June 24th 2015

Why family enterprises are more successful.

Prof. John A. Davis, Faculty Chair, Families in Business Program, Harvard Business School & Chairman, Cambridge Institute for Family Enterprise

The Entrepreneurial School® had the pleasure to welcome Harvard Professor John A. Davis on June 16th, who ended the MCI Alumni & Friends lecture series of the current academic year with an inspiring talk on what we know about family business.

Davis has been studying and advising family companies for more than 40 years and is today considered a leading authority on family enterprise and family wealth. When he started his career in the 1970s, nothing academically was known about family business as the academic world did not realize the importance of the sector by then. However, family businesses not only represent the oldest form of enterprises. They also constitute the largest group of undertakings worldwide – about sixty percent of all companies listed on the New York Stock Exchange are family owned and this figure is even higher in other countries. Davis research also shows that on average, family business perform better.

In order to better understand this phenomenon, the Harvard Professor developed a framework analyzing the mechanics of family businesses and explaining why these businesses do better. The model considers the interconnections of the three factors “business”, “ownership” and “family”: Although family owned enterprises face vulnerabilities such as strategic stagnation or family conflicts, successful ones are profoundly built around loyalty. They are associated with conservative financial management and persistently adapting to new circumstances. With regard to the factor “ownership”, successful family businesses are equipped with a capable, aligned management as well as loyal owners that consider their function as a job and not as a birthright. Eventually, the factor “family” forms the ultimate foundation of successful enterprises, as a united, contributing family builds the bridge between employees and owners.

Davis concludes that today, a lot is known about the formula of efficient family owned companies and highlights the importance of families to consistently consider important changes and to adapt to external conditions such as new products, markets or even industries. The faculty chairman of Harvard’s Families in Business Program points out that companies may change and even need to do so. However, a successful business is always built around a great family. This is why one of the key issues for enduring success of family business is the passing on of the undertaking to the next generation, who needs to gain credibility and acceptance through effective behavior.

Bernhard Baumgartner, CEO of familyfirm, hosted the very lively and stimulating discussion following Davis presentation.