As the Covid-19 pandemic has upended life across the globe, the ensuing business responses and economic uncertainty are commanding headlines.
But why are some big businesses facing startlingly rapid implosion, while others have the bandwidth to pivot to producing medical supplies? Differences in governmental benefits notwithstanding, why have stances on reduced executive compensation, dividends, and care for workers varied so dramatically?
In other words, why do some businesses appear to be acting more responsibly than others during the pandemic?
One way to begin answering this complex question is to look at who owns these companies, and the incentives, pressures, and tendencies accompanying different forms of ownership. Since 2017, The Ownership Project at the University of Oxford’s Saïd Business School has been doing just that, researching a particularly understudied corner of the world’s largest businesses with annual revenue above $1billion: businesses owned by families.
We’ve learned that these families have a penchant for privacy, even if family principals are well-known in their communities and among their workforce. Private companies owned fully by families without any outside shareholders are generally under no obligation to reveal anything about their finances or governance. The general public is not necessarily aware that these companies are part of everyday consumer life, from home appliance maker Bosch, to agricultural behemoth Cargill, to confectionary and pet food producer Mars.
Public companies face disclosure requirements, but many have a single family ‘blockholder’ that owns a controlling percentage of shares or otherwise exerts significant influence over the company in ways that might not be immediately evident, whether in official governance structures or in company reports. Family shareholders are under no obligation to publicly disclose their internal priorities or decision-making processes that can ultimately influence the company.
The constant demands of business decision-making, cashflow management, innovation, and sources of future growth overlap with the intimacy of family dynamics in complicated ways. Importantly, business-owning families are not automatically ethical or virtuous. Notorious examples of families enriching themselves at the expense of society exist across the globe. Whether large family businesses are overall empirically a force for good—and where the room for improvement lies—is part of what we are researching.
There are other types of blockholders, from founding entrepreneurs to sovereign wealth funds. What we’re finding is that families often exercise their ownership of large operating businesses differently than, for example, anonymous dispersed stockholders who may freely buy or sell stocks based on whether earnings rise or fall during each financial quarter.
A case in point: on 30 March, just a week after lockdown was put into place in the UK, 23 principals of large, multigenerational family businesses from more than 15 countries gathered online for the Ownership Project at Oxford Saïd’s Family Advisory Council, a group of senior family owners convened to guide our research. We asked these principals to share business priorities during the pandemic, amidst reduced cashflow and pressures on worker, customer, and supply chain safety.
At that stage, the scope of the pandemic was still unknown. Many governments had yet to issue clear guidance to businesses and the public regarding safety best practices and business relief measures. And yet, we heard clear calls to action, drawing on the unique possibilities afforded by family ownership:
First, family owners’ ability to unilaterally decide to reduce profits (and dividends): Richard Edelman, CEO of public relations firm Edelman, addressed the elephant in the room, noting that his company is advising its family business clients to accept profit reductions instead of letting workers go: 'Family business should try to keep its work force intact as long as possible. We are long term players with deep connections to our communities.'
Second, the visibility of enduring family ownership can reassure terrified employees, suppliers, and customers. Sell-offs or dismantling may be more common with private equity owners, for example, but family businesses tend to prioritise longevity of their ownership. During our research, we have spoken to families who’ve assumed risks and kept their businesses operational during this crisis and others, even when it temporarily didn’t make pure financial sense to do so.
André Hoffmann, Vice Chairman of Swiss pharmaceutical company Roche involved with Covid-19 testing kit manufacture, explained that as a company with a 125-year history, 'the biggest reassurance is the knowledge there is long-term ownership. This is what makes us different…It is a competitive advantage.' Heineken Supervisory Board member Michel de Carvalho echoed this point: 'there’s a family that’s been around since 1864…we have been through other crises in our history.'
Before Covid-19, generational asset transfer, taxes, wealth inequality, and racism were already at the centre of public debates. As inequalities now unevenly distribute virus death tolls and hardships wrought by quarantines and market turmoil, conversations about inequality and fairness will be accelerated.
Business-owning families have an opportunity to differentiate themselves from other types of owners, and therein lies the third call to action: as business-owning families are enmeshed within their communities, there’s an accompanying responsibility to help out.
Among most S&P 500 companies, the CEO is usually the most public-facing individual, but has a median tenure of merely five years. Family owners of large companies bear responsibility for national and local well-being because they possess uniquely enduring visibility, provide jobs, impact their local environments, and have corporate tax duties to support expenditure on the infrastructure and public goods that make their business possible.
During our Council session, Stein Erik Hagen, founder of Norway’s largest conglomerate, discussed working with the Norwegian government to 'give support to smaller companies so they don’t have to close down,' reflecting an awareness of the fact that a healthy SME sector contributes to the macro- and micro-economic wellbeing of the country where he lives and works.
The top concern of Meher Pudumjee, chairperson of Indian energy company Thermax, were the operations and maintenance workers at Thermax project sites who were stranded after the Indian government’s sudden national quarantine. 'How do we get them back home to their families safely or keep them safe at sites with help from our customers?' Pudumjee asked. 'In India there are many migrant wage labourers without any salary or food.'
Alongside their operating businesses, family owners of billion-dollar companies also tend to have two additional levers of influence: personal or family investment portfolios, and philanthropic activities. During this pandemic, families’ choices in these areas will impact social and economic stability, the allocation of now-scarce capital, and urgent humanitarian needs.
There can be low public tolerance for inconsistency across family owners’ full portfolio. Luxury family-owned conglomerate LVMH, for example, was applauded when Chairman Bernard Arnault approved hand sanitiser production via text message, but was criticised, including by workers through social media, for lay-offs in another LVMH company.
Building a coherent strategy across their business, investment, and philanthropic platforms to fight the pandemic and support the hardest hit should be front of mind for global family owners. From the early days of the pandemic, we heard first-hand a chorus of family businesses calling on their peers to step up and assist their workers, suppliers, customers, and communities. Family owners, join them.