Newswire: What's the mindset of family firms during challenging economic times?

Laird Pendleton: Family firms are long term by nature. They often span multiple generations which allows them to see beyond these downturns. The cultural mindset for these multi-generational family firms is to maintain a sense of legacy. They are thinking, "We remember when our parents made it through the oil crisis of the 1970s" or "We remember when our grandparents made it through the Great Depression." Family firms maintain a sense of history and are able to associate with that history, "We adjusted, we opened new markets and we came out stronger." Family firms have historic templates to work off of.

Newswire: You believe family firms are better equipped to weather economic downturns. Why?

Laird Pendleton: By the nature of their share structure family held companies have the ability to be more nimble. Asset allocation is at the core of this agility. Here's one example I remember from my family. Well before the oil embargo of the 1970s, one of our patriarchs was traveling in Europe (I was a college student doing an internship at the time) and came back with a strong statement, he said it makes no sense that European gas prices are double what they are in the US even though we are a net importer of oil. After additional research and due diligence my family made a conscious and wise decision to make major investments in the energy sector because we saw the dislocation of the markets.

In a non-family context people might have said "Gas is 19 cents a gallon, why should we invest in oil just because one manager suggests it?" But in a family setting when a patriarch takes a strong position it makes the case for going against conventional wisdom an easier decision.

Newswire: During a downturn, what are the risks family firms face that a non-family firm might not?

Laird Pendleton: One negative to look out for is that a family business can be so tied to a dividends and family income that personal relationships can become strained. Thanksgiving dinner can get pretty tense when the dividend has been cut. There are political ramifications as a result. The family enterprise can turn inward and not look at that horizon. During difficult times families that attempt to protect their dividend lifestyle can make short sighted decisions to keep the peace.

Research Snapshot

A case study produced by Wharton GFA co-founder Prof. Raffi Amit with co-author Belén Villalonga, focuses on the family run Ayala Corporation, the oldest conglomerate in the Philippines, and provides insight into how a multi-generational family firm can not only buttress itself against market downturns but thrive. Amit and Villalonga's case study analyzes how the Zobel de Ayala family has, for seven generations, evolved Ayala from a family real estate business into a highly diversified and professionally managed business group. » MORE

Wharton GFA in the News

The international news media has sought out Wharton faculty opinion on the economy. Here are a few examples:

Prof. Jeremy Siegel in Knowledge@Wharton
March 19, 2008
"Don't get scared and sell anything out. This is not going to be a Great Depression. I know that some people are talking about it, but if you see the way the Fed is moving...I think that you will see that there are a lot reasons for being confident about the future. "

Prof. Susan Wachter in U.S. News & World Report:
March 25, 2008
"If the Fed had not stopped this the cost of mortgages would have risen...and the effect would immediately have hit the pockets of American homeowners."

Prof. Richard Herring in CNN.com:
March 31, 2008
"In order to be successful in shifting towards cash and then back to stocks, we must first be able to determine whether we are indeed going into a recession," he said. "We won't know that until about 12 to 18 months after the recession begins."

For regular news updates visit the Wharton GFA newsroom

Emerging Markets: Is It Time to Cash In?
April 2, 2008 (India Knowledge@Wharton)
Most emerging market economies are unlikely to de-couple from the U.S., a premise behind the sharp, brief rally in emerging stock markets last fall. Since the American economy and stock market started weakening in late 2007, so have most emerging markets. Some developing countries may provide short-term investment gains due to specific economic factors. Are these increases sustainable? In this opinion piece, Ignatius Chithelen, managing partner of Banyan Tree Capital Management, an investment firm in New York City, argues that with most gains from emerging stock markets already behind us, it may be time to sell.
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4273

When Are Emerging Markets No Longer 'Emerging'?
March 5, 2008 (Knowledge@Wharton)
The term "emerging markets" is now more than 25 years old and has come to define wide swaths of the world undergoing rapid economic change. Dozens of countries fall under the label even though they are evolving at their own pace and with their own twists on economic development. Now, as many emerging markets show signs of a strong and growing middle-class population, observers wonder whether the term has lost some of its meaning. What qualifies a country as "emerging"? While some say measures based on income or other statistics are critical factors, others place an increasing emphasis on the way business is conducted, with rules that are transparent and apply equally to all participants.

Advice to Investors: Sit Tight and Batten Down the Hatches
January 23, 2008 (Knowledge@Wharton)
The worldwide collapse of stock prices has many victims -- pension funds, insurance companies, hedge funds, financial services firms. But those are players who, if they are smart, have the wherewithal to withstand a steep sell-off. What about the small investor, the individual who is socking away modest sums for retirement or college costs? Should small investors rush for the sidelines? Or should they view this as a buying opportunity? Knowledge@Wharton asked six experts for advice on investment strategy.
http://knowledge.wharton.upenn.edu/article/1884.cfm

Emerging Market Mania: Is It Different This Time?
November 15, 2007 (India Knowledge@Wharton)
The sun is shining brightly at the moment on virtually all the world's emerging market economies. The MSCI Emerging Markets Index rose nearly 45% in the first nine months of 2007, with the IMF forecasting economic growth rates of 8% or higher, versus 2% to 3% for the OECD nations. Indeed, it's been difficult lately to find an emerging market anywhere that hasn't outperformed the developed world. Does all this fair weather for developing markets denote a permanent change in their fortunes? The topic was debated by a panel of experts at the recent Wharton Finance Conference in New York City.
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4242

Please share any comments or questions you have with us. You can reach us by email at wgfa@wharton.upenn.edu or by phone at +1.215.898.4470.

The Wharton GFA Team

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