W I S E FAMILYBUSINESSFamily Identity Steering Brand Success

JOACHIM SCHWASSANNE-CATRIN GLEMSER

Wise Family Business

Joachim   Schwass • Anne-Catrin   Glemser

Wise Family Business Family Identity Steering Brand Success

ISBN 978-1-137-58599-8 ISBN 978-1-137-58600-1 (eBook) DOI 10.1057/978-1-137-58600-1

Library of Congress Control Number: 2016948764

© Th e Editor(s) (if applicable) and the Author(s) 2016 Th e author(s) has/have asserted their right(s) to be identifi ed as the author(s) of this work in accordance with the Copyright, Designs and Patents Act 1988. Th is work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifi cally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfi lms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Th e use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifi c statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Th e publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made.

Printed on acid-free paper

Th is Palgrave Macmillan imprint is published by Springer Nature Th e registered company is Macmillan Publishers Ltd. London

Joachim   Schwass IMD Global Family Business Center Lausanne , Switzerland

Anne-Catrin   Glemser IMD Global Family Business Center Lausanne , Switzerland

v

Family businesses are the “backbone” and “hidden treasures” of many econo-mies across the world. At the European Family Business Summit in Berlin in November 2014, Angela Merkel acknowledged their strategic importance for the German economy. She observed that family business owners are mostly guided by long-term considerations, they take responsibility—for their own employees, for the region, and for future generations—and are often socially engaged and support projects to promote education, sports, and culture. She remarked that they are also active in environmental protection and are com-mitted to international development, emphasizing that families in business understand their operations not as a “speculation fund,” but rather as an added-value-creating activity that needs to be preserved over several family generations. In conclusion, she pointed out that family businesses truly live and walk the talk of what characterizes the social market economy model; they combine the fundamental values of freedom and responsibility. 1

Family businesses represent one of an economy’s most valuable assets and should not be confused with small businesses. Some of the largest and most prominent businesses, such as Walmart, Hutchison-Whampoa, Bombardier, and Peugeot, are family controlled. And in most countries, their revenues account for way over half of all companies’ sales, and they employ over half of the labor market.

Some of the world’s best-known consumer brands, for example, Porsche, Benetton, Mars, Barilla, Hermes, Miele, and Heineken, bear the name of the

1 Translation of Angela Merkel’s presentation to the 1st European Family Business Summit, Berlin, 24 and 25 November 2014. http://www.bundesregierung.de/Content/DE/Rede/2014/11/2014-11-25- familienunternehmerkonferenz.html;jsessionid=ECF0486B8DEE40B565B49C5A620F601B.s1t2 , date accessed 10 July 2015.

Foreword

vi Foreword

founding and owning families. Th eir brands may not be as cool as the “Apples” and “Googles” of today, but many of them are iconic category brands that we have grown up with and that stay with us throughout our lives.

In today’s world, content-built brands have an advantage—they can con-nect with the consumer. Many family businesses can leverage their heritage and authenticity, something that other companies often cannot do. However, when telling their brand story, they should be careful not to look through rose-tinted glasses. With today’s media and social media, we are only a click away from the facts and, at times, the inconvenient truth. Transparency is essential to build trust.

Many famous family business owners and founders have learned some tough lessons in times of political, economic, and social crisis. Th ey have con-cluded that “fl ying under the radar” is the best attitude for business-owning families to adopt. Th e Albrecht brothers (Aldi), Michele Ferrero, and Ingvar Kamprad (IKEA), for example, all maximized their privacy by remaining almost invisible to the public and rarely giving interviews or pictures to the outside world. Th e incoming younger generations are becoming more open, and often a change in leadership triggers a change in communication. Th e right to privacy is of utmost importance, and a well-thought-out command of communication can stop the media from fi lling in the vacuum of information and transparency with myths and interpretation. Th e art of family business communication is about fi nding and keeping the right balance over time—principally for the family, but also for the business and the public at large—and it is about looking beyond the visible dimensions of a brand. Th is book examines the multi-layered impact on a wide range of stakeholders when the family name is also the brand of the business.

Prof. Dominique   Turpin IMD President

Lausanne, Switzerland

vii

Th e authors would like to express their gratitude to many people and organizations for their support during the process of writing this book:

• our International Institute for Management Development (IMD) colleagues Dominique Turpin, Anand Narasimhan, Denise Kenyon- Rouvinez, Benoît Leleux, Marco Mancesti, Lise Moeller, Persita Egeli, and especially Michelle Perrinjaquet for her tireless editorial support;

• Marek Roleski of Firma Roleski for sponsoring the Family Business Brand Study, which was a precursor to the book, and Jacek Lipiec as well as Jakub Kołodziej for liaising with the Roleski family;

• Martin Kralik, Philip Whiteley, Claudia Binz-Astrachan, Willem Smit, and Hakan Hillerström for their valuable research;

• Charlie Potter and Richard Meredith of the Brunswick Group for their contribution to the book and for sharing their valued experience;

• all those who have infl uenced and shaped our thinking over the years, espe-cially Alden G. Lank and John L. Ward; and

• all the families and executives mentioned in the book, whose willingness to share was at the core of this knowledge-creation process.

Finally, we would like to thank our families for their explicit and implicit support and everlasting patience!

Acknowledgments

viii Acknowledgments

About the Sponsor

Th e authors gratefully acknowledge funding from the Roleski Foundation for this book on family business branding and would like to thank Marek Roleski and his family and management team for their dedicated commitment, excel-lent support, and interest in sponsoring the study and its publication .

When Mikhail S. Gorbachev became general secretary of the Communist Party of the Soviet Union in March 1985, he launched his nation on a dra-matic new course and introduced a dual program of perestroika (restructuring) and glasnost (openness), opening up for profound changes in economic prac-tice, internal aff airs, and international relations. 1 Th e same year, the founder of the Polish Firma Roleski was granted the fi rst private license to produce may-onnaise in Poland, which until then had been regulated by a state monopoly.

Firma Roleski was founded in 1972 by Marek Roleski who set up a small private business under the strictly regulated regime of the former Eastern Bloc economies. His mission was to deliver local food products to all consumer groups at a reasonable price and guarantee their quality with his family name.

In the 1990s, when international retail chains began emerging on the Polish market, the company started growing and expanding into neighbor-ing markets. Its product line was extended, new fl avors were introduced, and consistent R&D eff orts led Firma Roleski to become the fi rst Polish manu-facturer of organic products in its category. Today, Firma Roleski is the largest producer of wet condiments (mustard, ketchup, mayonnaise, and dressings) in Poland. It employs about 400 people and operates internationally.

Marek Roleski built a business in a market in which the notion of “family business” had long been wiped out. From the beginning, he had a clear vision: to keep the business in family hands and pass it on to future generations. Being a keen learner, he started looking into family business education and established the Roleski Family Foundation “which supports the development

1 HISTORY.com, ‘From Perestroika and Glasnost’, http://www.history.com/topics/cold-war/perestroika-and- glasnost , data accessed on 10 July 2015.

Acknowledgments ix

of family business and business education.” As he pointed out, “By putting my last name as the name of the brand a long time ago, I made a commitment both to myself and to the whole world that I would do everything it takes to make sure that the brand, just like my family name, is always associated with high quality and moral standards. I have undertaken numerous steps to make sure of that—implementing the fi rst Family Business Constitution in Poland and doing everything to make sure I help raise a generation of people who are well aware of the challenges nowadays.”

Marek and his family are committed to growing the business to the next level and are interested in learning best practices from other family businesses, industries, and markets in order to leverage the Roleski brand for future sus-tainable family business growth. Affi liating with IMD business school and sponsoring the research on family business branding gives Marek the oppor-tunity to learn from other family businesses before deciding how to leverage the Roleski brand in terms of the costs and benefi ts to the business. 2

2 Roleski Company information, www.roleski.pl. , data accessed on 5 May 2015.

xi

Contents

1 Introduction 1

2 Family Business Identity 7

3 Th e Nature of Family Business 31

4 Best Practices and Examples from Family Businesses 57

5 Overall Lessons and Analysis of the Company Cases 167

6 Th e Expert View: Proactive Communications—Building, Projecting and Preserving Reputation for Business Families and Family Businesses 189

7 Toolbox—A Process for Moving from Family Identity to Family Business Brand 231

8 Conclusion 273

Index 281

xiii

Joachim   Schwass is Professor Emeritus of Family Business at IMD in Lausanne, Switzerland. He founded the IMD Global Family Business Center and for over 25 years has studied, taught, and advised leading families in business around the world. Schwass is the second-generation leader in his own family’s business. His authored works include Wise Growth Strategies in Leading Family Businesses and Wise Wealth .

Anne-Catrin   Glemser is the Family Business Research and Program Development Manager at IMD, Switzerland. She is responsible for developing new research initia-tives and programs in the fi eld of family business and heads the research activities for the IMD-Lombard Odier Global Family Business Award. Glemser has received sev-eral awards for her outstanding case writing skills, including the EFMD “Best of the Best” in 2015. Prior to joining IMD, she held key marketing positions with leading consumer goods multinationals.

About the Authors

xv

List of Figures

Fig. 2.1 Trust in diff erent types of business—developed versus developing countries 13

Fig. 2.2 Key attributes to building trust 14Fig. 2.3 Most trusted infl uencers to communicate purpose 16Fig. 2.4 Patek Philippe Corporate Advertising Campaign 2015 17Fig. 2.5 Patek Philippe Product Advertising Campaign 1996–1997 19Fig. 3.1 Performance of the DAXplus Family 30 Index 33Fig. 3.2 Performance of the 25 largest family businesses in the S&P500 34Fig. 3.3 Diff erences between the family system and the business system 36Fig. 3.4 Th e family business balance 37Fig. 3.5 Th e six Ds in family business 39Fig. 3.6 Th e needs of the three family business dimensions 40Fig. 3.7 Th e needs of the three family business

dimensions—over time 41Fig. 3.8 Boundaries and roles of the three circles model

for family businesses 43Fig. 3.9 Generational transition—the three stages model 44Fig. 3.10 Structural diff erences between the three family

business stages 44Fig. 3.11 Th e three family business dimensions and their

respective governance structures 46Fig. 3.12 Th e family constitution 47Fig. 3.13 Centrifugal forces on the three family business dimensions 50Fig. 3.14 Th e role of the family business brand 51Fig. 4.1 Th e three stages model: Identity issues over time 58Fig. 4.2 Storyline abstract from the corporate movie Th e Lego Story 63Fig. 4.3 Th e Lee family members’ distribution across family,

business, and ownership 103

xvi List of Figures

Fig. 4.4 Th e Lee enterprising family structure 105Fig. 4.5 Th e Lee Kum Kee team communication model 109Fig. 4.6 Corporate Values: Henkel AG & Co. KGaA 116Fig. 4.7 Cost and benefi t analysis of family business branding at Bonnier 121Fig. 4.8 J.M. Huber Corporation: Shareholder communication channels 150Fig. 5.1 Identity traps—stage I 169Fig. 5.2 Identity traps—stage II 173Fig. 5.3 Identity traps—stage III 177Fig. 5.4 Identity traps—issues over time 186Fig. 6.1 Relationship between brand and reputation 194Fig. 6.2 Reputational propeller 197Fig. 6.3 Th e prism 209Fig. 6.4 From crisis to new reputation 216Fig. 6.5 Integrated communications planning 218Fig. 7.1 Family identity building elements 232Fig. 7.2 Family business identity building elements 244Fig. 7.3 Strategic reputation risk management 250Fig. 7.4 Miele stakeholder engagement 253Fig. 7.5 Case study Nestlé: Purposefully creating and sharing value 265Fig. 7.6 Advertising Campaign ‘BACARDÍ untameable since 1862’ 267Fig. 7.7 Bacardi Graphic Novel Campaign 268Fig. 7.8 Strategic family business brand management 269Fig. 8.1 Identity building in family business context 277

1© Th e Author(s) 2016J. Schwass, A.-C. Glemser, Wise Family Business, DOI 10.1057/978-1-137-58600-1_1

1

A Changing Environment

Warren Buff ett’s advice, “It takes 20 years to build a reputation and fi ve minutes to ruin it. If you think about that you’ll do things diff erently,”[ 1 ] is becoming increasingly relevant with the infl uence of social media forces, such as Twitter, YouTube, Facebook, and Tumblr. Today’s players are perceived to have the power to drive business growth and push innovation. With the ability to engage directly with communities, they are also expected to take over the role of traditional brand building and strengthen the bonds between consumers and brands. However, the fl ip side of social media is that its speed and omnipresence represent a huge threat to companies. It has the power to destroy a reputation and even a business, which in the case of a family business may have taken generations to build. Consumers can like, dislike, complain, comment, and share their voices in the public space. And the indi-vidual voice can team up with others to be heard and seen in dramatically visible ways, which can at times become uncontrollable.

Th e kinds of questions keeping many of today’s executives awake are: How should we position our organization in this new, disruptive environment? How much information should we share? Who should we share it with? When? Why? Th ese questions need to be discussed at all levels of an organization since they touch on the broader image, culture, and brand of the business.

Most businesses tend to focus their energy on handling image issues when they occur. Yet this is a reactive approach with the aim of limiting the damage and often raises the question, “How could the incident have been prevented

Introduction

2 Wise Family Business

in the fi rst place?” For most organizations, damage prevention and control are unknown territory. If the company is being pointed at because of a perceived faulty product, how should it respond, if at all? Th e usual strategy is to just hope the issue will go away with time. Today this is riskier than ever. Th e internet will store this information forever—totally outside the control of the company—and will bring it up every time it is mentioned in the media. Over a period of several years, a large number of General Motors (GM) cars were installed with a faulty ignition switch, which in some cases led to fatal accidents. Daily media reports highlight the failures of the engineering depart-ment and increasingly question the ethical approach of the senior managers who covered it up. Th e issue at hand is that one small badly designed part of a car points to bad management practices and questions the values behind General Motors business strategy. Th e consumer rightly asks the question: Can I trust this company? Predictably, it will cost the company enormous sums of money, and it will take years to fully regain the trust of consumers. In addition, the internal questionings and doubts about the corporate culture will lead to ineffi ciencies throughout the organization.

Public corporations that have a large shareholder base respond to this type of crisis by fi ring key and top managers. A newly appointed Chief Executive Offi cer (CEO) denounces the past practices and promises a deep overhaul of company strategy and culture. Time passes and the business is given a second chance, maybe a third chance, and so on.

Family-owned businesses, however, might fi nd it more diffi cult to get a second or third chance. Th e overlap between the family and the business iden-tity seriously restricts the company’s ability to turn the page after a serious crisis and credibly announce a new culture when the same family continues to stay on as managers and owners. A family manager may be replaced by a fresh non-family manager, but if the family stays on as owners, a cultural change might be diffi cult to implement and be understood by the outside world.

And this is the key dilemma for family businesses. On the upside, there is a strong and credible culture that is personifi ed and openly lived by genera-tions of the owning family. Family values, such as trust, honesty, hard work, and perfectionism, bring strong meaning and competitive advantages to any business. Th e family identity becomes the business identity and supports the culture and the corporate brand. Th e benefi ts are both internal and external and provide a unique strength. Th e downside emerges when in times of cri-sis, the criticism leveled at the corporation almost automatically involves the owning family and highlights its possible failures. Th e strong family identity and culture, which has previously provided a source of credibility and trust, now becomes a burden to the business, which needs to change and adapt.

1 Introduction 3

Family offi ces, the wealth arm of families in business, are exposed to this risk, too. Th e nature of their activity involves investing into a multitude of opportunities that carry diverse levels of risk [ 2 ]. Although they need to build a reputation as attractive long-term investors and diff erentiate themselves from private equity players by leveraging on their entrepreneurial and family busi-ness background, when an investment decision goes sour, the family name is quickly associated with it. Th is could be why many family offi ces do not oper-ate under the family name but are set up using abstract terms or abbreviations as corporate brands. Th e market in which family offi ces operate is a “small world” when it comes to the number of players involved; it is anything but small when it comes to the fi nancial volumes that are at stake. While a neutral business name might secure privacy vis-à-vis the public at large, the investors’ world knows perfectly well which family is behind which family offi ce.

Why promote a family-based corporate brand identity? Th ere are many positive attributes and benefi ts of being a family business: the truly long- term view into the next generation, a values-based approach and a sustain-able business growth strategy. Family businesses that both communicate and leverage their family identity can have a distinct competitive advantage and may indeed enjoy a valuable corporate brand premium. Proactively managing a company’s brand and reputation drives value creation for the shareholders just as real performance improvements do and should therefore be part of the owner’s agenda.

At the beginning of his novel Anna Karenina , Leo Tolstoy wrote, “Happy families are all alike.” Th is also applies to good family businesses [ 3 ]. Although they come in all diff erent sizes, from small concerns to global giants like Cargill, Maersk, and Samsung, the best family businesses are similar in vari-ous ways. Many are run with a good deal of common sense, in a world in which common sense seems to be increasingly rare. Obviously family fi rms are not perfect—a badly handled succession can be a threat to a company’s survival, and there will always be disagreement between parents, siblings, cousins, and in-laws. As Philippe Sereys de Rothschild pointed out when becoming president of the supervisory board of Baron Philippe de Rothschild SA—the family’s French wine estate, which produces the famous Château Mouton- Rothschild—the diff erence between a public and a family business “is that where a normal business leverages a brand, a family protects it.” 1

In conducting the research on family business branding, our objective was to understand why some family fi rms leverage their identity as a “family business brand” and others do not. Th e research aimed to shed some light

1 Philippe Sereys de Rothschild quoted in [ 4 ].

4 Wise Family Business

onto the discussion by highlighting some of the best practices that leading international family businesses employ to leverage their brand, thus help-ing families assess the potential benefi ts and risks of strategically positioning themselves as family businesses. We therefore met and discussed the argu-ment with a number of multi-generational family businesses around the world. Th ese included family-owned as well as family-controlled companies, single brand as well as multi-brand perspectives, Business-to-Business (B2B) and Business-to-Consumer (B2C) businesses, in which family members were involved either in the operative business or in steering the corporation at board level. Th eir stories demonstrate the many diff erent strategies and approaches families can apply. Since there is no single success criterion for a family-owned business to sustainably grow over generations, there is no simple rule as to what the family business brand can or should be.

Taking the owning family’s values seriously in order to build public trust and attract talented people is an objective all well-managed family businesses share. Th e founders’ philosophy and principles are handed down through the gen-erations, shaping the unique company culture and identity and building trust externally and internally [ 3 ]. Th is approach goes beyond what many public companies use “values” for—as a way of checking the right boxes in terms of ethics and Corporate Social Responsibility (CSR) practices in their annual reports [ 3 ]. It is here that the successful and sustainable family business has a fundamental advantage over the anonymously owned public corporation: the proclaimed values become real—yesterday, today and tomorrow—through the identity of the owners. Leveraging the past to build the future instead of turn-ing the page is another characteristic of family businesses that successfully grow sustainably over generations. Good family businesses invest a lot of time in bringing the next generation into the fi rm, but they never forget what went before. Successfully balancing tradition and innovation is not easy, particularly if there is a clear need for a family business to change direction. Th ese shifts are fi ne and sometimes necessary. One should not forget history completely, not least because the past can be a wonderful source of emotion for a corpo-rate brand. [ 3 ] Th e family identity can indeed bring unique strengths, value, and credibility to the corporate brand. Th e insights from our research clearly demonstrate the long-term advantages for the business to wisely use the family history and identity. But it also highlights that this does not happen by itself. It requires a careful and broadly based approach—starting with the family—to maximize the benefi ts, both externally and internally. A surprising insight gained from the research is that maybe the strongest benefi t of using the fam-ily identity is for the family itself since it forces the family members to jointly refl ect on who they are and what that means in terms of bringing value—and values—to the business over the generations!

1 Introduction 5

References

1. Buff ett, W. (2016). BrainyQuote.com. Retrieved April 21, from BrainyQuote.com ( www.brainyquote.com ).

2. Schwass, J. (2011). Wise Wealth: Creating it, managing it, preserving it . Basingstoke: Palgrave Macmillan.

3. Turpin, D. (2014). 3 things your C-suite can learn from family businesses. Tomorrow’s Challenges, IMD, February 2014.

4. Anson, J. (2015, July 10). Philippe Sereys de Rothschild takes over the family business. Financial Times , Nikkei, London, UK.

7© Th e Author(s) 2016J. Schwass, A.-C. Glemser, Wise Family Business, DOI 10.1057/978-1-137-58600-1_2

2

In the words of Abraham Lincoln, “Character is like a tree and reputation like its shadow. Th e shadow is what we think of it; the tree is the real thing.” When talking about communication, we often hear that “Family businesses are diff erent.” Th ey prefer to avoid the limelight, and many generations of owning or controlling families have grown up with the “karma of secretiveness” for a series of reasons. Unfortunately, too often family businesses tend to be visible in the media for all the wrong reasons—when things go wrong, like a family dispute, or when the business is being sold.

Many family businesses communicate a lot about their products and services, most share their origins and histories, but only some systematically leverage their entrepreneurial heritage to position the family business vis-à-vis its internal and external stakeholders. “We do not like to talk about ourselves” is a natural reaction from the families and executive leaders, who want to keep a strict separation between the owners and the business. Having the family’s name on the door entails a range of implications for the owners. Th is is why many prefer to remain discreet.

Th e fact that over 200 of the largest 500 family fi rms around the globe have the family name in the name of the corporation they own or control shows how relevant this topic is [ 1 ]. 1 Having worked with family businesses from all over the world for over 25 years, we have observed the many diff erent ways in which they handle their communications and corporate image. Th ey often refl ect a mix of the owning family’s culture and values, the corporate identity

1 Th e Global Family Business Index comprises the largest 500 family fi rms around the globe.

Family Business Identity

8 Wise Family Business

of the business, the geography and industry they operate in as well as the fam-ily’s personal history in dealing with the press and public opinion.

Prominent entrepreneurs like Richard Branson (Virgin) and family business leaders such as Ernesto Bertarelli (former Serono) and Francis Yeoh (YTL), who step into the limelight to promote their achievements, are the exception to the rule. Th ey build and leverage their “celebrity persona” and appear on magazine covers to promote their projects and activities, whereas the typical family business owner remains reserved, almost secretive, preferring to steer from the back and shy away from the public at large.

Our research has consistently shown that family businesses can outperform over time if

• the family shares a purpose and a vision, and lives its values and culture; • the owners are visible and can share knowledge and experience as well as

show resilience and the courage to invest counter- cyclically; and • the managers lead the business with commitment, drive, perseverance, and

loyalty.

Personality and Purpose Make All the Difference

A company’s reputation used to be shaped by advertisers defi ning its identity and image while corporate aff airs and risk managers protected it from potential nega-tive events and headlines [ 2 ]. One would assume that the bigger the corporation, the more sophisticated its governance would be and the more excellence the business would be run with. In view of the recent banking scandals, corporate tax evasion practices, and the many other “surprises” the corporate world has produced, consumers have become increasingly concerned and cynical, leading to skepticism and mistrust toward organizations and their leaders.

In today’s world, more and more corporations have become faceless, losing their personalities in a world of increasing uncertainty. Th ey have fewer authentic role models, a lack of societal and ethical benchmarks, and shorter CEO tenures. Personality matters more than ever because the unique authen-tic soul of a brand and a business—what people get passionate about—inspires trust [ 3 ]. And trust builds loyalty among all stakeholders, not only external but also internal. How can the next generation of family business owners pos-sibly believe in shared values and a future vision for the family business if it has become faceless, inter-changeable? How can a family navigate the future if its trust in the business, the people and future generations is not constantly nurtured?

2 Family Business Identity 9

Family businesses can leverage their identity to gain competitive advantage. Th ey can share a credible heritage, demonstrate passion and belief, develop long-lasting personal relationships and aim for goals beyond short-term prof-its. “Where long-term orientation is high, people adapt traditions and are more likely to save, invest, and persevere.” [ 4 ] Th ey are able to build stronger, more trusting relationships with their stakeholders, and this is particularly important in volatile and uncertain times, when long-standing responsible institutions with a clear and strong corporate purpose are valued more than ever. As Jeremy Galbraith points out in Th e Power of Purpose study [ 5 ]:

Corporate Purpose is like good leadership—it is hard to defi ne but it is obvious when a company has one. Companies with a strong Corporate Purpose have a clear “raison d’être” and their stakeholders understand not only what the com-pany does but also the core principles guiding its work. Purpose guides deci-sions, and companies with a Purpose look at the imprint they and their products leave on society as whole, including their employees and customers.

For any company operating in the public or private sector, having a clearly defi ned corporate purpose helps to build trust and competitive advantage. As research carried out by IMD shows, “A strong and well-communicated corpo-rate purpose can impact fi nancial performance by up to 17%.” 2 [ 6 ] It is our view that families in business can provide a sustainable strategic corporate purpose better than any other institutional stakeholder since it is simply an extension of the family identity. Th ey need to defi ne it themselves and share it with both internal and external stakeholders to make it powerful.

Today more than ever, companies need to be able to explain why they are here, why they are doing things, and how they are doing them. Companies, who engage in a real dialogue with their internal stakeholders as well as the wider audience, are better prepared to face future challenges—whether in times of crisis or fragile moments, such as a leadership change.

2 IMD’s regression analysis on industry standardized return on investments over two fi ve-year periods (2005–2009 and 2007–2011) confi rms the fi nancial benefi t of a well-communicated corporate purpose. Th e analysis provides conclusive evidence for the hypothesis that there is a crucial link between a strong reputation and superior fi nancial returns. Using a purpose-performance model developed by Roberts and Dowling (2002), the study takes the Purpose Impact Index as a starting point and uses regression analysis to assess the impact on fi nancial performance, measured as Return on Invested Capital (RoIC), over a period of fi ve years. Company size was used as the control variable. Th e analysis was carried out using two alternative scenarios—one that tested the eff ect of purpose impact on economy-wide returns, and one that measured the eff ect in relation to the average performance within an industry.

10 Wise Family Business

What’s in a Name?

A good example of steering the family name as a strategic asset is the Philippines-based Ayala Corporation, a family-controlled conglomerate that stands out for its prominent, consistent and proactive corporate purpose, credibly expressed through its brand and stakeholder communications [ 7 , 8 ]. 3

Th e Ayala story began in 1834. Th ere are several related reasons for Ayala’s success over time, but two in particular stand out. One is the company’s strong commitment to nation-building and development, refl ecting its belief that inclusion and sustainability are keys to continued success. Th e second factor is a deep commitment to mutually benefi cial, dynamically managed, long-term strategic partnerships and to making Ayala a partner of choice.

Since its foundation, Ayala has always been an important contributor to the Philippines’ development and growth. Jaime Augusto and Fernando Zóbel de Ayala, the seventh-generation chairman and president of Ayala Corporation, respectively, have continued this tradition and act as ambassadors for the Philippines, promoting the country as an up-and-coming market to global investors and potential business partners. Like their father, Don Jaime Zóbel de Ayala, they believe that nation-building activities such as these will ultimately help the long-term growth prospects of the family conglomerate. In the words of Fernando Zóbel de Ayala, “We consistently look for ways to give back to our country—through Ayala’s businesses, through the Ayala Foundation and through our individual eff orts.” [ 7 ]

Th anks to the owners investing patient capital, the group has been able to take a long-term approach to sustainable growth which in turn is intended to “enable greater impact on national development.” [ 9 ] Th e owners’ commit-ment to supporting the country’s development has in fact been part of the company’s core values since 1856 and eff ectively translates into what today one would call corporate social responsibility. Th e seventh-generation leaders have added their generational footprint by introducing the concept of shared value [ 10 ] to the core business activities, for example, in the fi eld of microfi -nance and water distribution. Th ey are convinced that by launching business activities that go beyond CSR, which are designed to empower a broader base of customers, they can cut across the socioeconomic pyramid and ultimately help to build the nation. Over time, the leaders and the family have also increasingly professionalized the philanthropic and social responsibility activities that are led by the Ayala Foundation and the Ayala Museum. Th is includes leveraging the innovative and pioneering projects (e.g., entrepreneurial

3 Th e following abstract refers to two IMD case studies.

2 Family Business Identity 11

community partnerships and educational activities) by communicating them within the company and via social media and Non-Governmental Organisation (NGO) platforms.

Th e family has successfully combined its nation-building activities with pro-fessional management structures. Many of Ayala Corporation’s entities are pub-licly traded without compromising family values and control. By the end of 2013, Ayala’s listed companies accounted for 20 % of the Philippines’ Stock Exchange Index capitalization and employed 42,000 people. Gross revenues from all its companies, including associate and jointly controlled entities, reached 308 billion Philippine pesos (about US$7.1 billion). In 2013, the mar-ket capitalization of the entire Ayala group amounted to 1.4 trillion Philippine pesos (about US$32 billion). Th e group holds majority stakes in a range of busi-nesses, principally in real estate development (Ayala Land), banking and fi nan-cial services (Bank of the Philippine Islands—BPI), telecommunications (Globe Telecom), water utilities, electronics manufacturing services, automotive dealer-ships, business process outsourcing, infrastructure and power generation.

“For generations,” states a company publication, “the Ayala name has been carried proudly by its employees and leaders, as a badge of honor.” [ 9 ] Th e owners are convinced that their visionary leadership and long-term ownership stability represent a “very important kind of competitive advantage” that fun-damentally contributes to building the success of the Ayala businesses. On the occasion of the company’s 180th anniversary in 2014, “Th e Ayala Story” was drafted as “a human narrative.” It not only presents the owners’ identity as stewards of a sustainable family in business for the long term, but also shares the leader’s continuous responsibility of preserving the Ayala name and business brand, discussing questions such as “What’s in a name?” and “What makes an Ayala brand?”

Ayala’s values of integrity, vision, empowering leadership and commitment to the nation’s development are brand values and attributes that are built and leveraged within the Ayala Corporation, whereas trust is considered to be a value that is formed in the minds of the people. Th e owners are well aware that this means constantly being in the public eye and meeting expectations, which demands “continuous responsibility, true commitment and full dedica-tion” [ 11 ] from both the Ayala business and the Ayala family sphere:

If a company does something excellent, it gains respect. If it does so often, it elicits admiration. If it excels all the time, it wins trust. [ 11 ]

At Ayala, the corporate brand has clearly been a strategic C-level topic and has been managed with care and strategic vision. Th e prominent name and

12 Wise Family Business

reputation are also closely followed at the owner’s table; the family is commit-ted to keeping the brand strong for generations to come. As the Ayala leaders explain:

We found our name means quality and trust. It gives us a premium, attracts capital and brings many new opportunities to our door. [ 11 ]

As a business corporation, the Ayala business house hosts a multitude of brands under its roof. Although they all carry diff erent messages to custom-ers, they remain consistent and aligned. Every brand has an individual personality, yet it is also intended to carry a powerful promise: that there is a name and a reputation behind every product and service [ 9 ]. And every Ayala brand should represent the values and the principles—and the people—that hold the conglomerate together in order to push it forward. Whether through the mass media or by direct contact, or both, the task of successful branding is to build the desired image, cultivate and develop it, and preserve it. Th e role of the corporate brand is to deliver Ayala’s message of excellence and its core values.

When CNN turned its “eye on the Philippines” for a special edition of the “ Talk Asia ” series in April 2012, the Asian business community was not surprised to see Jaime Augusto and Fernando Zóbel de Ayala as interviewees alongside President Benigno S. Aquino III, because the name Ayala has been inseparable from the story of the Philippines as a nation. Th e family leaders are at ease being prominent brand ambassadors. Th ey are happy to communi-cate and share company news in person as well as to take part in social respon-sibility activities. At times, they use social media resources at private events and at others can be seen engaging with the international business elite when representing the group at international business forums like the World Economic Forum.

However, the Zóbel de Ayala family has traditionally kept the “business of business” separate from “the business of family.” It was a fi rst for the family to discuss its family insights and best practices on governance and succession management with a public audience when they received one of the most pres-tigious accolades for “excellence in family business”—the IMD-Lombard Odier Global Family Business Award. It was a memorable moment for the ten family members from the seventh and eighth generations who gathered at the award ceremony that took place during the 25th Summit of the Family Business Network International (FBN-I) in Dubai on 16 October 2014.

Additional information on Ayala can be found in Chap. 4 .

2 Family Business Identity 13

Trust in Family Businesses

Following the Ayala example of focusing on building trust, we now look at how corporations in general, and family businesses in particular, are perceived by the public at large.

Th e public relation (PR) agency Edelman 4 has been surveying and measur-ing trust in institutions, industries and leaders for the past 15 years. Its 2014 Trust Supplement reveals that family-owned businesses have a “trust pre-mium” in developed markets. Even in emerging markets, where people tradi-tionally associate trust more with big public corporations, “large family-owned businesses are the most trusted company type” (see Fig.  2.1 ).

How do people source their information about companies and who do they consider to be trusted advisors when it comes to company-related news? Th e picture has changed over time. For the fi rst time, Edelman’s 2015 Trust Barometer shows that search engines have become the “most trusted source for general news and information” for 64 % of the “informed public.” “Th e gap in trust between traditional and digital sources of media is even more pronounced among millennials, 72 per cent of whom say online search engines are their most trusted source of information.” [ 12 ] Interestingly, “when it comes to creating content for social networking sites and other online-only information sources, it is not journalists who are among the most

4 Th e 2014 Edelman Trust Barometer is the fi rm’s 14th annual exploration of trust. Th ey surveyed 33,000 people (27,000 General Public and 6000 Informed Public respondents) in 27 markets around the world on their trust in institutions, credible sources/channels and specifi c issues and perceptions impacting trust in business and government; http://www.edelman.com/Trust2014

44% 45%

72%

64%

75%69%

Edelman’s 2014 Summer Trust Supplement found that, in most emerging markets, llarge family-ownedbusinesses were the most trustedcompany type, whereas small family-owned businesses were significantlyless trusted.

Note that this distinction between large and small family-ownedcompanies used for the Summer Report makes direct comparisons with the 2015 Barometer not possible.

DEVELOPED COUNTRIES DEVELOPING COUNTRIES

State-owned Big Business Family-ownedState-owned Big Business Family-owned

Fig. 2.1 Trust in different types of business—developed versus developing countries. Source : The Edelman Trust Report (January 2015), http://www.edelman.com/2015-edelman-trust-barometer , date accessed 1 July 2015

14 Wise Family Business

trusted but one’s own family and friends.” [ 12 ] Based on its fi ndings, Edelman states that today, a company “creating its own content is a more trusted author than a journalist, or even an NGO.”

Th is represents quite a paradigm shift from the past and is an opportunity for companies to review their corporate communications activities. As Hans- Jacob Bonnier, sixth-generation family leader from the Bonnier Media Group in Sweden, points out:

If your company name carries the family name, you already have a family business brand, whether you want it or not. So you better load the brand with what is important to you as a family and make sure your stakeholder audiences hear, read and listen to a consistent authentic voice every time they hear about you. [ 13 ]

In the context of trust-building activities, the 2015 Edelman Trust Barometer discloses fi ve categories of key trust-building attributes for public and private organizations—integrity, engagement, products and services, pur-pose and operations—which regroup 16 specifi c attributes that build trust (see Fig.  2.2 ).

It can be debated whether family businesses excel and outperform public corporations on all of these 16 attributes. However, the family identity certainly brings strong, immediate benefi ts in the categories of integrity and purpose. Integrity has a multi-generational signifi cance through the owning

INTEGRITYHas ethical business practicesTakes responsible actions to address an issue or crisisHas transparent and open business practices

ENGAGEMENTListens to customer needs and feedbackTreats employees wellPlaces customers ahead of profitsCommunicates frequently and honestly on the state of its business

PRODUCTS & SERVICESOffers high-quality products or servicesIs an innovator of new products, services or ideas

PURPOSEWorks to protect and improve the environmentAddresses society’s needs in its everyday businessCreates programs that positively impact the local communityPartners with NGOs, government and 3rd parties to address societal needs

OPERATIONSHas highly-regarded and widely-admired top leadershipRanks on a global list of top companiesDelivers consistent financial returns to investors

Edelman Trust Barometer research reveals 16 specific

attributes that build trust.

These can be grouped into fiveperformance clusters listed here

in rank order of importance.

Fig. 2.2 Key attributes to building trust. Source : The Edelman Trust Report (Jan 2015), http://www.edelman.com/2015-edelman-trust-barometer , date accessed 1 July 2015