This year, the World Economic Forum’s central focus was the imperative task of “rebuilding trust.” I believe businesses need to step up to rebuild trust and take the lead to create solutions to today’s sustainability challenges. However, reform is needed to shift businesses’ focus to becoming purpose-led for-profit organizations.
In our supply-driven economy, an emphasis on capacity has shifted from market-driven, serving the market to a marketing economy enslaved by materialism. This shift has seen businesses maximize profits by unconsciously capitalising on humanity’s greed and craving for luxury.
The 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-me model. With greed and ignorance driving economic activities, ethics and morality have declined. This motivating force has weakened relationships throughout the social fabric and is now threatening the sustainability of all life.
The Role of Family Business in the New Era
The 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 behaviour of businesses. Consequently, companies naturally focus on profit maximization with shorter-term horizons.
Family businesses, on the other hand, especially multi-generational family businesses, are positioned to lead business reforms and navigate this complex terrain. They prioritize succession, value and legacy, which are inherently long-term concepts directly connected to the firm’s future. 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 significantly impact global economic activities, as they contribute to about 70 percent of the global economy.
In the new era, family businesses can build a collective legacy by collaborating and co-creating solutions that benefit humanity, promote well-being and foster a 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.
Stewarding Ethical and Sustainable Practices
In this context, family businesses emerge as economic entities ideally positioned to lead in stewardship of ethical and sustainable practices. Legacy and wealth protection have long informed family business strategy and decisions, stemming from the unique blend of family and business – the relational approach. Family businesses are motivated and organized to pursue legacy-oriented goals, enabling them to prioritise sustainable practices and long-term profitability over immediate financial returns.
Therefore, family businesses are inherently more aligned with a responsible and conscious market approach, focusing on preserving and enhancing the well-being of 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. It is naturally intertwined with family-run businesses, promoting a mindset that fosters a culture of care and responsibility, which encourages inclusive, environmentally sustainable and socially responsible practices.
Family businesses’ success largely depends on maintaining a delicate systemic coherence with three roles: the family office serves the well-being of the family, the family business serves the well-being of society, and family philanthropy serves the well-being of humanity. This constant value-add to the system positively impacts society and holds the family together through a shared purpose and benefits.
Environment, Social and 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 themselves and the broader community. They should embrace long-term thinking and support environment, social and governance (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, 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 humanity’s, 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. Adam Smith propagated this long ago in his book The Theory of Moral Sentiments, which calls for enlightened self-interest.
It is imperative that family businesses embrace long-term thinking, support ESG practices and make impact investments to enact positive changes in business morality within the market economy. This shift is critical to reversing the current social contract driven by greed to one led by love and care.
This article was first seen on World Economic Forum.
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