New role of family business: Collective legacy, value and succession

The World Economic Forum’s central focus this year was the imperative task of “Rebuilding Trust”. I believe that businesses need to step up to rebuild trust and take the lead to create solutions to the sustainability challenges we face today. To do this, reform is needed to shift businesses’ focus to becoming purpose-led for-profit organizations.

The Emergence of the Marketing Economy has Led to a Deterioration of Ethics and Morality

In our supply-driven economy, an emphasis on capacity has shifted from being market-driven, that serves the market, to a marketing economy enslaved by materialism. This in turn has seen businesses maximize profits by unconsciously capitalizing on humanity’s greed and craving for luxury.

This model that benefits a select few at the expense of the majority, has exacerbated wealth gaps and reinforced a mindset of individual power over collective well-being—a separating and dualistic you or I model. And with greed and ignorance driving economic activities, ethics and morality have declined. This has weakened relationships throughout the social fabric, and is now threatening the sustainability of all life.

Family Business Is Uniquely Positioned to Lead Change in this New Era

Family business has more control over its future than big corporations. Conglomerates’ ultimate investor shareholders are often distanced from the business, through layers of fund managers, whose shareholders or stakeholders may yet be another fund, making it difficult for them to think about long-term investing. Return on investment is used as the measurement of success, and this shapes the behavior of businesses. Consequently, companies naturally focus on profit-maximization with shorter term horizons.

Family business on the other hand, especially multi-generation family business, is positioned to lead business reforms, and navigate this complex terrain, as it prioritizes succession, value and legacy, inherently long-term concepts with a direct connection to the future of the firm. However, as more family businesses have been consolidated into corporations, many have adopted shorter term investment outlooks managed through family offices. Despite this trend, family businesses still have a significant impact on global economic activities, as they contribute to about 70% of the global economy.

In the new era, family businesses can build a collective legacy – by collaborating and co- creating solutions to benefit humanity as a whole to build a well-being and flourishing economy. They must initiate business reforms, return ethics and morality to the forefront of corporate decisions and catalyze the shift in the market economy.

Family Business to Steward Ethical and Sustainable Practices

In this context, family businesses emerge not only as economic entities, but are also ideally positioned to take the lead in stewardship of ethical and sustainable practices. Legacy and wealth protection have long been what inform family business strategy and decisions, stemming from a unique blend of family and business – the practice of a relational approach. Family businesses are motivated and organized to pursue legacy orientated goals, enabling them to prioritize sustainable practices and long-term profitability over immediate financial returns.

Therefore, family businesses are inherently more aligned with a responsible and conscious market approach, where the focus is on preserving and enhancing well-being for future generations while also creating wealth. They embody stewardship, viewing their business not just as a means to an end but as a legacy to be nurtured and passed from generation to generation.

Family is the first place where we learn what love is and how to nurture and express it. This is naturally intertwined into family-run businesses, promoting a mindset that fosters a culture of care and responsibility, which in turn encourages practices that are inclusive, environmentally sustainable and socially responsible.

Family businesses’ success largely depends on maintaining a delicate systemic coherence with three roles: the family office to serve the well-being of the family, the family business to serve the well-being of society, and finally family philanthropy to serve the well-being of humanity.

It is this constant value-add to the system that has a positive impact on society at large and in turn holds the family together through a shared purpose and benefits.

Embrace ESG (Environment, Social & Governance) for Impact

Wealth that lacks a higher purpose can result in negative consequences, such as division, ignorance, and even conflict. The remedy for this is to embed purpose into wealth. Therefore, it is up to the family to decide how they want to influence their company to direct their wealth to improve the lives of not just themselves but the broader community, too. They should embrace long-term thinking and support ESG practices and impact investments to bring business ethics and morality back to the market economy.

There is increasing pressure on businesses, from the public and the private sectors, to account for their value and relevance in society. A threat to societal order has raised questions about businesses’ ethics, which technological developments have increased the transparency of unsustainable business practices, and society is taking them to task.

In the contemporary era, family businesses hold a collective legacy akin to that of humanity, embodying existential significance. Today, the invisible hand within the free-market system is naturally returning order to the system through ESG regulations and directing investment for impact and philanthropy. This has long been propagated by Adam Smith in his book, The Theory of Moral Sentiments, which calls for enlightened self-interest.

It is imperative that family businesses embrace long-term thinking and support ESG practices and impact investments to enact positive changes in business morality within the market economy. This shift is critical to trigger a reversal of the current social contract driven by greed to one that is led by love and care.

Contributed by Chavalit Frederick Tsao
March 2024

This article was originally produced for the World Economic Forum Annual Meeting 2024 at Davos, Switzerland.