As the focus of the global economy shifts to Asia, we must pay greater attention to family businesses. Why? Well, the Financial Times reports that families control two-thirds of Asia's biggest businesses. And more than 70 per cent of Hong Kong's listed companies are controlled by either their founders or by members of founding families. The sustainability movement depends for its long-term success on whether or not these people embrace the idea.
While in Singapore recently, I visited the Pacific-Asia chapter of the Family Business Network (FBNPA), whose members include some of the world's oldest and most reputable business families, with more than 4,000 member firms across 45 countries. Their vision, as executive director Caroline Seow shared, is to create a vibrant community of family businesses that serves as a model of sustainability. Family values, she said, were a "pathway to sustainability".
Such arguments resonate strongly because the core of the sustainability agenda revolves around intergenerational transfers of wealth—or problems. But the uncomfortable fact is that family businesses are often precariously short-lived. As the FBNPA notes, "three in 10 family businesses survive into the second generation, and a mere one in 10 into the third". Nor is this simply an Asian problem. "Across the globe, family-owned firms have been vulnerable when it comes to handing down the business," it says.
Professor Joseph Chan of the Chinese University of Hong Kong studied 127 family successions in Hong Kong, Singapore and Taiwan between 1987 and 2005, and, reports the Financial Times, found that companies' market-adjusted share prices dropped an average of 56 per cent in the five years before—and one year after—a generational change in ownership.
But family businesses are the backbone of many economies and can return good value for discerning investors. It's a welcome idea that multi-generational businesses are going to be more in sympathy with the intergenerational agenda of sustainable development, but we will need to test out the reality over time and in different parts of the world.
John Elkington is executive chairman of Volans (www.volans.com) and non-executive director at SustainAbility (www.sustainability.com)
