Sustainable business for long-term success and increased profit

We are all measured on our performance these days. Whether performance-related annual bonuses or monthly performance sales targets, none of us is immune and family businesses are no exception.

But those of us within this vibrant and dynamic business sector have an extra take on performance that goes beyond the numbers on the balance sheet – our members are looking for “extraordinary performance” that encompasses governance, environment and corporate citizenship. The key to our business model is sustainability.

The fact is that family businesses represent a serious and vital part of our economy. Nine million jobs – two out of every five in the private sector – are provided by family businesses and family firms generate a staggering £1.1 trillion annually in the UK. Family businesses contribute an estimated £81.7 billion in tax receipts to the UK Exchequer, which amounted to 14 per cent of total government revenues in 2010.

But it’s not just what they do that makes the family business sector vital to this country’s economy; it’s how they do business. Family firms are founded on strong values, and demonstrate long-term perspective and a desire to create successful businesses that are passed down through generations. This contrasts with the frequently expressed concern about short-termism that is perceived to be an endemic problem plaguing UK company practice.

Recent research by Credit Suisse shows six in ten family firms globally report growth of 5 per cent over the last year. One in ten has grown by more than 15 per cent. Underpinning this performance has been such companies’ focus on long-term stewardship and agile decision-making due to the closeness of ownership with management. There is also the tendency to fund investment from internal resources rather than take on debt and to take a longer time horizon on return on that investment. Nearly 40 per cent had a ten-year payback horizon for new investments and businesses with greater longevity appear comfortable with even longer paybacks.

Family firms are founded on strong values, and demonstrate long-term perspective

More interestingly, the research shows a keenness to expand and develop that augers well for all our futures. More than half of respondents plan to expand across country borders; even among the smallest firms, those with less than 50 employees, nearly 70 per cent planned new products and services.

This sector is characterised by a long-standing and deep-rooted spirit of innovation and entrepreneurship. The products and services of family firms are part of the daily lives of family households around the world. Famous names such as Samsung, BMW, IKEA, L’Oreal and Zara show that some of the largest and most successful companies in the world are family businesses.

In the UK, family firms, such as Associated British Foods, Berghaus, Dyson, Swire, Warburtons, Wates, William Grant and Virgin, are some of our most successful brand-owning and market-leading companies.

With economic uncertainty continuing, there has never been a more important time to focus on good, sustainable and successful business structures, with an emphasis on long-term growth rather than short-term profits.

As governments and policy makers struggle to find that elusive elixir of growth, it is ever more vital they work with and understand the drivers of success in family firms. Otherwise the risk of policies inadvertently or by unintended consequence damaging and undermining the prosperity generated by the sector remains an ever-present threat.

At a time when the causes of and continuing fallout from the global economic crisis has led to debate in many quarters about the nature of capitalism and the role of private enterprise, the family business model and UK’s three million family firms are something we should be highlighting and applauding, as they continue to prove that long-term stewardship is a powerful and successful force in our economy.