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The secret to sustainability in family business

The secret to sustainability in family business

The success and sustainability of a family business is built on three Cs: connection, communication and a bit of (healthy) conflict.

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Michelle De Lucia

Director, KPMG Enterprise

KPMG Australia

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Young fashion designer visited by family in her workplace

Balancing act

There’s more to the success of a family business than what it says on the balance sheet.

The 2018 KPMG Enterprise and Family Business Australia survey reveals how socio-emotional wealth (or SEW) impacts financial performance and sustainability.

What is your business’s ‘emotional value’?

SEW measures the ‘emotional value’ of a business through the following five areas:

  • family control and influence
  • identification with the business
  • binding social ties
  • emotional attachment
  • renewal of family bonds through dynastic succession.

Businesses with low SEW scores are more likely to be sold or passed on to non-family members, or forced to close, so balancing emotional and economic needs is crucial to sustainability.

Unfortunately, it has also been the main source of conflict for family businesses each year since the survey began in 2005, and 2018 was no different.

Talk the talk

If there is one thing the most recent survey highlighted, it’s the vital role communication and healthy conflict play in boosting SEW, and therefore family and business wellbeing. 

In particular, KPMG Enterprise Director Michelle De Lucia says there is a general lack of formal communication when it comes to “planning for the future of the business and the family, and how those two things tie together”.

This is backed up by the survey results, in which just 14 per cent of the family businesses planning to transfer leadership within the next five years had a documented plan for how the family will participate or be recognised in the business in the future, and only 26 percent had identified who ownership would pass to.

“As generations prepare to pass the business on, we need to make sure that the connectivity of the family remains,” says De Lucia, who is leading a master class on balancing emotional and financial needs in family business. “And by that, I mean the family’s passion for and involvement in the business.”

Staying focused

For Jen Geale, who co-founded Mountain Bikes Direct with her husband and their two friends, another couple, one of the benefits of being in business with family is that you don’t have to dance around a point.

“It can be really great because you’re not necessarily trying to be super polite to each other – you can just cut straight through to the heart of the issue,” she says.

This leads to plenty of healthy debate – or, as Geale describes it, “resolving discussions, but quickly and with energy” – so to combat conflict, the co-founders created an ‘org chart’ mapping out each person’s role and responsibilities. Now, they’re never unclear about who has the final word on a particular discussion.

This is a good example of how governance structures support formal communication around important business operations, ensuring everybody is on the same page and working towards a common goal.

As De Lucia says, “It’s making sure we grab the passion of the family and use it to create that amazing competitive advantage you get as a family business.”
 

Sign up to the KPMG Enterprise Business of Family Master Class series to build the skills to balance the needs of your family and your business.

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