2014 was a lively year for family businesses, from Abigail Johnson’s succession at Fidelity, to the Market Basket ownership struggle and of course Korean Air’s infamous ‘nut rage’ incident. Here we take a look at some of the issues we think will remain top-of-mind for 2015 and the family businesses to watch.
1: Shareholder revolts
2014 saw rising shareholder discontent over family business ownership structures, notably at News Corp, SIKA and Samsung. Non-family investors in particular voiced their objection to dual-class structures (which are, incidentally, gaining traction among technology firm founders) which allow families to retain control over voting shares, while loosening control over economic shares. This will continue to run, if not increase over the next few years as families and founders will have to justify their controlling stakes. One to watch: Korean Airlines.
2: IPOs on hold
This summer saw a number of Italian family businesses pull out of stock-market IPOs. This included the Rovati family who own Rottapharm and tried to list the company on the Milan Stock Exchange. Elsewhere plans to list in 2014 have yet to materialise, Saudi Binladin Group’s Construction Products Holding was due to list mid-2014, but has yet to go to market. This shows that family businesses need to careful consider any moves to the public markets. One to watch: Fiat Chrysler Automobiles 10% listing of Ferrari.
3: Succession … and failure
The more things change, the more they stay the same. Poor internal succession planning was at the heart of several leadership changes. This included Dassault Aviation and the revolving door at Luxottica. Samsung and many of the Korean chaebols are grappling with what to do next. They could do worse than follow those good examples of succession planning: Ana Patricia Botin at Santander, Abigail Johnson at Fidelity Investments and Bechtel’s transition to a non-family executive. One to watch: Lee Kun-hee, Samsung and Rupert Murdoch, News Corp.
4: Reputation management
News travels fast in the 21st century, especially across social media networks. Several family businesses saw their reputations put to the test in 2014, most notably Korean Air after its ‘nutrage’ incident. In Australia, the next-gen director of Transfield Luca Belgiorno-Nettis was forced to stand down as chair of the Sydney Biennale due to the family business’ s connection to controversial asylum seeker detention centres. Marriott also got a social media roasting and a $600,000 fine for trying to block its hotel guest’s Wifi access. Others are proactively managing public perceptions, one example is Norway’s FERD whose 19-year-old next-gen Katharina Andresen was profiled in Norwegian daily Dagens Næringslivs discussing social impact initiatives.
One to watch: Arthur T Demoulas, Market Basket
5: Governance and financial service firms
Espirito Santo Group became a synonym for questionable corporate governance after the 94-year-old lender had to be bailed out by the Portuguese government and its third generation chief executive Ricardo Salgado removed. This won’t be the last case of bad governance or fraud, but it will put other family-owned banks on guard. At the other end of the scale, Santander (who has expressed an interest in buying Espirito Santo Group’s Portuguese unit) is a good example of strong family governance.
One to watch: Safra Group
6: Reform for chaebol
South Korea’s powerful family-controlled conglomerates, or chaebol, came under sustained public scrutiny in 2014, whether it was for succession issues (see above), the complex web of ownership structures, failed IPOs or public relations disasters (Korean Air’s Heather Cho ‘nut rage’ incident). On top of this, president Park Guen-hye made it her election promise to reform the family-controlled groups.
One to watch: Lotte Group
7: Rising female influence
The ranks of female family business leaders got a big boost in 2014 with the ascent of Ana Botin at Santander and Abigail Johnson at Fidelity Investments. Notably too, Cheuk Nang chairman Cecil Chao announced he wanted his daughter, Gigi, to become vice chairwoman of the family business after a very public discussion about Gigi’s sexuality. Still there should be no delusions about the lack of gender equality at senior levels, women make up only 16% of family business boards in Continental Europe’s four largest economies, and only 10% of boards in Germany, new research has revealed.
One to watch: Julie Smolyansky, Lifeway Foods
8: A better alternative?
Family businesses still report difficulty in accessing capital from banks for their businesses (with some avoiding taking on bank debt), which is why alternative finance is gaining ground. There’s been a reported rise in private placements with peer-to-peer lending also on the rise, often funded by wealthy private investors. This trend is only likely to increase in 2015 as traditional banks look to shore up their balance sheets and technology offers different ways of accessing capital through new providers, for example Lending Club.
One to watch: Funding Circle
9: Professionalisation of the family business
Corporate governance is often the difference between a family business transitioning past the third generation, and those that falter during the transition. As the elderly ranks of patriarchs in many emerging markets age, the next generation will want to continue this professionalisation move which includes formalised succession plans, transparent governance policies and clear corporate structures. Li Ka-Shing has prospered after re-structuring his conglomerate into two groups, and Westfield Group also split its Australasian and international businesses. Families acknowledge the need to professionalise, 40% flagged it as a key challenge in a PwC study last year.
One to watch: Ana Botin, Santander
10: Digital chickens come home to roost
Digital disruption is a business reality for many family businesses and 2015 will continue to bear fruit for those who have been investing in their digital capabilities. Retail, media and consumer focused family businesses have been among the market leaders, while more traditional businesses, notably manufacturing and financial services are slower to adapt. The New York Times fifth-gen Arthur Gregg Sulzberger has led a digital innovation push at the paper. Cristina Stenbeck at Sweden’s Kinnevik has also pivoted her family’s enterprise towards more digital businesses.
One to watch: The New York Times Company
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