Insights by UBS Chief Investment Office on Family Business

Family businesses can be found all over the world and comprise small local businesses, small- and medium-sized companies that typically are the backbone of many economies, as well as well-known large global listed players.

According to market surveys, family businesses represent two-thirds of all businesses worldwide, generate over 70% of world GDP and account for 50%–80% of jobs in many countries. The European Family Businesses Organization states that family businesses account for between 60% and 90% of all companies in various countries within Europe and for 40%-50% of the region’s private employment. In Greece, family-owned businesses represent over 80% of the local business community and contribute significantly to the growth of the Greek economy, having survived the financial crisis with remarkable results.


Which are the main characteristics of a successful family business?

 “If it is good for the company, it is good for the family too.” – André Hoffmann, vice-chairman of Roche and fourth generation of the founder once said. Entrepreneurs create or acquire a business, develop and grow it and transfer it to the next generations as a legacy. While the growth of the business is underpinned by its family values and governance, aligning family values and management culture is often a rather challenging task. Family owned businesses regardless of their size or industry and geographic region they operate in, tend to have some common characteristics that are key success factors over the long-term and are the following:

  • Entrepreneurship
  • Long-term vision, strategy and commitment to stakeholders
  • Wealth creation and preservation over generations
  • Family values and family governance
  • Alignment of interests between business and family
  • Combination of ownership, control and management
  • Concentration of the family wealth in the company
  • Good relationships with stakeholders and trustworthiness to build a good reputation in society
  • Challenges include governance issues, family conflicts over money, succession, and nepotism.

The most successful businesses incorporate strong family values and have established firm family institutions to manage the family’s interests. Family governance helps to protect guiding values and mitigate conflict. This helps when non-financial, emotional goals influence the actions of the family, e.g. if they want to keep the control over the company. At the same time family businesses that address succession and family wealth planning early can reduce risk and ensure a smooth succession through fair and clear family internal planning and by welcoming external advice from trusted friends and professional advisors.


What are the major risks when investing in a family business?

Company size

Family businesses are tilted toward smaller companies. Smaller-cap stocks have higher business risks and price volatility than large caps.

Market liquidity

If the family owns a large stake in the company the free-float may be limited, which can make the stock liquid and subject to above average price volatility. Tapping financial markets for fresh equity and debt tends to be harder and costlier for companies with limited stock market liquidity.

Family conflicts

Family members might put the company in danger through personal conflict. To mitigate this risk, families need to have a governance framework to manage potential conflicts and a family council which helps to address and resolve issues.

Governance issues

Family companies could potentially face governance issues as control is in the hands of a few persons/family members.

Succession risks

Succession is one of the main threats all family businesses face as they need to manage the transfer of ownership and generational change, which often have an emotional component. Succession planning is therefore key to mitigate the risks, which include questions around transfer of wealth, ownership and leadership, and legal and tax issues.

Country and intra-sector risks

The intrasector exposure (sub-sectors within the sectors), is less balanced than in the MSCI AC World. Good diversification and active investment management can mitigate this risk, however.

Economic, recession and disruption risks

Family businesses face the same economic, recession and disruption risks as their non-family-run peers do. However, smaller companies and emerging markets tend to be more sensitive to economic trends than others.


How can entrepreneurs ensure a successful and sustainable business?

  • Reputation: It is important that the values, interests and visions of the family are aligned, as their reputations are interwoven. Fair employment practices and support for social efforts prove both family and business are engaged and care. Demonstrating commitment to stakeholders can help businesses keep good employees, find new talent and develop sustainably.
  • Innovation: It is more vital than ever to focus on innovation and consider partnerships that are of mutual benefit given elevated disruption risks, for example from digitalization.
  • Business plan and governance: As a company grows and is passed on to the next generation, it is essential to document both the business plan and governance properly. Keeping these in the head of the founder may work only in the early years of a company’s existence.
  • Succession: A succession plan should be well documented and prepared early to avoid stress, company breakup or even bankruptcy in a worst-case scenario. Although most entrepreneurs want to build a legacy, they tend to under-manage their succession. This may happen abruptly in the case of an accident or the death of the head of the family, which may lead to a dangerous leadership vacuum or to family disputes.
  • Delegation of responsibilities: Build and expand the organizational structure as the business grows and delegate responsibilities to enable and motivate the workforce, and to free up sufficient time to manage the firm.
  • Nepotism: It is important to keep nepotism in check to sustain a strong reputation as well as high management and workforce capabilities.
  • Capital inflexibility: Family businesses need to spend wisely and maintain financial flexibility in the balance sheet given more limited access to liquid financial markets and to keep control over the company.

It is said that, if you can raise a family, then you can build a business; Similarly, to your family, your family business is what you inherited or created, it is also what you aspire into building further and carrying it forward for the generations to come.


Chief Investment Office, UBS Global Wealth Management

Philippe Müller, Head Investment Themes, CIO