When a family owner of a conglomerate faces prison is it right to praise family businesses?

Lee Jae-yong, the de facto head of South Korea’s biggest family-owned conglomerate Samsung might just be going to prison for a long time tomorrow (Friday 25th). Whatever happens to Lee, the third generation member of the family that founded South Korea’s most famous company, is unlikely to be used as the poster boy for the of virtuousness of family businesses.

But nor is his fate going to deter those who believe family businesses present a role model for other types of businesses. Those like Ken McCracken, KPMG’s head of family business consulting, who said recently that family businesses offer a model for other types of business.

“Success that means more than just generating returns and seeks a deeper meaning?  Governance based on long termism, trust and stewardship?  With all of these at the heart of family businesses could it be that the often denigrated family business model is now gaining recognition as representing best practice for a new type of capitalism?,” said McCracken in a press release from KPMG.

Those looking at the examples of Samsung’s Lee family and other chaebols conglomerates in South Korea might not answer yes to that. And it’s probably not an unfair point to say that many South Koreans might view family businesses through the prism of the families that control the big conglomerates like Samsung. They aren’t likely to be singing their praises.

But McCracken’s view is no less valid because of that. The best examples of family businesses – ones committed to long-term growth, stewardship, and all their stakeholders, not just their shareholders – should be held up as positive examples of how capitalism can work for the many, not just a few.

That said,  it might be wrong to suggest that family businesses are some panacea to the worst aspects of crony capitalism like that what exists in parts of the chaebol-dominated economy of South Korea.

Governance issues will always present a problem for many family businesses, despite concerted external pressure to improve their efforts in this area. And when governance issues come to the fore for family businesses, inevitably it revolves around nepotism of the controlling family and the dominance of that family in decision making, like in the case of Samsung.

Also, is it so necessary for family businesses to be virtuous? Some might argue – yes the owners of Samsung might have digressed to such extent that one of the family owners faces prison, but the family have also created one of the world’s most successful companies. And the Lee family should be congratulated for that achievement, despite the difficult issues they face today from the country’s authorities.  

Of course, few family business owners will sacrifice their freedom for the success of their company, but most believe how they run their business is up to them. If their culture is viewed externally as authoritarian and lacking transparency, so be it. The most important thing, they would argue, is to pursue the success of the business in terms of top and bottom line achievements, which not just pay good dividends for the shareholders, but the wages of employees.

The debate about creating more acceptable models of business, at least the ones more in tune with the values of society as a whole, will inevitably trundle on for many years yet. What possibly has changed in terms of the perception of families businesses within that debate, and what is probably the most pertinent point of McCracken’s views, is that they are looked upon more favourably than they were 20 years ago. And even if Lee Jae-yong goes to prison tomorrow that view isn’t about to change.