How the world's most successful family businesses operate

With nearly one of every two business in the UK being owned and run by family members, and these contributing some £180 billion to the economy each year, it’s no surprise to learn that the family-based model of business ownership is proving to be rather popular.

The enduring appeal of family businesses is that there is an emotional stake invested in the firm by its owners, rather than solely a financial one. The implication is that there will be a willingness to work through the hard times, to make things work, to seek innovation and the entrepreneurial spirit in order to grow the firm in readiness for "handover" to the next generation.

Some of the largest companies on the planet are family-run, having grown from humble beginnings, and each has forged their own path to sustainable growth and development.

Samsung - keeping it in the family

The Korean consumer electronics giant Samsung was founded way back in 1938 by Lee Byung-chul as a commodities investor. In the subsequent 30 years they tried their hand at many market niches, including textiles, food processing, insurance provision and retail, before Lee recognised the growth of the electronics industry in the late 1960s. This was where Samsung would really hold its own.

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Lee played a pivotal role in the development of the Samsung brand right up until his death in 1987, and following the company’s involvement in the "Miracle on the Han River", where the South Korean economy exploded into life following the Korean War, he handed over the reins of power to his third son, Lee Kun-hee [left].

Lee Jr took over the chairmanship of Samsung and was at the helm during the key digital revolution years of 1995-2007. Today, his worth is estimated to be in the region of some $12 billion, and his family have ranked in the Forbes list of the richest people in the world – equal to 17 per cent of South Korea’s annual GDP.

Not wanting to stray too far from the apple tree, Lee’s children – Boo-jin and Jae-yong – are also actively involved in the Samsung story. Boo-jin is the president of Samsung Everland, a chain of theme parks and resorts, while Jae-yong has the plum job of vice chairman at Samsung Electronics.

Read: Protecting your family business from divorce

So that’s three generations of the Lee family with a past or active role in the Samsung story. This business structure has its roots in Korea and is known as a "chaebol", which translates literally as "business family". It involves family members owning a network of brands and companies that ultimately intersect somewhere down the line. A number of other entities, including LG and Hyundai, operate as chaebols.

Volkswagen – trouble at the top

The example of Volkswagen is a poignant one for examining the flipside of family ownership models: what happens when there are disagreements and feuds?

The Volkswagen/Porsche connection is a complicated one, and presents the complexities associated with tangled inter-family management structures. Ferdinand Piëch, a grandson of founder Ferdinand Porsche, was given a vote of no confidence as chairman of Volkswagen after clashing with his cousin, Wolfgang Porsche, over the emissions scandal which hit the company in 2015.

Piëch still owns 10 per cent of Porsche’s shares, and he and various other family members own half of all shares in Porsche which in turn owns a 50.7 per cent stake in Volkswagen. Even if Piëch and the Porsche family got along, they would still have to reconcile the 20 per cent stake in the company owned by the state of Lower Saxony. It’s a very complex structure, and one which surely doesn’t help with transparency and top-down decision making.

Nike – like father, like son

A much simpler model of family ownership is succession, quite simply where a child takes over the running of the company directly from the parent, and this is exactly what took place at Nike recently.

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The former owner, Phil Knight [above], set up the famous sportswear giant in 1964, and had run the company up until 2015. He then hired his son Travis – himself a successful businessman courtesy of his Laika production company – to continue the family tradition.

Interestingly, one of Phil’s last acts in business was to form Swoosh, a holding subset of Nike that will control the brand’s voting stock. As such, he will still have a key role to play in the management of Nike going forwards.

Read: Six pieces of family business wisdom every entrepreneur should read

The move must have come as something of a surprise, particularly as Knight Sr intimated in 2013 that he didn’t think his son, an Oscar nominated animator, would become involved in the company. "It became clear, probably as early as high school, that he really didn't want to work with Nike," he told the Hollywood Reporter. "I was OK with that. I always encouraged him to find what he wants to do."

Travis’ suitably tongue-in-cheek reply to the Portland Business Journal adds some meat to the bones. "Nike is like a member of the family. Undoubtedly some of that stuff is in my DNA. Undoubtedly some of that stuff I picked up on by being around that stuff all the time and being my father’s son.

"I think about his story and the similarities with my story. When he was a young man, his father - my grandfather - was publisher of Oregon’s second-largest newspaper, a distinguished member of his community and a lawyer. When his son came to him and said he wanted to make fancy running shoes for a living, it was like, ‘Oh god, what the hell’s wrong with my son'.

"Fast-forward 30 years and I tell my father I have a deep and abiding love to play with dolls for a living and it’s like, 'I can see where you’re coming from'."

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Why family businesses are back in vogue

As the recession of 2008 taught us, the need to generate shareholder value often leads to poor and costly decision-making. The need to satisfy a financial bottom-line is dramatic and exhausting, and actually heralded a return to a business structure thought of as rather old fashioned: the family-run business.

Here, the financial demands are less diversive; simply making enough money to pay the bills is an acceptable minimum objective. Family businesses engender a sense of the long term, that feeling that ‘we’re in it for the long haul’, rather than the need to get rich quick. Knowing that they have an entity which will be passed down their bloodline to future generations has proven particularly motivating for many entrepreneurs.

However, maintaining an entrepreneurial spirit within a family-run business can be tricky. A paper by the IFB Research Foundation found that the most successful UK-based family-led companies were those that put entrepreneurship and innovation front and centre, and naturally those who see their birthright simply as a cash cow were unlikely to enjoy long-term success.

So keep things entrepreneurial, regardless of the managerial structure of your firm. Ultimately, your next generation will thank you for it.

This is a guest blog and may not represent the views of Virgin.com. Please see virgin.com/terms for more details. Thumbnail from gettyimages.

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