Ireland’s 160,000 family businesses are well placed to play a leading role in Ireland’s post-COVID economic recovery. This is among the key findings of the KPMG Private Enterprise and the STEP Project Global Consortium Global family business report: COVID-19 edition, according to Olivia Lynch, Partner, KPMG Private Enterprise.
“The importance of family businesses cannot be overstated,” she says. “They employ almost 1 million people and account for two-thirds of Irish businesses. They are part of the economic and social bedrock of Irish society and will play a key role in leading the recovery.”
While 68 percent of Irish respondents to the survey said revenues had dropped due to COVID-19 and 15 percent said employment had fallen, this was not unexpected given the sectoral spread of the companies involved.
The finding in relation to revenue decline was similar to the global result while the employment impact was more severe in Ireland with 8.5 percent of firms globally and just 4.3 percent in Europe saying employment had reduced.
“It’s clear that the impact on Irish family businesses has been substantial, which is perhaps unsurprising given the concentration of these businesses in some of the hardest hit sectors including retail, food and agri, and leisure and tourism,” says Lynch.
Family businesses employ almost 1 million people and account for two-thirds of Irish businesses.
Much more encouraging, however, were the results in relation to the response to the crisis. While 35 percent of Irish companies focused on reducing labour costs, they indicated that they favoured placing employees on furlough above implementing a hiring freeze or reducing pay.
“This shows the government support measures have been working,” Lynch contends. “These supports have been keeping employees connected with employers and will hopefully bring employment levels back up as we come out of COVID. There is no doubt that they have also contributed to keeping family businesses in Ireland afloat, but what comes next in supporting the re-opening of our economy will be critical for their long-term survival.”
Reducing operational costs or planned investment was favoured by just 34 percent of Irish firms. “This bodes well for Irish business. Now is the time to invest and innovate. What we are seeing with family businesses is that they are talking about scaling, expansion and diversification once again. The global finding that more than 70 percent of families maintained their R&D investments and continued to launch new products and services throughout the pandemic is also very positive. This is very encouraging for the future.”
The core strengths of Irish family business have been coming to the fore during the crisis. Indeed, Irish family businesses are particularly impressive in the way they have stood the test of time with almost half (46%) being third generation and a further 13 percent being fourth generation. This contrasts sharply with the global picture where 42 percent of the businesses surveyed were first generation and only 14 percent were third generation.
And longevity is important, according to Lynch. “The global findings show that multi-generational firms are 45 percent more likely to deploy a business transformation strategy than single-generation family firms, and 42 percent of family businesses are more likely to deploy a business transformation strategy than non-family firms. This is a standout finding for me. The transformation agenda also includes changing and accelerating governance in light of the pandemic. Agility will be key for businesses emerging from this crisis, especially those who are gearing up for our economy re-opening in the coming months. We have seen family business embrace the concept of pivoting both in terms of new strategies to react immediately to the impact on business but also proactively moving to adapt and transform in order to thrive in the future.”
42 percent of family businesses are more likely to deploy a business transformation strategy than non-family firms.
Another welcome but not altogether surprising finding highlighted the openness of Irish family business to broadening their horizons. “It is interesting to note in the survey that Irish family businesses were more likely to look externally than their European and US counterparts for new collaboration opportunities with customers and suppliers in response to the crisis.”
Her own experience with clients combined with the survey results points to a positive outlook, according to Lynch. “There is clear optimism out there. Family businesses have some unique characteristics that will help them lead the Irish recovery. Among these is their longer term more patient capital mindset, the involvement of multi-generational owners, and having the experience of older generations to call on but also having new generations bringing things like digital solutions, diversification, ESG agenda to the table.
“Irish family businesses have also demonstrated an ability to sustain entrepreneurship across generations. They also possess very powerful resilience instincts and we often say that resilience is embedded in the family’s DNA. The experience passed through generations is one of the things that makes family businesses unique and positions them strongly to make a recovery from this period of crisis and economic uncertainty.”
The COVID-19 impact hasn’t been entirely negative, she adds. “One of the unexpected benefits of the pandemic and the lockdowns has been the gift of time. The slowdown has given family businesses the time to take stock of where they are, to explore new products and markets, to implement digital solutions, and to focus on their governance and ownership structures and succession plans. This will help many family businesses to emerge from the crisis in a position of strength.”
The Government will still have a critical role to play in supporting family businesses as the economy reopens, Lynch points out. “There is the potential for businesses to face a financial cliff edge as liabilities to the State and lenders fall due. In this light, there is a need for Government to continually reshape the suite of supports for businesses as circumstances evolve. Fiscal policy will need to move from serving the needs of today to fuelling the recovery of tomorrow and the cause of family businesses should be at the heart of this.”
Notwithstanding this, family businesses will remain in the vanguard of the Irish economy. “Regardless of their size, age or industry sector, Irish family businesses are well positioned to successfully come back from the impact of the pandemic through their sense of community, purpose and patience and are now in a strong position to lead the economic recovery,” she concludes.
If you have any queries on the impact of COVID-19 on Irish family business, please contact Olivia Lynch of our Private Enterprise team.