This article was first published in the Trinidad Express Newspapers on November 24th 2019.
Family firms are fascinating, unlike what economists have been saying for years, family firms from start-up to medium sized are often better able to survive economic downturns than the large public owned ones.
Of course, history tells us that economists, like weather forecasters, are wrong only fifty percent of the time, but this is only noticed by historians after the fact or those firms, like PMSL and some university thesis writers, that are doing research into what makes family firms work.
Among the ups and downs of these prognostications are the fates of the family businesses that are the mainstay of small island economies such as ours. They are different from the large companies that form the basis of most economic research and the learned tomes on management that often form the core of business studies in universities. Usually when people speak of family businesses they form a mental picture of small or medium sized companies with a familiar set of problems such as squabbles over who is going to hold what management position, who is going to be on top of the succession ladder and so on. But our research is showing that the reality is not necessarily consistent with that stereotype. Sometimes it may be, and old family firms like Glendinnings, Johnson & Johnson or Pereira & Company only come to mind when we look at old photographs of downtown Port of Spain or San Fernando. But when you delve into what makes family businesses different from the larger traditional public firms that some of them grow into, it makes an interesting study. For one thing, while they may not earn as much as the public corporations do when times are good, in recessionary times such as we are experiencing now, family firms actually do better than the public firms do. There are reasons for this, I am learning. One is because family businesses focus more on resilience than on profit performance. As people say colloquially of Chinese statesmen: “They have long eyes”. They often invest with a twenty-year target, concentrating on what can be done now to benefit generations to come. They survive the ups and downs because they manage the downs better than the ups. They tend to be more frugal both in the ups as in the downs. This may result in missing some opportunities in the up times, but helps them survive the downs. Most do not have luxurious offices or year end bonuses equivalent to an annual salary. They are more likely to go through lean times with across the board salary cuts and tightened belts than with retrenchment exercises costing millions in severance pay and consequent debt.
believe that investments must have good returns on their own merits measured
closely in comparison to other possible investments. As a result, they may miss
out on some good opportunities but also miss some risky ones that crash taking
them down as well.
Early in 2020, a Canadian scholar specializing in what makes family firms work will be coming to do a workshop here to share some of this research. It is eye-opening and gives an idea why L.J. Williams, Junior Sammy, the Abouds and Gordon Grant are still around while Glendinnings is not.
While they do carry debt, as, in the Management of Finance text books we are told that “a judicious amount of debt is a good thing because it “maximizes value creation”, family firms consider the risk involved, and may be hesitant to give over substantial control to banks. So they aren’t energetic deal makers, but will accept joint ventures more often than acquisitions. It may also account for the attraction start-up businesses have to do business with credit unions.
Not all family firms in T&T are solely managed by family members. Many of them simply do not have enough family members to cover the essential management functions, others have family members that may hold part of the firm’s equity but are in other professions such as medicine, law or marine biology but while independent are still useful as Board Members or can help in other ways. Those that remain in the family business may also opt to invest and have commercial interests on the side by agreement with the family. There is no one rigid pattern or structure. As recessions become deeper and more frequent this may allow the family to diversify which allows it to grow and survive as a firm.
Interestingly, turnover of staff at family run firms tends to be lower than at publicly held businesses which young professionals may see as stepping-stones to other careers or other countries. The higher trust, familiarity with co-workers which is a strong motivator in T&T, the often “parental” attitude of management toward employees in times of crisis and the reliability of decision making appears to be the glue that keeps employees going, through what are often seen as the eccentricities and inconsistencies of family members at senior levels. Salaries are not the incentive, as they tend to be lower than in public and government corporations, and academic qualifications may be lower or may be experience oriented rather than credentials based. As a result, promotions from within are common as people prove their worth and the organizations invest in their people. The patterns are similar across cultures and countries and it appears that if they can survive here they can succeed anywhere