Beating the Crisis is a Family Matter

In spite of the difficulties linked to access to credit as the credit crunch keeps gnawing at firms and makes any prediction difficult, several analyses underline the ability of family firms of overcoming the crisis. In this respect, The Economist has criticized the public company model, emphasizing how its limits are in fact the strong point of the family company, which in the Anglo-Saxon context had often been considered a relic of the past. The main positive aspect about family ownership is its resilience and consequently its long-term vision. This comes at a cost: the tendency of entrepreneurial families of putting family concerns above the interests of the company, and a frequent inability to pick the right kind of management.

On one side family firms, also in the first and hardest years of the crisis (2008-2010) have shown to be more resistant to acquisition by other companies and less exposed to emergency proceedings and bankruptcy: family-owned companies were half as likely to be acquired than state-owned or local government-owned companies, and 40% less likely to be taken over or fail than companies controlled by coalitions of shareholders. This should be probably attributed to the responsible conduct of many entrepreneurial families who, faced with declining profitability and reduced ability to reimburse banking loans, have nevertheless sought to contain indebtedness by injecting fresh capital firm, and, even more likely, renouncing profit dividends. This because family companies are not exclusively guided by economic and financial objectives. The company is identified with the family, and vice versa, thus the objectives of the former are also the objectives of the latter.

However this often brings a certain stagnation at the top. Even in turbulent times, old hands prevail. In 2015, more than a quarter of Italian large and medium companies will be led by people over 70 years of age. And this is not good. In fact, the companies that have performed well during the crisis both in terms of profitability and growth are those having younger corporate leaders. It is them who led the recovery of investment in 2009-2010.

In order to avoid that the positives in family firms do no turn into traps, maintaining control over the company must not be protected at all costs. According to a 2012 survey made by the Milan Chamber of Commerce, the overarching preoccupation of Milanese family firms is to reduce debt levels, even at the cost of reducing investment, while neglecting strategic options such as opening shareholding to third parties or allying with other firms to improve competitiveness. On the other hand, young leaders at the top must show responsibility. Nevertheless, it's clear that family companies led by young scions have better performance and display higher optimism. And we need optimism in this economic phase.