arcVision 29 – Which Capitalism

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Large family businesses, a winning organization model at a time of global financial crisis and economic recession.

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A Capitalism That Changes

This issue of arcVision coincides with the 150th anniversary of the formation of the company from which today’s Italcementi Group originated. 150 years of scientific research into construction materials, of close ties built up with the community, backed by the experience of a family and a corporate tradition with solid roots in Italy’s industrial culture.

Through contributions from academics and leading figures in the international business community, the magazine examines an epoch-making transition that is generating a far-reaching review of current growth and development models. A transition that, hopefully, combines profit-making with greater attention to the intangible aspects of life, and re-establishes virtuous ties between ethics, the economy and finance. With the result that business organizations have a higher goal, over and beyond maximum profit.

In this important historic transition, we are witnessing a structural crisis in the managerial capitalism model: although the “productivist” dimension of this model has fuelled the large-scale spread of economic and social welfare systems and brought prosperity to the middle classes, its “shareholding” phase has at times been responsible for a self-referential form of finance unconcerned about long-term development. In a phase of re-assessment, the form of entrepreneurial capitalism that represents without doubt the most widespread management model in Western economic history is the individual family firm, or the firm with a small group of owners. The family business is often considered managerially inflexible with a low propensity for innovation, mainly as a result of a prudent strategic approach that gives priority to long-term conservation rather than to growth and R&D investment. In addition, the concentration of ownership may lead to significant difficulties in the handover from one generation to the next, as regards both the smooth running of the company’s operations and the maintenance of family control over the firm’s capital.

Despite these weaknesses, the family-run organization has proved to be a winning model at a time of global financial crisis and economic recession. Its strength is the overlap between ownership and management, since the lack of conflicts allows management decisions to coincide with the company’s interests. Long-term goals take precedence over short-term results and since the family firm is frequently not listed on the stock exchange, it has no obligation to meet shareholder requirements for immediate returns on their investment.

Other advantages include leadership continuity, a stronger identity, closer ties with the local community, and, within the family, a more genuinely shared vision and values. At a time of changing capitalism, with a financial crisis that has thrown many countries into recession, family firms seem once again to represent an alternative and a point of reference along a reassuring line of continuity. Where the ultimate goal is not just profit and attracting investors, but also not or not only protection of the environment or social responsibility, unless these goals are part of a broader vision based on correct use of material and spiritual resources in a manner fully respectful of people. After all, “A business that makes nothing but money is a poor business”, Henry Ford (1863-1947).

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