by Andrew Bast
The post-crisis numbers are in, and it paid off to be a patriarch. Think back to the height of the panic that was toppling global banks in late 2008, and a story from São Paulo sticks out. With its share price down more than 30 percent, Brazil’s Banco Itaú struck a deal to merge with União de Bancos, its foremost rival. Both banks needed to expand their reach and share costs, but a more fundamental fact made the deal possible. “This only happened because they were controlled by two families,” says Eduardo Gentil, managing partner at the São Paulo office of Cambridge Advisors to Family Enterprise. The families were able to strike the deal quickly and smoothly. And because it was the owners’ own wealth at stake, they could afford to take a longer view, making sure they got the merger right instead of rushing into decisions to please analysts and stock-market investors fixated on the quarterly numbers. And the result? A $260 billion financial institution that has become the largest private bank in Latin America and is now buying back shares and posting double-digit growth.
It’s not just in Brazil that family-controlled firms deftly handled the crisis. According to several new studies, those companies actually outperformed their publicly held counterparts both going into the downturn and during it, and have in many cases emerged better positioned as the global economy lifts itself off the floor. They were less saddled by debt and kept more cash on hand. They scored better financing when credit markets froze, and they maintained higher investments in research and development all through the downturn. Another reason that families outperformed, according to the reports: as publicly listed companies saw revenues and earnings collapse, pressure from shareholders and analysts to show good quarterly results often made these companies act rashly, desperately slashing costs, cutting staff, and severing ties with vendors.
Family firms were often able to take a longer-term, more strategic approach and kept stronger relations with their customers, says Harvard Business School professor Belén Villalonga, who has just completed a study comparing the performance of 4,000 family and public firms in the U.S. and Europe. Between 2006 and 2009, she says, family-controlled firms both gained market share—increasing sales 2 percent faster than nonfamily firms—and outperformed their public peers by 6 percent on company market value. Another report, by the German consultancy Roland Berger, looked at family-owned firms in Europe’s biggest economy and found they navigated the crisis with better liquidity and less debt. This all builds on what has become a decade-long trend of family firms outperforming the market, says Villalonga.
In turbulent markets, family businesses are sometimes able to seize opportunities their public counterparts won’t. For instance, when the crisis hit, the construction sector in Eastern Europe flatlined. Baustoff + Metall, a family-owned construction-materials company based in Austria, took advantage of fire-sale prices to push into six new national markets. “We decided very quickly that this was a terrific chance to expand,” CEO Wolfgang Kristinus says in a new Ernst & Young report on family companies. It had the cash, and the CEO explains it had flexibility because there was no need to “negotiate with shareholders.” The E&Y report found similar narratives all across Europe, where family-controlled companies form the backbone of the economy in many countries, including Germany, Austria, Italy, and the Nordic nations.
Story Compliments Of Newsweek.com