Promoting family businesses for an inclusive economic growth

By Katherine Nabuzale

At such a time when the economy is struggling and unemployment especially among the youth is frighteningly high, consideration of critical mitigation measures to strengthen our financial system is key.

One such practical intervention is supporting family owned enterprises. Many a time, family businesses with the budding of creating stable and long-term employment both for the family and the general public have faded away. With the commonest reason being that, the enterprises were solely dependent on the mastery of a single individual, whose demise leaves nothing but for the business to simply crumble.

Uganda is one of the countries grappling with a soaring   unemployment rate, amid lack of foreseeable and ambitious measures to abate this trend. The youth have lost hope thus, reverting to any available means for survival. The situation is gloomy so much so that, urgent albeit collective broad-based interventions are required to restore hope.

Recognition of this challenge and timely response through creation of a favorable environment and stimuli where family businesses can thrive is paramount. This kind of approach certainly deserves due deliberation as one of the practical solutions to the present unemployment and as a pillar of our economy.

A family business is a company that is majorly owned and controlled by members of the same family.

Some of the renowned family businesses include household names like, Estee Lauder, Tootsie Roll, Anheuser Busch, Carnival Cruise Lines, Ford Motor, Forbes, Walmart, BMW-Bavarian motor works, to name but a few. Among our limited home brands are, the Madhvani group (employing over 10,000 people), Mukwano Industries, Mukwano Group, Ruparelia Group of Companies, Capital Shoppers and JESA dairy farms, to name but a few. Despite the fact that most wealth in Uganda is held by business people, this information isn't public knowledge! This ignorance explains why the mindset of the majority of graduates is inflexibly bent on searching for white collar employment rather than thinking of creating employment avenues, in the name of family businesses.

Advantages of Family-Controlled Enterprises

Given the well-recognised significance of family firms in developed economies, particularly in the U.S. economy, it is informative to consider the operating advantages of these enterprises. Lanarelli (1996) points out that family business generally have a long-term orientation, a strong commitment to quality which is related to the soundness of the family name, care and concern for employees.

Family businesses are more disposed than other types of corporations to re-invest in themselves in an attempt to perpetuate wealth to succeeding generations. Unlike public firms, they are able to defy the pressures of security analysts to maximize short-term returns. Kleiman (1996) notes that, family firms  have higher reinvestment rates than those that comprise the Standard & Poor's 500. Dreux (1990) further contends that family businesses largely tend to be overcapitalized, with lower levels of debt and substantial liquidity. These operating characteristics reinforce the long-term orientation of family controlled firms.

The operating philosophy of family firms is often guided by a personalized mission related to the integrity of the family name. Successful family companies offer family members prestige and prominence in their communities. In order to preserve their reputation, Lyman (1991) argues that family firms are more involved with customer service and committed to quality than their non-family counterparts.

Family businesses also generally provide for more direct contact with management, are less bureaucratic, have a built-in trust factor, and enable the next generation to gain early exposure to the business through hands-on training. These factors, in turn, lead to continuity in management policies and operating focus enabling firms to react more rapidly to changes in their operating environments.

These enterprises provide a unified management-shareholder group since managers and shareholders are one and the same. Thus, fewer conflicts of interest (termed agency conflicts) between the firm's managers and shareholders. Financial theory suggests that firms experiencing lower levels of agency costs usually provide superior financial performance.

In the long run, family businesses show a higher turnover. They are less likely to lay people off and will hire despite the possibility of an economic slump.

Family companies give charitably to their respective communities and engage in extensive philanthropic activities. They too, have a more long-term strategic outlook owed to their main motivation essentially, of creating a legacy for generations to come. Family businesses are less probable to raise debt hence, widely deemed financially prudent.

Despite their many competitive advantages, family businesses have to contend with several challenges like a harsh operational environment and standard business concerns that include, generational disputes, sibling rivalries, and succession issues.  However, being able to forecast when friction may arise, helps in timely resolution of such conflicts.

A great hindrance to proper functionality of family businesses is the un-documentation of their role. In larger parts of Africa, not much has been studied in this area. The difficulty that results from having no accurate data on the significance of family businesses in any economy, leads to a lack of understanding on how family businesses can expand their obligations, to support their economies vis-a-vis what aid can be provided by government institutions to enable their sustainability.

Looking at Europe as an example, the European commission promotes a business friendly environment by encouraging governments to adopt business- friendly taxation and company law.  They also help to spread information, support entrepreneurial education as well as, the sharing of best practices between EU countries. These steps highlight the importance, fiscal contribution of family businesses and the necessity to exploit their full potential.

In Uganda's context, a revolutionary shift in our mindset of what we perceive as productive employment must transpire. More efforts should be directed towards studying the contribution of family businesses, sensitizing the masses of its valuable significance, in order to establish the proper institutional frameworks that support their productivity and longevity so as to harness their economic contribution.

The writer is a Ugandan living in Germany