The 2021 EY and University of St. Gallen Family Business Index reported that family businesses generated USD7.28 trillion in revenue and employ 24.1 million people worldwide, making them essential to the global economy. But what makes these businesses tick? What’s behind these impressive numbers, and is their success sustainable in a post-pandemic world?
In the latest episode of YPO Presents, Lund Gruppen’s Håkon Lund sat down with Abacus Consulting’s Fatima Asad-Said and Corporación Multi Inversiones’ Luis Pedro Recinos to discuss how family businesses like theirs are evolving and the guiding principles that keep them relevant and resilient.
Managing Through a Crisis
When a business spans generations, managing through a crisis is not new. In 2003, when IBM acquired Abacus’ parent company PWC, the board decided to take the company independent and went from a global company to a local company in the process. “We lost 50% of our people; we lost 70% of our clients,” shares Asad-Said. What sustained Abacus was a culture focused on the company’s value proposition: helping clients to transform their businesses. When the pandemic took hold, this focus helped Abacus prioritize difficult decisions like letting people go. Fairness and transparency were the guiding principles, and Asad-Said explained that decisions made sense when measured against business goals.
For Recinos’ business, the pandemic necessitated a three-pronged approach — delegation, prioritization and a people-first approach. He explained that delegating tasks and authority were crucial for acting quickly. Prioritization meant that some projects needed to be put on hold or even stopped altogether and that putting people first meant going beyond government protocols to keep people safe. His company provided access to doctors, medicine and food for front line workers and their families, set up a hotline to offer counseling for those in need and honored bonuses despite significant financial losses.
Recinos’ people-first approach is a theme he noted among many family businesses that set them apart from their peers. Recinos and Asad-Said agree that the values ingrained in a family business over time are an asset during a crisis. “In our organization, across the 35 years, we may have changed our brand name, we may have changed teams, our products, services, etc.”, says Asad-Said, “but our values have remained consistent from day one. I truly believe that is our legacy.”
Managing Conflict and Succession Planning
Building a legacy, however, is not without conflict, especially in family businesses where Recinos admits, “… everything tends to be more emotional.” Yet it should be expected, he says. It’s human to disagree. If you haven’t experienced conflict in a while, it’s because something is not being brought to the table. Asad-Said agrees, “If we let conflict fester or brush it under the carpet, then we’re damaging the organization the most. It brings in negativity, and it brings in unproductivity, and of course, that hits the bottom line at the end of the day.” She also adds that conflict resolution requires an action plan to follow, not just a conversation. Leaders should anticipate conflict at all levels of an organization. If it is handled effectively, both Recinos and Asad-Said agree, that better trust is the outcome.
Succession planning is a process where conflict can take center stage, but Recinos and Asad-Said shared strategies for mitigating disagreements. Families should consider different scenarios during the planning and be open to rethinking the business or ownership structure, says Asad-Said. These plans may include taking the business public, being acquired, merging with another business or transitioning to a model where family no longer runs the operations but are still stakeholders or shareholders.
Abacus is currently planning the next 35 years of business. “To have that openness of thought is extremely critical, especially in the world that we live in right now, which is severely disrupted, whether it is through technology, of course, post-pandemic, climate change, the list goes on,” she says.
Recinos is also taking the long view, explaining that his business has been executing a plan over the last 10 years in phases. In his business, the second generation delegated the third generation to develop a plan, and they have spent a lot of time on family protocol going through what-if scenarios to align on an action plan together. It is a very particular process that should not be rushed. “Succession is a slow cook process,” he says.
If family businesses remain value-driven, then they can continue their influence in the future. The longer they last, the stronger they can become. While they will evolve, innovate and change, both Asad-Said and Recinos agree that the compass guiding family businesses will not be profits but legacy.