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The secrets of outperforming family-owned businesses: How they create value—and
how you can become one
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THE SECRETS OF OUTPERFORMING FAMILY-OWNED BUSINESSES: HOW THEY CREATE VALUE—AND
HOW YOU CAN BECOME ONE
November 28, 2023 | Report
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Family-owned businesses that combine four critical mindsets with five strategic
actions have a chance to quadruple their value in the next decade—while
maintaining resilience.
These days, organizations across industries and geographies are doing everything
they can to bounce forward from recent economic, geopolitical, and technological
disruptions.
For them, resilience may be a relatively new concept.
Sidebar
ABOUT THE AUTHORS
This article is a collaborative effort by Eduardo Asaf, Igor Carvalho, Acha
Leke, Francesco Malatesta, and Jose Tellechea, representing views from
McKinsey’s Private Equity & Principal Investor’s Practice and its Family-Owned
Business Special Initiative.
For family-owned businesses (FOBs)—companies in which founders or descendants
hold significant share capital or voting rights—it’s just business as
usual.1Refers to companies in which the family controls at least 20 percent of
owned capital share or voting rights; note that voting rights may be controlling
or noncontrolling. Regardless of what the world throws at them, many of these
companies have survived and thrived over multiple decades. Some, such as Levi
Strauss and L’Óreal, have been operating for well over a century.
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FOBs have long played an outsize role in the global economy—a role that often
goes unnoticed or underestimated. They account for more than 70 percent of
global GDP, and they generate turnover of between $60 trillion and $70 trillion
annually. They are responsible for about 60 percent of global employment, and
they play a critical role in supporting education, healthcare, and
infrastructure development across their communities around the
world.2"Empowering family businesses to fast-track sustainable development,”
United Nations Conference on Trade and Development, April 13, 2021.
McKinsey’s own recent research confirms FOBs’ adaptability, resilience, and
impact: they have the structures and best practices required to withstand
business challenges in uncertain times. And in general, they exhibit stronger
performance than businesses that are not family owned, although the extent and
drivers of that outperformance vary (Exhibit 1).
Exhibit 1
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To understand FOBs’ history of outperformance and how the best among them create
value and impact, we analyzed 600 publicly listed FOBs, compared their
performance with that of 600 publicly listed companies that are not family
owned, and surveyed another 600 primarily private FOBs around the world.
Additionally, we interviewed leaders of more than 20 FOBs globally.
The findings were surprising.
For instance, while it has been widely known that FOBs deliver higher total
shareholder returns (TSR) compared with non-FOBs, the root causes of this
outperformance have been less well-known—until now. Our analysis shows that the
higher TSR results from better underlying operational performance by FOBs, as
compared with non-FOBs. The research also demonstrates how the performance and
value creation strategies of FOBs shift as these businesses get bigger and
older.
The data tells a compelling story of outcomes and impact, but they also begin to
reveal what the highest-performing FOBs are doing differently when compared with
peers, in two areas: mindsets and strategic actions.
They demonstrate four mindsets that are common to all FOBs but that take on
outsize importance within the high performers, allowing them to gain and sustain
a competitive advantage. The critical mindsets are a focus on purpose beyond
profits, a long-term view and emphasis on reinvesting in the business, a
conservative and cautious stance on finances, and processes that allow for
efficient decision making.
The high-performing FOBs then combine these mindsets with five strategic actions
in ways that others do not. Specifically, they actively diversify their
portfolios, and they dynamically reallocate resources to the most promising
businesses, regions, and channels. They are both efficient investors and
operators. They maintain a relentless focus on attracting, developing, and
retaining talent, and they continually review their governance mechanisms to
ensure strong business performance across generations.
We’ll unpack this “4+5” formula further in this article. It’s important to note
that the formula and the lessons it imparts are applicable to both FOBs and
non-FOBs alike—and our research suggests that deploying it effectively can pay
off over the long term. When we applied the formula to the family-owned
companies in our research base, we estimated that it could create a 2.5- to
5.5-times increase in economic profit for them.
Indeed, FOBs around the world that successfully follow this formula have an
opportunity to quadruple their value over the next five to ten years—bolstering
their market performance, sharpening the resilience edge that has allowed them
to keep the lights on for generations, and making an even greater impact across
their communities.
FOB OUTPERFORMANCE BY THE NUMBERS
Our research shows that FOBs have created more value and impact than non-FOBs
over the past decade—a dynamic that has largely held true regardless of which
metrics we used to assess companies’ performance and despite the unique
challenges FOBs face (see sidebar, “Unique challenges on the road to
outperformance”).3Non-FOBs are defined as any company that does not meet a 20
percent threshold for family ownership in either share capital or voting rights.
Between 2017 and 2022, FOBs posted an average TSR of 2.6 percent, compared with
2.3 percent for non-FOBs. In that same five-year period, FOBs achieved average
economic profit of $77.5 million, surpassing the non-FOBs average economic
profit of $66.3 million.4Economic profit is the difference between revenue
received from the sale of goods and services and the costs of producing those
goods and services, including opportunity costs. FOBs also generated (on
average) an economic spread that was 33 percent higher than that of non-FOBs in
the same period.5Economic spread is the difference between a company’s return on
invested capital and its weighted average cost of capital.
Share
Sidebar
UNIQUE CHALLENGES ON THE ROAD TO OUTPERFORMANCE
It’s important to acknowledge the unique challenges that all family-owned
businesses (FOBs) face—all the better to appreciate how the very
highest-performing FOBs in our research base have managed to ascend.
A cautious approach to finances is a trademark of FOBs that helps them weather
economic shocks, although it can also delay their recovery. An aversion to
taking on debt, for example, might constrain an FOB’s ability to enact critical
process changes, or it could hinder expansion plans.
Additionally, FOBs tend to underinvest in R&D, which can limit innovation and
entrepreneurial initiatives. This challenge can be compounded as the business
moves further and further away from the founder’s entrepreneurial vision and
prioritizes value preservation over high-risk business bets.
Family-owned businesses also face unique governance challenges relating to their
ownership. For instance, all FOBs, regardless of size, industry, or regional
focus, are confronted with succession-related questions as the business passes
from one generation to the next. The founding generation may have been focused
on aggressive growth, but subsequent generations may wrestle with maintaining or
even transforming the company.
It has been posited that the largest wealth transfer in history will take place
over the next 25 years, with an estimated $100 trillion moving from baby boomers
to their heirs and charities.1The transfer of wealth from boomers to ‘zennials’
will shape the global economy,” Financial Times, August 22, 2023. Inheritors may
find themselves grappling with several new challenges, including a changing
global order, a push toward sustainable and inclusive investing, and the AI
revolution.2 “Global flows: The ties that bind in an interconnected world,”
McKinsey Global Institute, November 15, 2022. How they lead through these
disruptions will have a lasting impact on their companies, on business
generally, and on society.
A broader look at performance among both FOBs and non-FOBs reveals further
variations based on the size, age, and maturity level of these companies. For
instance, the midsize FOBs in our research base, with annual revenues between
$150 million to $5 billion, performed better than non-FOBs by being more
efficient investors. They have delivered 10 percent higher capital turnover over
the past five years compared with non-FOBs. Why? These midsize FOBs face fewer
of the traditional market pressures to deliver short-term results. Their focus
on the long term and their streamlined decision-making processes allow them to
be more effective than non-FOBs at identifying investment opportunities that are
in line with their purpose and goals, acting decisively, and quickly allocating
resources against those opportunities.
Meanwhile, the large FOBs in our sample, with annual revenues between $5 billion
and $100 billion, tend to be efficient operators that have delivered
1.5-percentage-point higher operating margins over the past five years compared
with non-FOBs. The numbers likely reflect large FOBs’ ability to take advantage
of process-related efficiencies and supply chain relationships developed over
successive generations (Exhibit 2).
Exhibit 2
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In addition, the family-owned businesses in our research base that are 25 years
old and younger tend to have an aggressive growth mindset, increasing revenues
twice as fast as non-FOBs as they channel the entrepreneurial energy of the
founder. As they mature and transition into new generations of leadership,
however, some FOBs start thinking less about big bets and more about preserving
value. Others just lose the founder’s entrepreneurial edge. Their growth slows,
falling more in line with that of non-FOBs (Exhibit 3).
Exhibit 3
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4+5 EQUALS FOB OUTPERFORMANCE
Our research also revealed a notable gap in performance among FOBs and non-FOBs
on our economic profit power curve, with a performance edge appearing across all
quintiles. And the best-performing FOBs fared much better than the
best-performing non-FOBs: the top two quintiles show a performance gap three
times larger than the average of the lower quintiles. What’s more, the
highest-performing FOBs capture the largest share of economic profit and drive
outperformance across the entire FOB category (Exhibit 4).
Exhibit 4
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Who are these outperformers? They comprise more than 120 FOBs in our research
base, with ages ranging from under a decade to several centuries. They span ten
sectors and operate across the world. Their average annual revenues range from
$1 billion to $95 billion, with average economic profit of $730 million and
average EBITDA margin of 20 percent.
Through our analyses, we learned that these top FOBs display four mindsets that
are common to other FOBs but that are more pronounced in the outperformers. And,
unlike most other FOBs, the outperformers combine the four critical mindsets
with five strategic actions that help them achieve and sustain top-quintile
performance that truly differentiates them (Exhibit 5).
Exhibit 5
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FOUR CRITICAL MINDSETS OF OUTPERFORMING FOBS
Traces of the following four critical mindsets can be found in the DNA of all
family-owned businesses, but these mindsets are more pronounced in the
highest-performing FOBs relative to others.
1. THEY FOCUS ON PURPOSE BEYOND PROFITS
Our research shows that 93 percent of respondents from the highest-performing
FOBs believe their company has a clear purpose beyond creating value for
shareholders, as compared with 86 percent of the overall group of FOBs we
surveyed . This sense of purpose can take many forms. It can be inward looking
and focused on building the company’s legacy—for instance, by maintaining a
strong reputation, protecting the brand image, or nurturing a strong company
culture. Or it can be outward facing, focused on maximizing value for customers
or generating positive impact in their communities. Whatever its nature, FOB
respondents say they are willing to spend the time and resources needed to bring
this purpose to life. Of the respondents from the highest-performing FOBs, 91
percent say they have formal mechanisms to ensure that employees understand,
appreciate, and role model their purpose and values , as compared with 84
percent of the overall group of FOBs surveyed.
One place where this mindset is most strongly reflected is in the
highest-performing companies’ efforts to support their communities. In our
survey, leaders in 58 percent of the outperforming FOBs strongly agree with the
assertion that their companies “embrace social responsibility and
sustainability,” compared with 39 percent of leaders of other FOBs. One example
of community support is a family-owned financial-services company in Latin
America that tracks its environment, social, and governance efforts as closely
as it does its financial performance. To foster transparency and accountability,
it participates in all major market indexes that monitor sustainability and
governance—both domestically and abroad.
The purpose-driven mindset is also reflected in the outperforming companies’
approach to hiring, promotion, and retention. Loyalty is a key value in most of
these companies and, in our interviews, leaders revealed an ability to look
“through the cycle” and avoid layoffs in crisis periods. One Indian conglomerate
with roots dating back to the 1800s has basically adopted a “never fire”
approach to talent management.
2. THEY TAKE A LONG-TERM PERSPECTIVE AND REINVEST IN THE BUSINESS
Leaders of outperforming FOBs cite their long-term perspective as one of the top
three reasons for their success, alongside the ability to innovate and to expand
into new markets and regions. They ruthlessly optimize for the longevity and
resilience of the organization, even if it comes at the expense of short-term
performance.
Ownership structure plays a critical role in the outperformers’ ability to
maintain this long-term perspective: 92 percent of outperforming businesses in
our research base have at least a 40 percent family ownership. Since they are
not beholden to the demands of shareholders or the pressures of quarterly
earnings reports, they can take a more patient and strategic approach to
investing, which can ultimately lead to sustainable growth and success. One
family-owned European retailer, for instance, had for decades remained
resolutely focused on an “always buy, never sell” philosophy. In the late 1990s,
it acquired an unprofitable brand, and, over a six-year period in which the
acquired brand’s performance remained low, the company weathered public scrutiny
and pressure to sell. Over time, however, the waiting game eventually paid off
and the brand became one of the company’s most successful acquisitions.
Our research also revealed that FOBs, in general, tend to reinvest in the
business rather than extract as much as they can from the company through
dividends (Exhibit 6). They are not under the same pressures that non-FOBs are
increasingly under to prioritize higher dividends to meet shareholder
expectations. Indeed, over the past five years, FOBs worldwide delivered
dividend yields that were 12 percent lower (on average) than those of non-FOBs.
Exhibit 6
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3. THEY ARE FINANCIALLY CONSERVATIVE AND CAUTIOUS ABOUT DEBT AND HIGH-RISK
INVESTMENTS
In general, FOBs tend to be financially cautious, with leverage ratios that are,
on average, six percentage points lower than those of non-FOBs. The
outperforming FOBs have even lower leverage ratios, by nearly ten percentage
points (Exhibit 7).
Exhibit 7
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Interestingly, however, the outperformers say they take on more debt compared
with other FOBs. For instance, about 40 percent of the outperformer respondents
told us they use debt to finance more than 50 percent of their investments. By
contrast, other FOB respondents told us they use debt to finance only 12 percent
of their investments. Given that they are using their own money, FOBs often
prefer to invest their funds in marketing, sales, manufacturing, and other parts
of the business where there are clear paths for growth and some precedent for
returns, rather than invest in high-risk areas such as R&D.
This cautious approach to finances also helps the outperformers weather
significant economic shocks such as the 2008 global credit crisis and the recent
COVID-19-triggered downturn—and emerge in better shape than other FOBs and
non-FOBs. For example, a family-owned logistics business in Europe credits its
financial conservatism as a critical factor in its relatively quick recovery
from global supply chain shortages in 2021. Through the crisis period, the
company held a steadfast focus on the long term and prioritized preserving its
strong cash position, which allowed it to avoid bankruptcy the past few years
while others were falling prey to industry contraction.
4. THEIR INTERNAL PROCESSES ALLOW FOR EFFICIENT DECISION MAKING
Our conversations with leaders in outperforming FOBs point to greater efficiency
in decision making, in part because of two factors: centralized but flexible
processes and engaged employees.
Despite the existence of investment committees, for instance, the big decisions
taken by leaders and teams in outperforming FOBs are usually highly influenced
by a single individual or several members of the family who can act more
decisively than leaders in non-FOBs. The non-FOBs usually rely on multistage,
multiparty processes that can be difficult and time-consuming to navigate.
Interestingly, the outperforming FOBs distinguish between efficient decision
making and fast decision making: when family members agree, they make choices
quickly. But when family members disagree, the outperformers take advantage of
their flexible structures and processes to consider all the different points of
view. They understand that decision making can be both quick and deliberate—and
that the ability to adjust as needed is a true differentiator in performance.
The benefit of having engaged employees is that “once the CEO has a strategy in
mind, it is easier to implement any changes,” leaders at one Japanese FOB told
us. This approach to decision making has allowed the company to execute major
category and market expansions every ten to 15 years.
FIVE STRATEGIC ACTIONS THAT SET OUTPERFORMING FOBS APART
Through our analyses, we discovered that the very best FOBs combine the four
critical mindsets just described with five strategic actions that truly set them
apart.
1. THEY ACTIVELY DIVERSIFY THEIR PORTFOLIOS
The outperforming FOBs in our research base have highly diversified portfolios.
One conglomerate reaches more than one billion customers across its consumer
goods, agriculture, and real estate divisions, among others. Another FOB started
in waste management but has expanded into logistics, clean energy, and mobility
solutions. Indeed, our research shows that 40 percent of the outperformers
garner more than half of their revenues from streams outside their core
businesses. By contrast, only 7 percent of other FOBs had a similar share of
noncore business revenues (Exhibit 8).
Exhibit 8
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Moreover, 70 percent of the outperformers told us they will prioritize expansion
beyond the core over the next five years by moving into new industries or
geographies or by targeting disruptive businesses.
M&A seems to be the go-to diversification strategy for these organizations. Some
66 percent of respondents to our survey told us they pursued M&A to access new
technologies, 63 percent to enter new industries, and nearly 60 percent to tap
into new geographies.
Of course, not all M&A pursuits yield the same returns. Previous McKinsey
research has found that programmatic M&A—that is, carefully choreographing a
series of deals around a specific business case or M&A theme, instead of
pursuing more organic, episodic, selective, or large transactions—is far more
likely to lead to stronger performance and less risky for any organization. FOBs
seem to be taking this message to heart: when asked about their M&A activity,
about 40 percent of all FOBs told us they had pursued two or more small or
midsize deals per year for the past ten years.
The current findings support previous McKinsey research that shows FOBs tend to
make smaller but more value-creating deals than non-FOBs. Leaders at a
family-owned industrials company in Europe told us they actively try to avoid
“core myopia.” For years, they said, they had failed to recognize growth
opportunities in recycling and sustainability. Now, they prioritize and pursue
small acquisitions that they think can enhance their market position. They
decide which companies they intend to acquire and for how much, “remaining
patient and avoiding rushing into transactions until the opportune moment
arises.”
Further, many of the outperforming FOBs seemed more willing than peers to take
bolder risks on occasion, with 58 percent indicating they had pursued at least
one large deal in the past ten years, compared with 36 percent of other FOBs
indicating the same.
2. THEY DYNAMICALLY REALLOCATE RESOURCES
Previous McKinsey research confirms that dynamic resource allocation is one of
the best ways to achieve growth in an organization. Companies that reallocate
more resources more often have been shown to generate significantly higher
returns to shareholders, experience less long-term variance on returns, and have
a higher likelihood of avoiding acquisition or bankruptcy.
Our analyses show that outperforming FOBs aggressively and dynamically allocate
their resources toward businesses, regions, and channels they believe will drive
the most growth. In fact, about 60 percent of the outperformers said that, over
the past five years, they had shifted more than 30 percent of their capital
across businesses or regions, targeting higher-value opportunities. By contrast
only 20 percent of other FOBs had done the same (Exhibit 9).
Exhibit 9
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In general, FOBs enjoy an advantage in this area compared with non-FOBs. Their
focus on purpose along with their longer-term perspective and efficient
decision-making structures allow them to avoid the politics and inertia that can
drive allocation discussions off the rails.
Leaders from outperformer FOBs we spoke with say they take specific actions—in
some cases, even cultural changes—to guard against inertia. A century’s worth of
diversification has given one family-owned conglomerate in Asia footholds across
a wide range of sectors—from petrochemicals to energy, retail, and
telecommunications. But to balance out its strategic pursuit of growth, the
conglomerate has also built into its finance and strategy discussions formal
reevaluations of business performance. It periodically divests underperforming
divisions and reduces its ownership interests while reinvesting those resources
in higher-growth opportunities. This culture of growth through continuous
improvement is so strong that last year the company announced a
multibillion-dollar plan to transition from its core business in
petrochemicals—which at one point accounted for more than three-quarters of the
company’s revenues—to new opportunities in renewables.
Leaders attribute the company’s success to the founders’ direct, personal
involvement in identifying big bets and building the financial, operational, and
talent competencies required to reallocate resources and act on those bets.
3. THEY ARE EFFICIENT INVESTORS AND OPERATORS
As mentioned earlier, at the outset of their tenures, FOBs tend to perform
better than others because they can allocate capital more efficiently. But as
they grow and scale, their outperformance tends to come more from efficient
operations. Interestingly, the very best FOBs can do both.
Our data shows that the high-performing FOBs have a capital turnover ratio of
1.4—in line with that of outperforming non-FOBs and higher than that of all
other FOBs in our sample. The high performers also report operating margins that
are almost 10 percent higher than that of outperforming non-FOBs and nearly
twice that of other FOBs in our research base (Exhibit 10).
Exhibit 10
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Their higher-than-average investment and operating performance is driven by
three factors. First is their operating DNA, which is passed down through
generations and shapes the way their businesses operate, including decision
making, customer service approach, talent management, and even developing
functional expertise. In South Korea, for instance, the chairman of a
family-owned apparel and footwear manufacturer has visited the production line
daily for decades and knows each worker by name. Such direct involvement from
the company founder has helped foster a sense of loyalty and ownership among
employees. Through this access, workers are also getting a first-hand
perspective on the operational challenges and opportunities across the
organization—and, as a result, are deeply motivated to weigh in with potential
solutions.
Second, compared with the other FOBs in our research base, the outperformers use
a broader set of data to evaluate organizational performance. For instance,
these businesses used more key performance indicators (KPIs) to measure
executive performance, including top- and bottom-line figures and valuation
metrics. When we asked all the FOB respondents in our research base which of
seven designated metrics they had considered in evaluating executive
compensation, the outperformers were 10 percent more likely, on average, to
indicate that they were tracking all the KPIs we listed.
The last and arguably biggest differentiator is that outperforming FOBs focus on
innovation. They invest twice as much in R&D as other FOBs do, and back up those
investments with performance management systems. One US-based family-owned
company that provides telecommunications and automotive services established a
series of programs to support the creation of a tech-venture ecosystem in a part
of the country that has not traditionally been a tech hub. The company launched
an accelerator for tech start-ups and a not-for-profit program to drive job
creation in adjacent industries. Through direct and indirect investments in
these programs and companies, the company is helping others while ensuring its
own access to top technology innovations and talent in the region.
4. THEY MAINTAIN A RELENTLESS FOCUS ON ATTRACTING, DEVELOPING, AND RETAINING
TALENT
Talent management is an obsession for the highest-performing FOBs. In our
survey, 86 percent of respondents at outperforming FOBs agree or completely
agree that their company attracts the best talent. More than 90 percent either
agree or completely agree that their company successfully identifies, trains,
and develops top performers.
One family-owned luxury retailer in Europe takes an end-to-end approach to
talent management. To attract recent graduates and younger workers, the company
developed and launched a two-year, nine-part social media campaign—a series of
“day in the life” posts filmed by and with existing employees. It also
established a program to identify and train thousands of internal ambassadors to
help and onboard newer workers. Partly due to these initiatives, the group has
been voted a top employer among business school students for 18 years in a row
in the retailer’s home country. At the senior-leader level, the company focuses
on offering competitive salaries, which it benchmarks constantly. It also
provides leaders exclusive proximity to members of the founder family, which
creates a sense of personal attachment and accountability for the company’s
results among senior leaders.
As a result of these efforts, the company boasts an average length of service
between six and seven years—about three times higher than the typical tenure for
employees at luxury retail companies. Almost one-quarter of the company’s
workforce has been employed there for more than 15 years, and of these, more
than 70 percent have been with the company for more than 20 years. The leaders’
perspective is that recruiting exceptional talent and retaining them for long
tenures has allowed the company to build and maintain a strong culture of
artistic expression, attention to detail, and long-term vision—traits that are
crucial to success in a business that hinges on creativity and reinvention.
Also in our survey, more than 80 percent of outperforming FOB respondents report
that their companies have built effective training programs to develop the next
generation of family members. A family-owned electronics retailer in Africa, for
instance, puts all family members interested in joining the company through a
rigorous interview process (even tougher than their standard recruiting process)
and places them in jobs that are aligned with their skill sets. An Asian FOB in
the apparel industry mandates that family members do a series of role rotations,
periodically tasking them with initiating new M&A deals, ventures, or resolving
existing challenges to evaluate their problem-solving skills.
5. THEY CONTINUALLY REVIEW THEIR GOVERNANCE MECHANISMS TO ENSURE STRONG
CORPORATE PERFORMANCE ACROSS GENERATIONS
Our research reveals that outperforming FOBs take the separation of family and
business matters very seriously. About 80 percent of the outperformer company
respondents reveal there is formal documentation in their companies with clear
guidelines on the roles and responsibilities of family members. More than 90
percent of the outperformer respondents told us there is an effective and
independent board of directors in place, compared with 72 percent of respondents
from of all other FOBs who say the same. And 85 percent of respondents from
outperforming FOBs report that their companies have a formal forum that meets
regularly to discuss family and business issues, compared with only 66 percent
of all other FOBs in our research base.
In interviews, leaders in the outperforming FOBs touted the benefits of having
strict guidelines about family member roles and responsibilities, especially if
the business is still family-led. At a second-generation 100 percent
family-owned healthcare services business in the United States, two siblings
share leadership roles. One is the president and focuses on strategic
responsibilities across three business units, while the other is the chief
growth officer and focuses on sales. Their positions very intentionally
intersect but don’t overlap. And the siblings bring unique and complementary
skills to the leadership team. Before they reached their current positions,
however, the siblings spent time in different parts of the company to develop a
sense of ownership and connection to the company culture, deepen their
understanding of processes, develop their management skills, and most
importantly, earn the trust and respect of the broader organization. What’s
more, this pathway to leadership has been institutionalized at the company: a
third-generation family member is on a similar development journey and currently
serves as chief of staff.
Family governance, when well-executed, can be a powerful way to build corporate
culture. However, FOBs may also want to look outside blood lines for leadership.
Research has shown that professional management, when well identified and given
the right conditions to prosper, can produce better results than family-only
structures.6Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Family firms
need professional management,” Harvard Business Review, March 25, 2011. Indeed,
FOBs increasingly tap into the expertise of professionals from outside the
family, and our research shows that the outperformers do so even more. For
instance, 95 percent of the outperforming FOBs in our research base indicated
that they actively involve nonfamily executives in setting portfolio strategy,
compared with 85 percent of all other FOBs in the research base.
One outperformer, a CPG company based in Latin America, decided last year to
break a generations-long sequence of family leadership and hire a CEO
externally. A family-owned European pharmaceutical company did the same. Both
organizations followed practices that would be standard for any company,
family-owned or not. For example, both engaged a global recruiter to conduct
their searches and asked them to focus on talent rather than cultural fit. As
FOBs grapple with the question of succession, they would do well to keep their
focus more on longevity of the business rather than on continuing family
stewardship.
--------------------------------------------------------------------------------
This formula of four critical mindsets plus five strategic actions can help to
ensure that FOBs capitalize on the potential for significant, profitable, and
sustainable growth. The value at stake is substantial: companies that have
implemented this formula successfully have been able to climb higher on the
economic-profit curve over the past five years, moving up one or two quintiles.
Others that follow this formula can do the same and potentially realize a
fourfold increase in value creation over the next decade, according to our
estimates.
The implementation will of course look different depending on the organization.
Companies facing imminent generational transitions may need to focus first on
shoring up their governance mechanisms and succession planning. Businesses in
stagnant or vulnerable industries may want to focus first on dynamic capital
allocation practices to boost their investments in R&D, new business building,
and M&A. The formula must be applied judiciously, and with careful attention to
what will be most effective given their specific circumstances.
Regardless, the 4+5 formula provides a path for FOBs (and non-FOBs), of all
sizes and ages, to improve their performance and continue to do what they have
done for decades—support sustainable and inclusive economic growth, raise
employment, and improve healthcare and education in communities around the
world.
ABOUT THE AUTHOR(S)
Eduardo Asaf is a partner in McKinsey’s Mexico City office, where Igor Carvalho
and Jose Tellechea are consultants; Acha Leke is a senior partner in the
Johannesburg office; and Francesco Malatesta is an associate partner in the
Dubai office.
The authors wish to thank Aliyah Allie, Michael Birshan, Fredrik Dahlqvist,
Gemma D’Auria, Heinz-Peter Elstrodt, Avinash Goyal, Franck Laizet, Ari
Libarikian, David Quigley, Liz Hilton Segel, and Sergio Waisser for their
contributions to this report.
--------------------------------------------------------------------------------
This article was edited by Roberta Fusaro, an editorial director based in the
Waltham, Massachusetts, office.
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