Michael O’Sullivan and Ariel Sergio Davidoff look at how family fortunes fare in the post-credit-crisis economy.
Family businesses are back in fashion. The credit crisis exposed the downside of the leveraged corporate model. As a result, the steadier family business framework looks more attractive. This holds across continental Europe, the UK and the US. In our view, the family model gives other companies, and policy makers, a useful reference point. After all, everyone is trying to pick up the pieces. Over the past year, several European companies have fallen. Some carried too much balance-sheet leverage. Others carried too much operating leverage. More pain is likely as high debt unwinds and the downturn deepens.
Well positioned
Family businesses are not immune to the credit crunch. Even so, they are better placed to cope. Many now pick up cheap assets and talent as rivals cut back. Several reasons explain this. Family-influenced firms tend to carry less debt. They also invest more cautiously and think long term. Sweden’s Wallenbergs, for example, often entered recessions cash-rich. Therefore, they could act opportunistically once recovery arrived, especially as weaker competitors faltered.
The dot-com bubble told a similar story. Some family firms held to long-term goals rather than short-term fashion. Bouygues, for instance, refused to bid for UMTS licences. Peugeot declined a B2B internet strategy in 2000. In general, family businesses cluster in more traditional sectors.
These firms are a vital, if often unheralded, part of the European economy. They anchor entrepreneurship, and their stability gives innovation a base. In that sense, family fortunes are a useful gauge of the health and direction of Europe.
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