In this article, we take a look at the performance of family-owned businesses in times of crisis and ask Claus Aagaard, CFO of Mars Inc., a few questions about the benefits of being a part of a family-owned business when a crisis comes knocking on the door.
Cost Awareness Both in Good Times and in Bad
A 2012 Harvard Business Review study shows that while family businesses fare a little worse than comparable companies when the economy booms, they do markedly better in downturns. The overall result is that family businesses generally perform better. It is, among other things, the steady, long-term performance, a strong grip on costs in both the good times and in bad, and focusing on the future, as opposed to quick profit, that make them better able to make it through the crises.
Fast Decision-Making and Close to the Top
The day-to-day running of a business is one thing; times of crisis are quite another. And when sudden events affect operations, family-owned businesses have the advantage that decisions quickly can be made and that a yes or no from top management is quick to obtain. In those companies where family plays an important role in the governance – on the board, in the daily running, or in an active family or owners council – there is also assurance that the quick decisions always are rooted in the family history, values, and ownership strategy for the future. It ensures consistency and stability even at a time when important decisions with far-reaching consequences need to be taken and on a vague data basis.
Economic and Emotional Stability
Where other companies have to navigate their investors’ potentially opposing positions on how to deal with the crisis (buy/sell, shut down/move ahead, be cautious/be aggressive), the family business has anchor investors who both financially and emotionally create stability for employees, customers, and suppliers. Most recently in 2019, the Edelman Trust Barometer showed that 69% of 33,000 people surveyed in 27 countries are more trusting of family-owned businesses than of other types of businesses. Moreover, 52% of employees in family-owned businesses trust what their CEO says about the company versus just 41% in non-family-owned businesses. As such, in times of crisis, family-owned companies typically reap the benefits of having relative financial autonomy and confidence in their business from both customers and employees.
A Talk with Claus Aagaard
Claus Aagaard is the Global CFO at Mars Inc. and one of the highest-placed Danes in American business life. We have asked him some questions about active family ownership:
Like all other manufacturing companies, Mars is affected by volatile markets and supply-chain challenges. In these uncertain times, is it an advantage to be a family-owned business?
“It can certainly be advantageous to be a private family-owned business. Mars has less debt than our peers and doesn’t have quarterly pressure from the stock market. Used sensibly, it offers better opportunities for flexibility in portfolio development and for emerging from the ‘crisis’ with more tailwinds, as we typically don’t cut, or cut less, in strategic investments.”
How else does family ownership show?
“Together with our owners, we have an ambitious goal as a company: ‘The world we want tomorrow starts with how we do business today’. We have targeted this ambition in what we call the Mars Compass, which consists of a number of objectives that guide us in our holistic purpose-led value creation.
To achieve these goals, it is important that we don’t give up on our short-term strategy and strategic investments despite the current headwinds, but that we keep our focus on the future. Of course, like all other companies, we are working on streamlining and price increases to resist inflation.”
Do you actively use family ownership as an advantage in your management style?
“The long-term outlook and ambitions of the Mars family and the values on which they have built the company (The Five Principles) are a strong foundation for the way we run Mars, along with the Mars Compass, which, according to us, is a unique tool.”
