Family businesses, bastions in fragile times

24 2018 August
Executive Education INCAE

Businesses play a key role in Latin American economies in these nervous times. Without being exempt from the risk that doing business always entails and without isolating themselves from a changing and interconnected environment, they are assets of trust and credibility at a time when these two stocks are trading down.

Beyond their volume (they contribute 80% of the economic activity in Latin America), family businesses are a symbol of projection of values ​​and stability, in addition to representing the advantages of roots with a country (province / community) and of the social connection. They tend to be the most “down-to-earth” companies, although future prospects rise above one generation and another.

The exceptionality of these family businesses, however, also generates points of care. Beyond the myth of a family business as a small, conflictive and nepotist business, There are certain areas that should be addressed with large doses of communication between the family group, the shareholders and the management body.

This is indicated by Daniel van Der Vliet, professor at the Cornell SC Johnson College of Business. This expert in family business strategies and leader at John and Dyan Smith Executive Director Family Business at Cornell University, will be one of the program managers Family Business to be held in conjunction with INCAE in Miami, Florida.

Van der Vliet points out that Family businesses are the synthesis of elements that characterize the family on the one hand and companies on the other. It is the result of fusing tolerance, history, inherited knowledge and the support of families with the vocation of risk, innovation, curiosity and freedom of companies.

“That is the basic mix of what we call family businesses, when a business owns more than 15% of its shares in the hands of a family and when their relatives exert a strategic influence on the business, in addition to the dream or the possibility of perpetuating themselves in time and, therefore, of transmitting knowledge ”, he says.

After many decades of ignorance about the nature and particularities of family businesses, it is now known that 85% of them disappear in their first five years, than of the survivors 30% manage to pass to a second generation and, of these, 12%, to a third. Very successful business cases that are perpetuated down to the founder's great-grandchildren are only 3%. 

Despite the emotional bond that in many cases sustains these types of companies, may die from heirs' disinterest, unforeseen challenges, industry change, mismanagement or succession problems, in addition to family conflicts and the pressure that family rules can generate on business activities.

Even so, 60% of the combined GDP of Latin America is contributed by family businesses, which continue to demonstrate the ability to have a good correspondence between family and business values. 87% are clear about the next succession, 70% would consider a woman as CEO, 90% have regular meetings of the family assembly to discuss business challenges and 76% publicly praise their status as a family-based business.

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