#08 December 2022 20 CHF
REFRAMING HISTORY
THE NEW DIPLOMACY
FAMILY FORTITUDE
KLOPP’S GOALS SUCCESSION SUCCESS
END OF THE DYNASTY? AUTONOMOUS ENTERPRISE ibyimd.org
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[ Foreword ]
‘Tis the season to celebrate the family
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ook around and it feels the speed of business – and of life in general – is ever-accelerating. It took the telephone 75 years to reach 100 million users, yet Facebook reached 10 times as many in only a 10th of the time – a billion users in less than eight years. Or consider email. The first email was sent in 1971, traffic in the US eclipsed physical mail in 2000 at 200 billion per year, and experts estimate that 2022 saw an average of 333 billion emails per day. The acceleration in business may not be similarly exponential, but it is notable. According to a recent McKinsey study, in the early 1980s, S&P 500 companies had been part of the index for about 35 years on average. Today, the figure is less than 20 years. Executive tenures are also getting shorter. In 2020, the average CEO tenure was 6.9 years, down 14% from just four years earlier, according to Korn Ferry.
llustration: Jörn Kaspuhl
Against this drumbeat of disruption, I suspect you will thoroughly enjoy reading about the long-lasting family businesses featured in this eighth edition of I by IMD. Many have been around for a century or longer, passing from one generation to the next. However, longevity is not the antithesis of innovation but rather its result. Whether it’s Firmenich or Ahlström, let alone the empires created by the Wallenbergs and Waltons, the willingness to adapt to both changing market conditions and evolving family priorities have been central features of their journeys. Family firms are the bedrock of most economies, constituting over two thirds of global enterprises and a similarly high percentage of employment, as my colleague Peter Vogel, who leads IMD’s Global Family Business Center, points out. The contribution of these firms goes far beyond the numbers, however. In recent years, influential voices from BlackRock’s Larry Fink to Klaus Schwab of the World Economic Forum have called for business to embrace stakeholder capitalism.
“Welcome to the Club!” is what I suspect the leaders of most family businesses must have thought upon hearing these calls. Indeed, as this issue demonstrates, due to their longterm orientation, deep roots, and the fact that the family name is commonly “on the door”, family businesses and the families that guide them tend to exhibit a societal commitment from which non-family firms can learn. As Maria Ahlström-Bondestam explains: “I was born into an old industrial family that had the power to contribute.” Similarly, the Wallenbergs’ commitment to their Swedish homeland is such that there is even a Swedish word for it – landsgagneliga, which translates as “for the benefit of the country”. As always, this issue is packed with practical insights – from leadership lessons by an inspiring Kenyan social entrepreneur and the world’s top football coaches, to an up-close examination of digital transformation at Bayer and the prospect of a “fully autonomous enterprise” enabled by technology, to the presentation of the new IMD-Hinrich Sustainable Trade Index. Personally, I am particularly excited about the thoughtful contribution by my colleague Mohamed Mahmoud Mohamedou of the Geneva Graduate Institute. Our two institutions are teaming up to advance principled leadership in global affairs across both business and government, something our troubled world is desperately crying out for. Finally, in true holiday spirit, my IMD faculty colleagues recommend some of their favorite books, which make for excellent presents. Or perhaps you give yourself a gift – grab one of them, switch off your phone with its pesky email and social media alerts, and slow down. We all need it at the end of this challenging year! ■
David Bach, Dean of Innovation at IMD December 2022 • I by IMD 1
[ CONTENTS ] 04 [ In good company ]
The pace of technological change and a “silver tsunami” of retirements threaten the future of the family dynasty, argues Jerry Davis.
06 [ Leadership ]
Elite football managers have a skillset far beyond looking after the players on the pitch. Simon Kuper explains what they can teach us about leadership and talent management.
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#08 December 2022 20 CHF
[ FAMILY BUSINESS ]
What makes a family enterprise special? And is it really better equipped than its non-family equivalent to survive the current economic storm? Find out in our 38-page in-depth report and analysis.
KLOPP’S GOALS SUCCESSION SUCCESS
END OF THE DYNASTY? AUTONOMOUS ENTERPRISE ibyimd.org
IMD_2022_Edition_08_December_2022_COVER_Final.indd 7
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Cover picture: Christina Gaw of Gaw Capital @ KARL STUDIO.
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12 Family businesses are hard-wired for longevity and stewardship, but they must now adapt and evolve to survive, writes Peter Vogel.
28 Fictional family businesses on TV and in the movies may be over the top but they can offer interesting insights, explains Kimberly Eddleston.
38 Soren Toft, CEO of the shipping
16 Which are the biggest family-run companies and where are they based? Get the essential facts and figures in a specially commissioned visual guide.
30 To sell or merge a family business is difficult. Peter Vogel investigates how the long-established Swiss firm Firmenich are handling the transition.
41 Working to make a positive global
18 A legacy company is sometimes
confronted with uncomfortable truths about its past conduct. A company must find ways to reframe the narrative, explains Lindsay Krasnoff.
22 A certain type of family firm showed resil-
company MSC, suggests eight ways that a family outsider can successfully climb aboard without making waves.
impact on the lives of others has brought the Finnish-based Ahlström family closer together, write Malgorzata Smulowitz and Peter Vogel.
45 In times of transition it’s important
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to let emotions into the room, explains regular columnist George Kohlrieser.
47 For 30 years, all family members of
ience at the height of the COVID-19 pandemic, according to a study by Alfredo De Massis and Ivan Miroshnychenko. Continuity, perseverance, and planning for the future were key.
family enterprise starts with answering the questions posed by the next generation, write Peter Jaskiewicz and Sabine Rau.
Colombian-based Carvajal SA have been given free or heavily subsidized access to education, healthcare and housing. This “social dividend” has aided family unity, says Cristina Carvajal.
25 Gaw Capital, a real estate investment
35 Abdallah Al-Obeikan, CEO of the
50 Marcus Wallenberg, chairman of a
firm, was set up by two brothers and a friend in 2005, but things really took off when they invited their sister Christina Gaw to join. 2 I by IMD • December 2022
32 Ensuring a smooth transition of a
Obeikan Investment Group, talks to Hischam El-Agamy about his mission to create a fully autonomous business.
Swedish-based investment empire, explains to Jean-François Manzoni why it is so important to support and develop his homeland.
Photos: ©UNICEF/UN0325666/Ralaivita, Cecil Sneha via UNspalsh, MSC
REFRAMING HISTORY
THE NEW DIPLOMACY
FAMILY FORTITUDE
52 [ CEO dialogue ]
Khadija Mohamed-Churchill is founder and CEO of Kwanza Tukule, a social enterprise that helps to ensure a supply of food for those in need. She discusses her ambitions and motivation with Jean-François Manzoni.
55 [ In my view ]
Hallelujah! The quest for purpose and meaning in the business world may mean more than just empty gestures, argues Michael Skapinker.
58 [ Digital transformation ]
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Photos: elea Foundation for Ethics in Globalization, Wikipedia, Kevin Frayer/Getty Images, Boon Panthalany, David Lezcano via Unspalsh (2), Bayer, www.muellersaran.de
Bayer is using the latest technology to drive change. Training and developing a new breed of leader is the key to success, Sarena Lin, the company’s Chief Transformation and Talent Officer, tells Misiek Piskorski.
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62 [ The I reader ]
IMD professors recommend a diverse selection of books to inspire, entertain and stimulate you during the long winter evenings.
64 [ Changing times ]
Ambassadors and heads of state no longer hold a monopoly on the channels of diplomacy. Mohamed Mahmoud Mohamedou outlines how business leaders can play their part.
66 [ Psychology ]
Leaders will get far more truthful responses if they learn the art of asking “clean” questions. Heather Cairns-Lee, James Lawley and Paul Tosey explain how to do it.
68 [ CEO dialogue ]
David Loew, CEO of Ipsen, tells Jean-François Manzoni how he dealt with a regulatory knockback and the pharmaceutical firm’s best-selling drug going off patent.
62 70 [ Sustainability ]
The Hinrich Foundation in partnership with IMD 's World Competitiveness Center has recently released a revamped Sustainable Trade Index. Chuin Wei Yap explains why New Zealand offers hope amid the gloom.
74 [ Crisis planning ]
Global conflict is not inevitable, but David Bach encourages the CEOs of multi-nationals to ask themselves: what if?
70 76 [ The forecaster ]
Howard Yu and his team focus on hard data in tech and pharma to analyze what it will take for an organization to weather the storm in 2023.
80 [ Preview ]
Join us in March when our experts will take an in-depth look at how business leaders can equip themselves to deal with a crisis “overload”. December 2022 • I by IMD 3
[ In good company ]
Does tech and the silver tsunami spell the end of the business dynasty? It’s too early to tell which of the current wave of successful enterprises will turn out to be built to last, but the creation of family-led giants in the mold of Tata or Ford seems unlikely in an ICT-driven business landscape, writes Jerry Davis
Family businesses are certainly pervasive. But what about family business dynasties − enterprises that are actively managed by the family for three or more generations, like the Tata family conglomerate? These are common in some places and rare in others. Why? And have the factors that support family business changed in ways that make business dynasties less likely in the future? This is an increasingly salient issue. Most small businesses in the US are owned by baby boomers who are at or beyond retirement age, and most owners have no succession plan in place. We are in the midst of a so-called “silver tsunami” of business transition. These companies are more likely to end up in the hands of private equity or corporate buyers (or, optimistically, their own employees) than to be handed off to heirs. Moreover, many tech-infused businesses today simply do not lend themselves to family succession. Perhaps the era of the business dynasty is at its twilight. Or perhaps it requires very specialized circumstances to maintain it. Where do business dynasties come from? Investopedia’s list of the 10 wealthiest families in the world includes some familiar names, and 4 I by IMD • December 2022
almost all are associated with a well-known multi-generational business: Walton (retail), Mars (candy and petfood), Koch (oil service), Hermes (luxury), Al Saud (oil), Ambani (oil), Wertheimer (fashion), Johnson (financial services), Thomson (media), and Boehringer (chemicals). Most are privately held, and most involve tangible businesses with tangible assets: stores, oil, chemicals, candy, clothing. In several cases second- and third-generation family members are still actively engaged in the management of the business. These are dynasties. Now consider the 10 wealthiest people in the world: Elon Musk (Tesla+), Bernard Arnault (LVMH), Gautam Adani (Adani Group), Jeff Bezos (Amazon), Bill Gates (Microsoft), Warren Buffett (Berkshire Hathaway), Larry Ellison (Oracle), Larry Page (Google), Mukesh Ambani (Ambani Group), Sergei Brin (Google). How likely is it that Elon Musk’s grandchildren will be holding down management jobs at Tesla, SpaceX and Twitter, or that Pages and Brins will be overseeing Alphabet’s successor in 2060? This comparison provides some clues for creating a dynasty. First, keep the ownership private (or, in the case of the Waltons, hang on to a commanding ownership position; the family still owns roughly half of Walmart’s shares). The biggest recent fortunes (Musk, Bezos, Gates, Page, and Brin) are based in stock ownership: a ballooning market capitalization bestows instant wealth on the founders who take their company public. But it is rare for a business to go public and stay in family hands, at least in the US. There are exceptions. Some families use devices such as dual-class voting shares to balance the benefits of going public with maintaining family control. When Ford Motor Company finally went
Illustration: Jörn Kaspuhl
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round the world, “business” is almost synonymous with “family business”. The Tata family’s commercial empire in India has lasted generations and spans industries from cotton and steel to IT consulting and solar grids, and Tata family members are still active in managing the enterprise. My favorite local restaurant in Menlo Park, California, is also a family business, with a daughter waiting tables, a son in the kitchen, and a dad at the cash register taking phone-in orders.
public in 1956, led by the grandson of the founder, it created a special class of shares with 40% of the voting rights to be controlled by the Ford family in perpetuity. A Ford family member still serves as board chair to this day. But this kind of structure is uncommon in the US and rarely lasts for generations. And there are families that have stayed wealthy for generations on the basis of public corporations. The Rockefeller family fortune was built on Standard Oil, which spawned Exxon, Chevron, Marathon, BP, and other public companies. But later generation Rockefellers were more famous for politics and banking than oil — and the current generation of Rockefeller heirs has turned decisively against oil, as the family very publicly liquidated its fossil fuel holdings. The Rockefeller Foundation followed suit a few years later. Contrast this with Germany, where small- and medium-sized private companies make up the prized Mittelstand. This vast sector is described as the backbone of the German economy, employing 57% of the country’s workforce. Such enterprises typically stay in family hands for generations, creating a stable infrastructure for industries such as automobiles, machinery, and chemicals. Meanwhile, public corporations are the anomaly in Germany: according to the World Bank, Germany has a mere 438 public corporations. (Even Volkswagen, Germany’s largest public corporation, is ultimately controlled by descendants of Ferdinand Porsche, who designed the first Volkswagen.) Switzerland and Austria have similar systems. Switzerland has 236 public corporations; Austria, just 68. America’s financial market-centered economy and Germany’s family-friendly business climate might be described in terms of their “institutional terroir”. Just as the soil and climate of Cote D’Ivoire are much more amenable to growing cacao than those of Canada, the institutional terroir of Germany is more conducive to maintaining family business dynasties than the US. German founders seek a legacy; American founders aim for an exit strategy. So, is the era of family business dynasties coming to an end?
building a family dynasty. The word “legacy” gives a clue. In the world of family business, legacy is a term of honor. In technology, according to the website Techopedia, “a legacy system...refers to outdated computer systems, programming languages or application software” that “are no longer applicable to current contexts or content.” In an economy in which transactions are mediated by ICTs, almost every business is a software business, susceptible to being a “legacy” business. Diners in restaurants are greeted with QR codes instead of waiters; physician house calls take place over smartphones; babysitters and street performers accept payment via the “digital wallet” Venmo; household staples, medicines, and artisanal neckties arrive at the door from Amazon.
‘How likely is it that Elon Musk’s grandchildren will be holding down management jobs at Tesla, SpaceX and Twitter?’ Even the auto industry is not immune to ICT-driven transformation. When Henrik Fisker took his car company that carries his name public in 2020, he had no intention of building a bunch of factories — that was for “legacy” carmakers like Ford and Volkswagen. Instead, he contracted out production to Magna International, with plans for a future model produced by Foxconn. As he told Business Insider: “We don’t want to be a vertically integrated car company. We’re not going to do our own manufacturing. It would be stupid for any EV startup to make a brand-new factory.” Fisker looks more like Nike than Ford. In a world of pop-up enterprises snapped together like a Lego house, how likely is it that the Fisker clan will become a dynasty? ■
In previous columns I have argued that information and communication technologies (ICTs) are fundamentally altering access to the building blocks of business. How firms raise capital, recruit and manage labor, engage with suppliers, and distribute to customers are all very different now compared with a generation ago. A prospective founder today can incorporate in e-Estonia, raise capital on a crowdsourcing platform, engage labor by the task via online platforms, rent a supply chain on Alibaba.com, and distribute to customers through Fulfillment By Amazon. Enabled by ICT, the parts of a business are like Lego bricks waiting to be snapped together and scaled up (or not) on demand. Think of the digital revolution in business as institutional climate change. The traditional business terroir is in flux, and new invasive species are rising and falling rapidly. (Remember when Facebook was valued at $1 trillion, before being replaced by TikTok? Before Zara was replaced by Shein?) While it’s far too early to tell which species of enterprise will turn out to be built to last, this new world of ICT-based enterprise is not designed for
Jerry Davis is the Gilbert and Ruth Whitaker Professor of Business Administration and Professor of Sociology at the University of Michigan’s Ross School of Business. He has published widely on management, sociology and finance. His latest book, Taming Corporate Power in the 21st Century (Cambridge University Press, 2022), part of the Cambridge Elements Series on Reinventing Capitalism, has recently been published.
December 2022 • I by IMD 5
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