Analysis

Rocky times for Walmart, Bombardier and VW highlight family firms' survival mechanisms

A Bombardier C-Series plane. Image: Bombardier. 

A Bombardier C-Series plane. Image: Bombardier. 

If it is true that family businesses are the backbone of the world’s economy, then it might be time to worry.

Over the past few weeks bad news has been coming out of some of the biggest family firms. For the first time since 1980, Walmart had a decrease in sales, which were down 0.7% on the previous year.

Just to the north, Canadian plane-and-train builder Bombardier revealed that it is to cut 7,000 jobs - out of a total of 71,000 - largely due to losses incurred by the development of its new C Series jet, an Airbus 320 and Boeing 737 competitor, which has attracted fewer orders than expected.

And in Europe Volkswagen, still reeling from the emissions scandal, has postponed the announcement of its annual results and its shareholders meeting, as it says it is still calculating the impact of the debacle.

Signs of trouble? Perhaps. Walmart’s results were partly the result of the weak dollar. Bombardier’s C Series could still yet prove a winner. And it’s still too early to say whether VW will be seriously affected by the diesel troubles.

But there are two lessons to be taken from these problems

One, that it’s the nature of family businesses to face tricky times. Multigenerational businesses have, by definition, been around for a long time. It is inevitable that sooner or later the industries they are in will change or be disrupted. That is what it happening to Walmart, which is being pressured by Amazon.

VW too, is being threatened by the coming of electric cars. Or, more broadly, to a general cultural preference for low-pollution vehicles. That is making life hard for automakers, and is what lay behind some employees’ decision to lie about how polluting their cars were.

Survival mechamisms

The solution? Well, part of it is to change the leadership. This is happening at Walmart, where Greg Penner (who is married to Carrie Walton Penner, granddaughter of the business’s founder) recently became chairman. At VW the feud between the two families who control the business is probably continuing behind the scenes.

Last April the 78-year-old Ferdinand Piëch resigned as chairman of the supervisory board, and it would be astonishing if the rest of the old guard were not being quickly moved towards the exits now.

The second lesson is that, also because of their longevity and influence, family businesses are often plugged into politics. Some might say this is bad, and means that politicians are swayed by these businesses, but if so it is - at least in the case of Bombardier - in order to secure employment.

Bombardier has received $2.5 billion in loans from organisations linked to the Quebec government, where the business is based, and some estimate that it could need $4-5 billion more to remain afloat. The government appears to be committed to the business for the long-term - as well it might be with such a big employer.

VW is also politically connected. The government of Lower Saxony holds 20% of voting rights and its governor sits on the supervisory board. This is not unusual in German businesses and though it might seem odd to free-market enthusiasts, it means that decisions are influenced by people with wider aims that maximising profit, such as maintaining jobs over the long-term. This means that the business has a future, whatever panicky shareholders might think.

Traditionally it is said that one of the good things about family firms is that they are rooted in a certain city or region, meaning that they are less likely to take jobs overseas where labour is cheaper.

The flip-side is that when they are in trouble politicians sometimes subsidise them to stay put, or impede money-making wheezes when it might threaten the business. That might look like special treatment, but it comes with the territory.

Neither of these things - hastening generational change when the business is threatened, or close ties with government - can guarantee continued success, but they are mechanisms which give family businesses a few extra tricks when the going gets tough. There might be storms on the horizon, but family firms have better roofs than most.


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