Interview with Professor Mike Wright
Professor Mike Wright is the Professor of Entrepreneurship at Imperial College Business School and the Director of the Centre for Management Buy-out Research. Prof. Wright’s passion for the family business field started with his expertise in management buyouts. Tharawat magazine interviews Professor Mike Wright telling us why he had passion to the family business field.
How did you come to join the family business field?
I have a varied background but my interest sprang from my work in management buyouts. I lead a center for management buyout research, which is all about looking at firms handing businesses over to their management. There are various forms of management buyouts, and one of the most important forms is management buyout in family businesses. This can occur in a situation, in which a family doesn’t have obvious successors, the family doesn’t want the business to become part of a larger organisation, or the family doesn’t want the business to fail. Management buyouts allow the family to address these concerns by selling the company to the non-family management team.
This was an area of interest for me because much of the interest in the management buyout area has been focused on either taking a company private, or in getting rid of a division in a large group. But when we look at the data, there are vast swathes, not just in the UK but worldwide, in which family business sell to the management. This was an area that hadn’t been thoroughly explored, and it raised some questions such as: Why are families engaging in management buyouts? What kind of form does it take? Does a family still remain involved in the business? What are the reasons for a family to take these steps? What kind of social factors rather than economic or financial factors influence it? What happens to the performance of the business after the buyout?
All in all, I can say that I didn’t enter the field deliberately, but was rather lead to it through these questions that arose through my work in management buyouts.
What is the most pertinent question that needs to be answered in family business management buyout research?
I think that it is crucial to fully understand what happens to the business after it is sold to the management. Is the management competent enough to run it? Are they going to run it as the family did? Or is it going to be a transition period where they achieve a short-term goal in the business before selling it? Should the family want to keep the essence of the business alive, what is the extent to which the family stays involved in the business? One of the things we find in management buyouts is that as the founder or family sells the business and pulls out of the operations, the business often suffers because only the founding family truly knows how to run it successfully, at which point they have to come back in order to rescue the business. This shows that if you don’t put in place the proper mechanisms, the business will either lose its independence or fail completely. I find this is particularly sensitive in continental Europe, since there are many cases of private equity buyouts, in which case, the private equity firm wants to get out in 3-5 years. In these instances, what happens afterwards? It is this kind of long-term effect of management buyout that needs greater understanding.
These days, we see the increasing phenomenon of secondary buyouts taking place, which is basically when the first private equity firm exits and another one comes in, and this is a way of sustaining the independent business over a longer term. So if one is worried from a family point of view about the longevity of the business, this is a way in which you can maintain that, so many family businesses prefer this kind of operation. Once again, this all goes back to better understanding how to sustain the ex-family business.
A management buyout is almost like creating a new type of family business because it is like having a new family coming in. This way of thinking is an angle that is interesting in that you don’t think of succession as just happening within the same family, but as a succession to the creation of a new family. Consequently, you can think of this not as an end of a story, but a reinvigoration of the story.
How would you assess the relationship between academia and practice? Are they sufficiently reaching out to each other?
I think that this relationship is actually stronger in the family business field compared to other fields. I believe that this is partly because much of the family business research began as a quasi-consulting activity for family firms. On the other hand, from an academic point of view, family business research sometimes seemed a bit weak and lacking in pure academic bases. Now that the research has gone beyond this initial phase and become more rigorous, the risk of losing the contact between the research and the families becomes greater. While I personally don’t think that this connection has been broken, I think there is still some tension that needs to be managed better.
I think there are lots of opportunities for growth in the field because there is a strong link to build upon. As researchers, we shouldn’t lose sight of not only what we can feed back to the family business community, but also what we can learn from them. This is a classic problem I have with students and junior faculty when it comes to their research. Ultimately, their goal is to get published in the “top” journals, and to achieve this, they focus on the relevant literature based upon which they write their papers. By not interviewing family firms and speaking directly with them, they can potentially miss out on interesting questions or concerns that have not yet been addressed in academia.
Ronald Coase, a Nobel Prize winner of Economics, once said that when he worked in industry, he came across questions that were obvious in practice but that had never been explored through research. Based on these questions, he wrote his Nobel Prize winning paper. It is short-sighted to focus so much on getting published in pinnacle journals and lose sight of the interaction between research and real world application, because by spotting problems that are tangible for practitioners and finding the mismatch with corresponding academic literature, one might find oneself recognised quite naturally. In the family business field, there is a willingness of family practitioners to engage with academia, and that can be a great advantage to further the research.