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Family businesses: a model of resilience

Rania Labaki , Associate Professor, Family Business Chair Director

Resilience is a process of adaptation that can give a significant boost to family businesses. Why and how do family businesses develop resilience and navigate crises and post-crises situations? In…

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25 Sep 2020

Resilience is a process of adaptation that can give a significant boost to family businesses. Why and how do family businesses develop resilience and navigate crises and post-crises situations? In this article, we explore and illustrate resilience in all its forms as they manifest themselves in family businesses.

Resilience is a process that notably results from exposure to threats or adversity. It encourages adaptation of the organization over time. The level of resilience in the face of crises seems to differ, however, between businesses controlled by non-family shareholders and those controlled by family shareholders. Family-controlled businesses are often the most resilient in all respects. When adversity strikes, emotional, social or even financial factors come into play and shake the initial equilibrium of the system/ Family businesses manage to adapt and recover, reaching past or new equilibrium, despite organisational complexities. They are also used to experience different crises throughout their life cycles, at the intersection of the family, business and ownership, whether in relation to ethics, health, identity or relations. To date, four types of resilience helping them to negotiate these hazards have been identified.  

Entrepreneurial resilience: innovative projects born out of crises

Crises encourage change and innovation. The long-term viability of family businesses stems from their resilience and ability to adapt to these difficult periods. Recent evidence for this is provided by businesses like Sisley, Michelin and Decathlon and their responses to the Covid-19 pandemic. They have managed to convert a difficult period into an opportunity, thanks to streamlined decision-making processes.

Sisley re-purposed its production network to supply the medical corps with hydro-alcoholic gel; Decathlon donated diving masks for use with ventilators in hospitals; Michelin re-opened its factories to devote them to producing masks. Family businesses in general have chosen to innovate to fight the current difficulties. In practice, such initiatives are a prime example of entrepreneurial resilience. Family businesses tend to have better ability to innovate than other businesses. Their adaptation to crises are facilitated by strong connections with their partners, all of whom often share the common goal of moving forward in the same direction.  



Emotional resilience: the family as a systemseeking homeostasis

Family businesses are also known for their moral sense and their tendency to allow more space for emotional factors than do other types of companies. These features offer a significant advantage in times of crisis. During crises, emotional resilience comes into play and enables family businesses to lift their heads above the waterline, by learning from the lessons of the past.

In this respect, the psychoanalyst Murray Bowen sets out his theory presenting the family as a multi-generational system with varying degrees of emotional interdependence among its members. Following crises, tthe family can foresee the future by building on its historic legacy model, by replicating emotional regulation patterns rather than reproducting past mistakes. In critical situations, the family memory, preserved from generation to generation throughout similar crises, provides answers to problems. Sometimes, this memory is reinterpreted as time goes by to adapt to the changing environment.

Emotional resilience is strengthened, as periods of great stress are remembered within the business. As a result, self-regulation helps reaching family homeostasis, described by Donald de Avila Jackson as the ability to migrate from one stable state to another, so as to obtain an equilibrium in terms of relations. It is ultimately the post-crisis objective.

Social resilience: overcoming adversity altogether

The term “multi-generational loyalties” might be familiar. They are the very principle of social resilience. Over time, family businesses gradually develop loyal relationships  that can span generations.  Employees, partners, customers and allies are the influential factors within this sphere. These affinities help develop trust , which becomes the basis on which  family businesses and their loyalty circles  help each other in times of crisis. As such,family businesses are preserved in a conciliatory environment that facilitates adaptation with indulgent partners and employees. In turn, this increases the level of engagement with their relationship circles and strengthens them step by step. 

Financial resilience:  A financial future based on distinct preferences

How do family businesses sources their financial resources and manage them? Solvay is a fine family business example  where the choice of financial resilience has contributed to fend off the current crisis. The shareholders of this family business, which was listed on the stock market for nearly seven years, ultimately answered the question: “can we reduce the dividend?” with a “yes”. This zero-sum game (the dividend no longer finds itself in the shareholder’s hands, but directly in the company’s coffers) enabled the creation of a Covid fund. This spirit of sacrifice, particularly present in family businesses, ihelps the business to keep afloat.

This also relates with social resilience, as each donation made to the fund by an employee is granted by the company agreed the double amount (thereby encouraging participation). Thanks to these two factors of resilience, the ability to create an opportunity out of a difficulty, creates a virtuous circle for the future of the business and its Employees.

The other facilitating factor is the hierarchy of financing preferences, that is particular to family businesses. Starting with self-financing, followed by debt, then financial markets - the long-term investment rationale prevails. On top of this are conciliatory and confident external investors, willing to support in difficult times, thanks to “mutual loyalties”..

The family business on all fronts

These four markers of resilience enable family businesses to survive over generations by building in every crisis on the organizational memory and developing it. The markers serve to maintain a certain homeostasis during crisis periods, by presenting the next generation with the solutions to deal with the problem and to stabilise the business over the long term. Family businesses are hence able to grow by consolidating their advantageous position as innovative businesses, through their extraordinary vision and ability to forge trust relationships over generations, both internally and externally.

This piece of content is broadly inspired by an article published by Rania Labaki on The Conversation France

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