Family businesses well-positioned to lead the economic revival post COVID
Family businesses well-positioned post COVID
A new report from the STEP Project Global Consortium and KPMG Enterprise demonstrates how the unique structure of family businesses has empowered these enterprises to respond to the impact of COVID-19.
- Multi-generational firms were 45 percent more likely to deploy a business transformation strategy
- 42 percent of family businesses were more likely to deploy a business transformation strategy than non-family firms.
- More than 70 percent of all businesses in Australia are Family Businesses/Private Enterprises
- Focus on governance and KPIs to track family business performance and productivity with gender diversity key.
On a global level, the study found that the involvement of the family and their long-term mindset has enabled them to show resilience in the pandemic, which has placed them in a key position to lead the economic recovery.
In Australia, Robyn Langsford, Head of Family Business at KPMG Enterprise said that multi-generational change, with a focus on digitisation and diversity, has driven improved governance and productivity outcomes through COVID-19.
The report, titled Mastering a comeback: How family businesses are triumphing over COVID-19, includes insights from nearly 2,500 family businesses and more than 500 non-family businesses globally including Australia.
It identifies three core strategies globally that helped to family businesses manage through COVID:
- Social responsibility: They took steps to address the impact of the pandemic not only on their family and business but on the welfare of society as a whole and the needs of all their stakeholders including employees, customers, suppliers and local communities.
- Business transformation: Family businesses were found to be 42 percent more likely to implement business transformation strategies than non-family businesses during the pandemic. Family businesses with multiple generations in the firm were 45 percent more likely to implement a business transformation strategy than single-generation family firms.
- Exercising patience: Family businesses are focused on protecting their succession plans and long-term future for the next generation. This long-term mindset has enabled them to leverage their patient capital by fully understanding the impact of COVID-19 on their business and others in their industry. Essentially building plans for the long term, rather than just mitigating the short-term impact of the pandemic.
Robyn Langsford observed: “These strategies were underpinned by the importance of aligned purpose and values, multi-generational engagement and having a long-term mindset to families in business.”
She said that the findings were reflected in the Australian experience. “In Australia, Family Businesses and Private Enterprises comprise more than 70 percent of all businesses,” said Ms Langsford. “The ability of families to leverage the past experiences of older generations represents a crucial component of their reactive pivots such as deferring or reducing executive pay. As time goes on, we see the focus shift to proactive pivots, including streamlining their operations by implementing new technologies, which benefitted from the knowledge and insights of multiple generations, particularly the innovation of younger members.”
- 78 percent of family businesses reported that COVID-19 had an impact on their revenue. Of those, 83 percent reported initial revenue declines, 12 percent reported increases, 5 percent reported an increase specifically due to actions to pivot their business.
- There was an 8.56 percent workforce reduction among family businesses globally, compared to a 10.24 percent reduction in non-family businesses.
- 76 percent of family firms globally made use of government support programs, primarily in the form of low-cost loan arrangements. There was less interest in government subsidies among family firms compared to non-family businesses.
- More than 70 percent reported that they maintained their R&D investments and continued to launch new products and services.
Multiple generations working together have accelerated business transformation
The 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.
Like the global study, Robyn Langsford said that when two or more generations of the family were involved in the business, next-generation family members helped to advance two critical agendas: their company’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,” she said. “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.”
Strengthened governance structures
Maintaining a focus on governance and implementing meaningful KPIs, to track performance and productivity, is vital for the future success of Australian family businesses according to Robyn Langsford.
“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,” said Ms Langsford. “Typically, these entities may appoint friends as board members and resist the unfamiliar. Diversification of appointments to their Boards can benefit the whole sector.”
KPMG says 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, according to Ms Langsford.
“Around one third of all Australian businesses are owned or operated by women, yet females remain under-represented in large family businesses,” she said. “Strategies to improve diversity could include introducing positive quotas, enabling deliberative decision making, and building diverse boards for Family and Private Offices.”
Ms Langford concluded: “Now is the time for family businesses to commit to the future and use the competitive advantages of purpose, community and patience as guideposts to make a long-term comeback and help drive Australia’s economic recovery.”
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About the survey
The survey was launched in June 2020 and completed in October 2020. The Successful Transgenerational Entrepreneurship Practices (STEP) Project Global Consortium is a global applied research initiative that explores family and business practices within business families and generates solutions that have immediate application for family business leaders. KPMG Enterprise coordinates with a global network of member firms dedicated to offering relevant information and advice to family-owned companies.
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