The themes highlighted in the KPMG 2020 CEO Outlook: COVID 19 Special Edition (PDF 1.2 MB) feel very familiar to family business leaders. While most respondents came from large multi-national public corporations, it is interesting to observe the number of longstanding family business issues, opportunities and competitive advantages that now seem to be going mainstream in the wake of COVID-19. The need to leverage a long-term mindset and a deep sense of purpose when addressing issues including the ongoing battle to recruit and retain top talent or the need to accelerate digital transformation are front of mind for CEOs globally, and family businesses are leading the way.
There are valuable lessons to be learned from the family business model itself and from family firms that have successfully tackled these issues throughout the decades and sometimes centuries.
Lesson 1 - The renewal of purpose
Corporate CEOs are increasingly aware of the importance of purpose in their organizations, and 79 percent of the KPMG CEO Outlook survey respondents said that they have felt an even stronger connection to their company’s social purpose since the beginning of the pandemic.
Having a clear purpose has been high on the family business agenda for generations, and it’s a fundamental basis for defining the success of the business and the family itself. A family’s measure of success includes the unique element of socio-emotional wealth, defined in the 2012 paper by Berrone, Cruz and Gomez-Mejia1 , it addresses the pursuit of non-financial goals such as wider societal impact and transgenerational succession and how these success factors impact decision making and the strategy of the business.
It’s interesting to see how the focus on purpose is now making its way across the corporate divide and beginning to define the financial and non-financial metrics of success in other business models as well.
Lesson 2 – Managing the quest for top talent
The competitive landscape for recruiting, retaining and incentivizing high quality employees has been the top issue in our KPMG Private Enterprise European Family Business Barometer (PDF 2.7 MB) for several consecutive years. From January to August 2020 it rose from 11th to 1st within the CEO outlook respondents as the number one threat to long-term growth in the views of many CEOs globally.
Family businesses have historically held a competitive advantage in attracting top talent with a greater sense of commitment to their employees and higher job security tied often to a strong alignment between family and business values. However, these benefits can be offset with the ‘non-family glass ceiling’ which may be created due to nepotistic behaviors of the family, or the lack of equity reward schemes commonly seen in public companies but not often in family businesses due to a desire for continued bloodline ownership.
As we reflect on the impact of COVID-19 on the workforce, a key issue beginning to emerge is around virtual performance management. How will we keep employees motivated and supported while working from home? How will we manage performance in a virtual work environment? How can we protect the health of employees when they are required to return to the office? How businesses address these questions in the new reality will be key drivers of their attractiveness to future and current employees.
Lesson 3 - Seizing ESG opportunities
Closely related to a clearly defined sense of purpose is the importance of ESG themes, with close to two-thirds of respondents saying that their response to the pandemic has caused their focus to shift to the social component of their ESG program.
ESG strategies extend well beyond environmental initiatives, and family businesses have long known that ESG actions are not only good for the world, they are also good for business. From climate change to diversity and board effectiveness, ESG initiatives have real and quantifiable financial impact and can link directly back to a company’s – and a family’s – sense of purpose. For many family businesses, this has led to top-line growth, cost reductions and a boost in productivity while also fulfilling its core purpose.
Lesson 4 - Accelerating growth
In the KPMG CEO Outlook survey, 67 percent of CEOs said they have had to rethink their global supply chain approach given the disruptive impact of the pandemic, and driven by the desire to become more agile in response to changing customer needs.
Agility, often demonstrated through a high-speed decision-making cycle and shortened communication channels between the owners and the business, is one of the hallmarks of family businesses, given their ability to pivot quickly when necessary. They also tend to be nationalistic, and this is creating additional competitive advantages against multi-nationals that are currently having to react to disrupted supply chains and more restricted access to customers.
Accelerated digital growth has become one of the distinctive outputs of COVID-19, with the biggest advances being in digital operations. Close to one-third of CEOs in the survey said that their digital progress during the pandemic has put them years ahead of where they would have expected to be right now.