Are family businesses getting tougher?

Businesses don’t go into business to be soft. Nevertheless, some businesses often show more empathy towards more than just their shareholders; they value all stakeholders — workers, the community, suppliers and customers — in their pursuit of profit.

And many family businesses are probably the best proponent of stakeholder capitalism. Or at least they have been. Are they changing? PWC, a professional services firm, reckons that family businesses are getting tougher.

In a recent survey of more than 2,300 family businesses around the world they said: “Family businesses have become much more hard-headed since our last survey [2012]: the most important priorities are to remain in business and improve profitability.”

The PWC survey said that only 59% of family businesses surveyed felt a strong sense of responsibility to supporting the community, down from 70% in 2012.

PWC goes on to say that the main reason for this stiffening of the resolve of family businesses is because they feel they have “done their bit” to support the community during the recession by protecting jobs, and that it is now time to turn their attention to profitability.

That might be the case, but it begs the question why. The reason for this hardening might be explained more by another finding in the report — family businesses are having to diversity to survive. Increasingly, mid-market family businesses, typically with revenues of between $100m and $1bn, are looking towards global expansion to grow their business. This is probably a reason why the “community” focus of their business is beginning to weaken as they focus more on global markets.

Of course, this move towards a more global approach to growth supports PWC’s view that family businesses are concentrating these days more on profitability. But the argument that they feel they have “done their bit” appears a trifle overstated. 

Also, statistically, the tendency towards a more  “hard-headed” approach to business is probably overcooked in the report. A swing of 11% doesn’t as yet suggest a long-term trend. It could just suggest that family firms are aware of the cyclical nature of markets. During the recession, it was time to hunker down. Now it is time to expand. A change in attitude doesn’t have to be permanent, it can be a sign of flexibility.  

Anecdotal evidence from speaking to many family businesses suggests their commitment towards a more stakeholder approach to how they run their businesses is as strong as ever.

Nevertheless, it’s an interesting theme and one that should be kept an eye on. Could it be that family businesses are losing their commitment towards patient capital and concentrating more on short-term profitability?