KPMG Private Enterprise and the STEP Project Global Consortium release analysis of family business responses to the COVID-19 crisis:
A new report Mastering a comeback: How family businesses are triumphing over COVID-19 from the STEP Project Global Consortium and KPMG Private Enterprise tracks the impact of COVID-19 on nearly 2,500 family businesses globally, including 59 in Ireland, and more than 500 non-family businesses. The family businesses surveyed in Ireland were predominantly larger businesses, with 68 percent having more than 200 employees and a further 22 percent having between 51 and 200 employees. Respondents spanned industries from services, manufacturing, construction, agriculture, fisheries and mining.
In Ireland, 68 percent of family businesses say that revenues have decreased due to the COVID-19 pandemic, trending slightly ahead of the rest of Europe at 64 percent and marginally behind the global picture, where 69 percent indicated that revenues have decreased. Just 5 percent of Irish family business said COVID-19 has resulted in revenue increases, compared to 9 percent globally and 11 percent in Europe. Almost a third of respondents in Ireland said that revenues were unaffected (27 percent) compared with 22 percent globally and 25 percent in Europe.
The findings show that employment in Irish family businesses was more severely impacted, with 15 percent saying there was a decrease in the number of employees in their business compared to pre-COVID levels, versus 8.5 percent globally and just 4.3 percent in Europe.
The survey also examined what specific actions businesses took to mitigate the impact on their business. In Ireland, actions predominantly focused on reducing labour costs (35 percent) followed by reducing operating costs or planned investments (34 percent), actions to restructure costs or payments (23 percent) and reducing top management compensation (8 percent). Globally, there was a similar focus on reducing labour costs (36 percent) but a greater emphasis made on operations costs and planned investments (41 percent).
Interestingly, when asked which actions were taken to reduce labour costs, Irish respondents indicated that they favoured placing employees on furlough above implementing a hiring freeze or reducing pay. This is perhaps reflective of the range of supports provided by Government over the past 12 months to support retention of employees.
Similarly, Irish family business sought to consider alternative types of incentive compensation for top management during the crisis above deferring or reducing executive pay, which was the main strategy implemented by family businesses globally.
The Irish businesses surveyed have stood the test of time, with almost half (46 percent) being a third-generation business, and a further 13 percent comprised of a fourth or subsequent generation. This compares starkly to the global businesses surveyed, where the majority (42 percent) are first generation businesses and just 14 percent are third generation businesses.
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.
Globally, the findings show that multi-generational firms were 45 percent more likely to deploy a business transformation strategy than single-generation family firms, and that 42 percent of family businesses were more likely to deploy a business transformation strategy then non-family firms. With business transformation set to be an integral part of survival for any business post COVID-19, it is encouraging to see that family businesses are embracing change at this time. This is further supported by the finding that globally more than 70 percent of families maintained their R&D investments and continued to launch new products and services throughout the pandemic
Commenting on the Irish findings, Olivia Lynch, Partner, KPMG Private Enterprise said “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 & agri and leisure and tourism. The supports offered by Government over the past 12 months have no doubt 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. This is perhaps even more stark when we consider that most of these businesses have stood the test of time and are now third generation, employing substantial numbers of people. 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. This demonstrates their agility and willingness to adapt and I have no doubt that with the right supports, Irish family businesses will use the benefit of their multi-generational experience to bounce back strongly from this crisis.”
Globally, the report highlights three core strategies used by family businesses to address the immediate impact of COVID-19. The strategies correlate with common priorities that are unique to family businesses – namely the importance of the family’s purpose and values, multi-generational involvement and long-term mindset:
1. 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.
2. Business transformation: Family businesses were found to be 42 percent more likely to implement business transformation strategies rather 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.
3. 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 exercise patience to understand the full impact of COVID-19 on their business and others in their industry with a view to adopting plans for the long term, rather than just mitigating the short-term impact of the pandemic.
The report identifies two key factors that influenced families’ strategy decisions: whether the business is led by a family or non-family CEO, and whether the company shares are owned by a small or large number of family members.
Businesses led by a family-CEO and with high family involvement were more likely to adopt a social responsibility strategy as one of their choices to focus on the welfare of employees and the communities where the family lives and operates.
In the cases where a family business is led by a non-family executive or with lower family involvement, there was a higher likelihood that the business leader made difficult decisions to soften the impact on the business such as reducing employee numbers, general cost cutting and potential restructuring.
The size, scale and age of the business also contributed to how businesses chose to respond to COVID-19. The report concludes that because older business families have been so committed to sustaining entrepreneurship across the generations, a deeply resilient instinct has been embedded in their DNA which led them to act carefully and focus on longer-term solutions. Their patient capital and financial resources, especially among older and larger family businesses, allowed them to withstand major changes and challenges to their operations in the short term and to identify opportunities for the long term.
Speaking on the key learning for Irish family businesses, Camilla Cullinane, Partner, KPMG Private Enterprise added: “A stand out finding for me is that family businesses are embracing the transformation agenda. 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. In our experience family businesses have proven time and time again to be extremely agile and we have seen great examples of family businesses pivoting successfully during the pandemic. The value of family businesses to our economy cannot be understated.
Our advice to family businesses is to continue to invest in innovation and skills where possible, and to continue to capitalise on the experience of both older generations and the next generation to carve out new opportunities in products and markets.
If you have any queries on the impact of COVID-19 on Irish family business, please contact Olivia Lynch of our Private Enterprise team.