an investment they begin to lose touch with it.

It is a piece of advice maybe members of the Porsche and Piech family might need to consider, but also everyone else who runs a family business, particularly those among the top 500.