• London City

Risky business – How family-owned firms react to ‘environmental jolts’

So – you’re a long-established family business. Your company has been passed through family hands for generations and has been situated on the same site since the beginning. Your customers are loyal, and many of them are local. Business is fine. Life is good.
Then your city wins the right to host the next Olympic Games – and it is announced that the site for development of the stadium and wider facilities will be where you are located. All of a sudden, you face having to relocate your business and your staff. Disaster.

This might sound like an unlikely scenario – but it’s exactly what happened to a group of companies based in Stratford, East London in 2005. And it’s a prime example of an ‘environmental jolt’ – where companies are faced with an event or occurrence outside of their control that directly impacts their business.

So what can be done? In the London case, many of the businesses were family-run, and it became clear that, even though most of the businesses initially adopted the same response; to dispute the relocation and compensation deals they were offered, the family businesses did so in a markedly different way to the non-family run firms affected.

Namely – they employed riskier tactics.

Firstly, a number of the family firms applied pressure to authorities by threatening to fire staff – something family firms are usually reticent to do and a measure the non-family firms did not engage in.
Secondly, they sought to effectively mobilize political support through engagement with the media – presenting themselves as the victims of an all-powerful bureaucratic machine riding roughshod over the long-established family firms – again a risky tactic as the Games were widely supported by the public.

And thirdly, one family company engaged in ‘brinkmanship’ in a bid to sway the authorities. The company in question threatened to launch a judicial review of the situation – in the knowledge that this could backfire and lead the company into a costly and time consuming legal battle they may lose. It was a calculated risk – but one that ended up working when the authorities backed down and agreed to some of the companies requests.
Ultimately each of the businesses ended up significantly improving, if not reversing, the terms of their compensation and, relocation deals.

Perhaps family businesses fight harder because the business means more to them than a non-family business does to its employees. So-called ‘socio emotional wealth’ has been well documented as an important factor to family firms and means that they are often willing to risk a drop in performance rather than see it eroded. And perhaps factors such as ownership structure and strong employee relationships allow them more freedom in adapting to and responding to environmental jolts.

Whatever the case, the family businesses in Stratford showed that engaging in ‘risky business’ can pay off.

Célina Smith, emlyon business school

I am Assistant Professor of Entrepreneurship and Visiting Professor at Imperial College Business School in London, where I received my PhD. My classes focus on the growth and social media of new companies. My research focuses on the theory of social media, the creation of new companies and family-run companies. I used to work as an entrepreneur in the United Kingdom where I ran two companies in the creative industry.

More information on Célina Smith:
Her CV online

Further reading…

  • Smith, C. (2016). Environmental Jolts : Understanding How Family Firms Respond and Why. Family Business Review, 29 (4), 401-423. DOI: 10.1177/0894486516673906.
    Read abstract online

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Jan 13th, 2017|

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