Are family businesses really more resilient, agile and adaptable than other business types? And, if so, have they been able to tackle the challenges of COVID-19 better than most and, perhaps, emerged even stronger?
The shock of an unexpected global pandemic provided an opportunity for the Successful Transgenerational Entrepreneurship Practices (STEP) Project Global Consortium and KPMG Private Enterprise to come together to find the answers to these questions by taking a firsthand look at how family businesses have responded to the pandemic in the Global family business survey: COVID-19 edition and report.
Global survey data was collected between June and October 2020, followed by input from family business leaders, academics and family business advisers in January 2021. The experiences and insights from family businesses in the Americas, Asia, Europe and the Middle East & Africa have revealed a roadmap, not only for mastering a comeback in their businesses, but for leading a global economic recovery.
In addition to leadership and ownership factors, this study reveals the pivotal role that multiple generations of the family have played in their response to COVID-19. Crucially, families were able to draw on support from multiple generations, leveraging the past experiences of older generations to help manage critical challenges and utilising the insights of younger members to drive modernisation.
In the Australian experience, when two or more generations of the family were involved in the business, next-generation family members helped to advance two critical agendas: their firm’s rapid digital advancement and putting ESG in the strategy spotlight.
Being able to draw on intergenerational knowledge and experience meant that 70 percent of families reported that they maintained their R&D investments and continued to launch new products and services throughout the pandemic. The pandemic opened up opportunities for young, tech-savvy family members to take on prominent roles in introducing digital technology solutions that streamlined their business operations and launched a host of new products into the market.
Maintaining a focus on governance and implementing meaningful KPIs, to track performance and productivity, is vital for the future success of Australian family businesses. Unregulated private companies such as Family Businesses are not subject to the same regulatory and legislative direction as ASX-listed companies and therefore can act with a higher level of autonomy and flexibility. However, this means that they may not necessarily capture the benefit of diversity, by having independent directors on board. Typically, these entities may appoint friends as board members and resist the unfamiliar. Rethinking their appointments to Boards can benefit the whole sector.
We believe that strong governance supports thriving family enterprises be they operating businesses or family offices. Having a focus on gender bias, for example, is vital to building resilience for both the family and their business in the future. Around one third of all Australian businesses are owned/operated by women yet females remain under represented in large family businesses. Strategies to improve diversity could include introducing positive quotas, enabling deliberative decision making, encouraging conscious behaviour and building diverse boards for Family and Private Offices.
Family business leaders reported that the first impact of the pandemic was seen in their revenues. That was not surprising. The majority reported that they experienced revenue declines, however, as many as 17 percent whose revenues were affected by COVID-19 actually experienced a revenue boost. Predictably, this included companies that benefited directly from an increased demand for their products and services, but many others were also able to adapt quickly and rebuild their businesses to tap into new opportunities. The resilience and agility of family businesses has proven to be to their advantage once again.
They have achieved positive outcomes for their businesses, families and communities by transferring their resilience into actions at the organisational, strategic and social level and did so with the characteristic inclusiveness and tenacity that are found in most transgenerational family firms.
Eighty-seven percent of family firms that responded to the survey are led by family CEOs, which often reflects a high level of family involvement in day-to-day decision-making. This is a unique characteristic of family businesses. During times of dramatic change and upheaval, the family is often a source of unique resources and capabilities.
During the initial shock, we identified several financial and non-financial actions that families took to stabilise their businesses while simultaneously laying the foundation for their companies’ longer-term growth prospects. For some, this led to a complete transformation of their business operating models and the launch of new product offerings, often with the intent of making the business fit for purpose in a rapidly accelerating digital age.
Not only were they involved in addressing the impact of COVID-19 on their businesses, but they also looked out for the welfare of their communities and expanded their horizons to integrate their business and environmental, social and governance (ESG) strategies to support broader environmental and societal goals.
When many family businesses started to grasp what the pandemic might mean for their companies, they realised that more involvement and input was needed from the family itself. It was important for the family to re-engage, especially when the management of the business had been entrusted to non-family executives. In some cases, senior family members have come back into the business to bring a historical context and to ensure that the family’s purpose and values remain intact for whatever decisions might need to be made.
Younger generations are becoming more involved as well. Because of their knowledge and exposure to many new technologies, they are being relied upon to identify digital solutions to transform the family’s business operations and help to develop new technology products and service offerings that will pivot their business, potentially taking them into entirely new markets.
The actions taken by family businesses have revealed three core strategic responses:
The focus is outside the family business and emphasizes the business family’s commitment to the welfare of society as a whole, and the needs of all their stakeholders including employees, customers, suppliers and local communities. It reflects the family’s values and the governance practices that are in place to support their societal and environmental responsibilities and maintain their reputation as responsible owners.
The concept of pivoting and the importance of encouraging a transgenerational entrepreneurship mindset is the focus of this strategy to pass the business successfully from generation to generation. It includes reactive actions such as streamlining operations and implementing new financial measures, proactive pivots for creating new products, exploring untapped markets and adopting new technology solutions to transform the business.
With this strategy, some family businesses have not taken immediate action to address the impact of COVID-19. The capital invested in the family business is 'patient capital', and they are prepared to take their time to fully assess the impact on their business and the actions of others in their industry before making decisions that might have far-reaching, longer-term consequences.
We observed a pattern in the strategies-of-choice among family businesses that reflect two key factors: the leadership of the business and the ownership composition of the company.
“Is the business led by a family member or a non-family CEO?”
“Are the company’s shares highly concentrated among a small number of shareholders or are they widely dispersed among multiple family (and potentially non-family) members?”
Other characteristics, such as the size and age of the company and the number of family generations who are actively engaged in the business, have also influenced their actions.
When we combined the family/non-family CEO and family ownership factors with these additional characteristics, we were able to cluster family businesses into four groups that share a common profile. We found that the families who are represented in each cluster have generally adopted similar strategies and actions in their response to COVID-19 and we have brought them to life in four illustrative family business personas that we have labeled: the “Family Corporation”, “Family Enterprise”, “Family Consortium” and “Family Venture”.
Real-life experiences have been used in the personas to show, by example, the unique features of different family business types and how their characteristics may be influencing the decisions and actions they are taking.
The actions that family businesses have taken to respond to COVID-19 from a business, family and societal level demonstrate, once again, their extraordinary competitive advantage in being able to act and adapt quickly. They have shown their resilience in making a comeback – even in the face of the most challenging of times. More than that, they are showing family and non-family businesses alike how to leverage all of their assets – financial and non-financial – to lead their companies into the future and not look back.