Family companies are experiencing heir loss: Report

New Delhi, Jan 24

Family companies are the hidden engines of the global economy. More than 90 per cent of all companies are family companies. These include many of the world’s biggest organisations such as LVMH Moet Hennessy Louis Vuitton SE in France and Samsung Electronics Co. in South Korea, Bloomberg reported.

A third of companies in Standard & Poor’s 500 index and 40 per cent of the largest companies in France and Germany have a strong family element, Bloomberg reported.

Yet thanks to a combination of demographics and changing social mores, many family firms now face the ultimate threat to their survival: a shortage of heirs. Good riddance, you might say, after watching the psychopathic antics on succession. That ignores the importance of the best family firms not just as engines of progress and innovation, but as repositories of public trust, especially at a time when trust in capitalism is at an historically low ebb, Bloomberg reported.

Even if family companies grow to be behemoths like Succession’s Waystar RoyCo, family companies are inherently fragile organisations. This is partly because they are so prone to family feuds but also because producing a capable heir is hard. Nonfamily companies have the advantage of choosing successors from the entire universe of management talent. Family-run companies are restricted by DNA, Bloomberg reported.

The heirs that remain are much less inclined to follow their fathers into the family business. The brightest ones go off to elite universities and business schools and frequently put down their roots in big cities. The less talented ones who stay at home may be willing to take over the company but are often not up to the job. Two other demographic factors compound the problem of the shortage of heirs. Patriarchs and matriarchs now live much longer and may not be willing to concede control until they are in their seventies or even beyond, Bloomberg reported.