The resilience of family businesses, still accounting for over 60% of Italy’s medium-sized and large firms, has been reaffirmed throughout the crisis. However, the protracted recessionary environment and credit crunch, in conjunction with ongoing succession processes, is forcing many of them to fundamentally rethink their business models, financial and ownership structures in order to return to a growth path – or otherwise succumb to the fierce global competition.
In such a defining moment of their life cycles, the transmission of ethical values between generations, subsidiarity and creation of social prosperity for the local community, which extends beyond mere economic terms and integrates the faltering public welfare system, represent the critical factors that can underpin the renaissance of family businesses – and consequently of the Italian economy as a whole. In addition, the nurturing of an ethical style, a culture of respect and aesthetics, can contribute as competitive drivers to a sustainable growth model if they are embedded in firm’s strategy, which is particularly important in the era of social-media where behaviors directly affect reputation.
In order to preserve the strong roots of family businesses in their area of origin, the local habitat must be competitive and prone to innovation: education is therefore vital, with a necessary steering by the local champions in defining the required skills and professions. After decades of a gradual accumulation of know-how, which was sufficient to defend their competitive edge, family businesses are now confronted with a major discontinuity and complexity driven by the technology revolution. This requires constant innovation and new competencies, creating the basis for the integration of younger generations and ‘digital natives’ into family-run firms. To that end, clear governance rules and a separation of family interests from company’s own priorities, in addition to meritocracy and competitive reward for performance, are key elements in order to attract talents and highly educated managers into leadership positions.
Succession also entails the upbringing of a new generation of owners, who will not necessarily become managers in their family firms and actually need to be encouraged to take independent choices based on their personal aspirations. These new generations tend to privilege a life-work balance and need to feel inspired before committing to actively engage. In the absence of clear leadership skills, an entrepreneurial spirit and a passionate commitment to the family business and its values, the incoming generation (especially in enlarged families with often diverging goals) can be rather trained to become passive but financially educated owners – in firm’s best interest.
Those family members, instead, who are interested and capable of taking managerial positions, have often demonstrated that the best training can be achieved in operational roles in affiliated companies before taking charge at the helm of the firm, which also brings legitimacy vis-a-vis the management lines.
In attracting talents away from large multinationals, family-run firms must also demonstrate to have growth plans for the individual and the company. Due to Italy’s prolonged recession and the evaporation of bank lending as the dominant source of financing, partly caused by the tough regulatory environment for banks, such growth prospects have been severely constrained. With the widely recognized need to recapitalize their firms and reduce leverage, as well as the unviability of wide-scale mergers among sector peers, the owners should be encouraged to open up firm’s capital to new investors, by articulating clear governance rules and acknowledging more realistic valuations in the post-crisis environment. Private equity firms operating in Italy, with their sector expertise, international network and medium-long term interest, represent the natural partners to support and expand family businesses in this critical phase of risk-capital shortage. The recent introduction of innovative non-dilutive capital instruments, such as Azioni Sviluppo, and the recommended adoption of certain share categories available in other countries, such as Azioni a voto plurimo currently prohibited by law, exemplify some of the actions that regulators can promote with the aim of attracting professional foreign investors to the ownership of capital-starved family businesses.
In addition to simplifying the legal framework and enforcing the rule of law, targeted economic and industrial policy instruments can foster growth and access to risk capital, such as the relaunching of domestic stock exchanges dedicated to small and medium companies, as well as fiscal incentives to capital instruments. Finally, the public mandate by the Fondo Strategico Italiano to act as minority investor in companies with a sound financial position, combined with the sector expertise of private equity players, paves the way to co-investment initiatives in companies which lack the scale to compete in a globalized market.