How Family Businesses Should Plan for Generational Success

Welcome to Goldman Sachs Exchanges. I'm Allison Nathan. Here's the number that surprised me when I first read it. Companies where a family still holds a significant stake produce 70 of the world's economic output and 60 of its jobs. But only three in 10 reach a second generation, and only about one in 10 reaches a third. So why is that? To help me work through that, I'm joined by two people who see opposite ends of this. FX Demalmann is chairman of Goldman Sachs EMEA and chairman of investment banking. He also leads the firm's coverage of large family owned companies and family offices, which

Thank you, Allison. Good to be here.

Thank you, Allison.

Yes. Happy to have you both. So FX, let's just start with some context here on the size and the scope and the impact of family owned businesses. I gave a few stats to start us off, but maybe provide a bit more color on that for us.

The statistics you quoted are those we included in our recently published report on honoring legacy, which are global statistics. We did dig a little bit deeper into some of the statistics and see how they apply to differ around the world. What we found is that there is an enormous space on family owned businesses in all major regions. In The US, for instance, there are over 32,000,000 family owned businesses, which represent over 80% of all businesses. Those account for over 60% of GDP and over 60% of the overall workforce. If you move from the private company world to the public company worl

Those numbers are actually absolutely staggering, and I don't think most people think about businesses in that way. If we think about the family owned businesses, how does the fact of them being family owned affect how they run and how they operate if you're inside the business?

Well, in the world family owned, there is the word owned, and therefore each of these businesses tend to be owned or partly owned by an individual or a family that on average tend to be both invested economically, financially, but also emotionally in the business and very engaged. We find in our interactions with many of these entrepreneurs that they tend to take a very long term view on their business. They tend to be rigorous stewards of their management team. They tend to be disciplined allocator of capital, and they also tend to be prudent with respect to the decision they make, including

Tucker, let me bring you into the conversation because you're sitting with these families day to day. Again, let me ask you a different version of the question. Yeah. How does the fact that these businesses are family owned impact the way they invest?

I'll take a step back saying that I agree that the numbers are staggering when you think about the family connectivity to business and GDP, etcetera. It's worth putting that in context. In the history of civilization, it used to be a much higher percentage than that. It's only in the last couple of years where we have more of a corporate structure and the scale that comes from that kind of more permanent capital that comes around that that's led to this. So these concepts are age old is what I would say. What I find with investors is the moment that you start thinking about next generation, ho