MENU

The Defining Upside of A Family-Owned Business

Photo: NY - http://nyphotographic.com/. Cropped. Licence: https://creativecommons.org/licenses/by-sa/3.0/

Family-owned businesses are common in Asia, but they can have their fair share of problems.

It’s not hard to see why. Within a family-owned company, dissatisfaction can arise when the founder’s family members are favoured for important positions based on their bloodline rather than on their performance. CEO succession is another issue. The family scion might not always the best choice to lead the company in the future.

On the other hand, there are family-owned businesses that do well. And there are good reasons. The CEO who bears the family name could enjoy job security and thus face less pressure to meet quarterly earnings targets. He or she can focus on building long-term value. The CEO is also likely to go above and beyond the conventional CEO’s role in order to preserve the family’s crown jewel.

The tale of American automaker Ford Motor Company provides an interesting window into the best and the worst of family-owned businesses.

Going all-in

In a previous article, I shared the bad aspects of a family business that Ford Motor exhibited.

Now here’s the second part – and where the story turns good. It reminds us why family-owned businesses can excel better than others.

When the chips were down, Bill Ford showed his mettle. As a first act, he decided to step aside as CEO and hire a veteran executive from Boeing, Alan Mulally. Bill recognised that Ford Motor needed a steady hand who was experienced in turnarounds. It was a tacit acknowledgement that he was not the right person for the job.

Stop and think about this for a moment.

How many CEOs are willing to acknowledge their own shortcomings and step aside for the greater good? In my view, Bill saw what Ford Motor needed and was willing to put aside his own needs and ego to protect the family business. That made a difference.

In the second act, Ford Motor’s board of directors (which include Bill) made an unusual bet for the company. Ford Motor pledged virtually all its US assets – including its famous blue oval logo – to secure a US$23.5 billion loan. Essentially, the company was making an all-in bet on its future.

At the time, Ford Motor was roundly criticized for the loan. It was an act of desperation, the public said. But the loan soon turned out to be one of the most defining moments of Ford Motor’s history.

As the Great Recession sank its teeth into the economy in 2009, Ford’s crosstown rivals General Motors (GM) and Chrysler were forced to seek support from the US government. Eventually, both GM and Chrysler filed for bankruptcy.

Ford, backed by its loans, was able to survive the worst of the recession to return stronger than ever.

Shades of grey

In investing, there are not many things that can be easily painted as black or white. Just like it’s not as simple as to label a family-owned business as good or bad.

As investors, we have to learn to live with shades of grey. At Stock Advisor Singapore, our premium stock recommendation service, we are on the lookout for the best qualities of a family-owned business while casting a wary eye on the less savoury behaviours.

For more investing insights and to keep up to date on the latest financial and stock market news, you can sign up for a FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.