As the 21st Century Family Business programme at Cambridge Judge Business School Executive Education launches its 2019 theme of “The Circular Economy and Family Businesses”, Dr Khaled Soufani, Director of the Circular Economy Centre, and Philip Marcovici, Family Business and Wealth Owner Advisor, consider the question: “Can the benefits of shifts from linear to circular approaches be extended to family wealth, governance, relationships and more?”
The circular economy as a theme
Circularity in business models is gaining interest globally as economic research demonstrates the ability of circular approaches in adding value and jobs. In the context of family businesses and wealth, the purpose of keeping the family together is also increasingly of importance. Without circular approaches whatever resources are involved in the production process are eventually exhausted.
Impact investing and an ESG (environmental, social and governance) focus are only part of what makes up a circular economy approach to planning. Circularity involves retaining value in the lifecycle of materials, resources and products. Waste is transformed into something useful.
Key benefits of a circular approach rather than a linear approach
- Add value and jobs
- Develop a sustainable purpose
- Extend the lifecycle of resources that are otherwise exhausted
- Value creation through value retention
- Minimise value destruction
- Reuse products, parts and resources
- Adopt a restorative and regenerative approach
- Replace “take-make-waste” and planned obsolescence with a focus on minimising waste of every kind
- Use natural capital sparingly, and have parts last virtually forever
Can the ideas of circular economy extend beyond the business to family wealth, governance and how families engage?
The concept of minimising waste and ensuring that production is organised in cycles rather than on a linear basis can be extended to family governance and how families deal with issues including succession, the ageing process, and interaction with governments.
Capital that needs purpose and sparing use includes natural, financial and cultural capital, and not just parts and resources used in the production of goods. Minimising waste also means minimising the waste of useful resources within a family, such as inadequate use and motivation of family members who may not be involved directly in the family business, but who may have a direct or indirect stake in the family business. Families that are wealth rather than business owners may waste human resources within their family through over-reliance on external asset managers and under preparation of family members as wealth owners. And what of the older generation, and the need to find ways to ensure that they are part of an effective mentoring process that ensures that the valuable resource which is experience is not wasted?
Reducing the “use” of materials and resources, in the family context, may mean ensuring that there is more focus on appropriate life/work balances, creating a more effective and cohesive family construct.
Soon family businesses will have up to four generations managing their organisations. Key issues around strategy and direction will come from different perspectives and from generations with varied priorities – the circular economy brings those perspectives together in a holistic and beneficial way for the business and society as a whole. Family businesses are in a unique position in terms of leveraging this benefit with a medium-to-long term view.
Key topics affecting family business and wealth ownership
The key issues affecting family businesses and wealth ownership when given an overlay of the circular economy provide a unique opportunity to explore what is meaningful for families, family business and family wealth, and how doing things in new ways may bring new opportunities for growth, sustainability, excitement, engagement and longevity. Areas of consideration for these businesses include:
- Family businesses and the circular economy
- Understanding conflicts of interest and political change
- Supporting our communities and why this matters
- Developing a strategic growth mindset
- Navigating the new innovation landscape
- Organisational behaviour and the family business
- Family governance – family constitutions and more
- Leadership in families and family businesses
- Building effective teams
- International taxation and the needs of wealth and business owners in the coming decades: political risk minimisation planning, asset protection and the real challenges coming up
- Alternative finance
- The structures families use – trusts, partnerships, foundations and the other “animals in the zoo”
- Reconciling the past and future of your family business