Family businesses well positioned to lead economic revival

The unique structure of family businesses which has enabled them to more successfully respond to the negative impacts of Covid-19 on their business, according to a new report. The reduction in the workforce of family businesses was almost 2% lower than among non-family businesses, as they sought to double down on digital and ESG transformations in response to the crisis.

Family businesses are a key pillar of sustainable economic growth, focused on generating long-term value for generations to come. According to a new study, the unique structure of many family businesses has also positioned them well to adapt to the negative impacts of the coronavirus on their trade.

The study conducted by KPMG Private Enterprise in partnership with STEP Project for Family Enterprising took in the opinions of 2,500 family businesses worldwide, contrasting them with over 500 non-family businesses. It found that despite the huge variation in the size and make-up of family businesses, the common factor among them all was a longer term mindset, which led to high levels of resilience when faced with one of the biggest challenges in modern times.

Tom McGinness, Global Leader, Family Business, KPMG Private Enterprise, stated, “For many family businesses, an unexpected and positive outcome of the pandemic was the gift of time. With a slowdown in their business operations, several family business leaders found they now had the time to explore ideas for new products, new markets and extensions of their business that had been in consideration for several years. Others took the time to look seriously at ways to streamline their operations, including implementing new digital solutions, and to focus on important family issues such as succession planning and their ownership structures.”

While the vast majority of family businesses saw revenues fall, many were able to pivot their firm to avoid the worst impacts of the pandemic. Illustrating this, while 69% of family businesses recorded a drop in revenue, 9% reported an increase specifically due to actions taken to pivot their business, and 22% reported no revenue changes. As a result of this, the average reduction in the family business workforce globally was 8.56%, compared to 10.24% in non-family businesses.

The study also revealed the pivotal role that multiple generations of the family played in their response to Covid-19. When two or more generations of the family were involved in the business, the study found that next-generation family members helped to advance two critical agendas: rapid digital advancement and pushing ESG efforts up the agenda. Family businesses were subsequently found to be 42% more likely to implement business transformation strategies than non-family businesses during the pandemic as a result.

The drive to transform as a result of the last year’s crisis has meant many family businesses will be well positioned to come out ahead during a future economic recovery. Around 70% of families reported that they maintained their R&D investments and continued to launch new products and services throughout the pandemic, according to the study.

Jonathan Lavender, Global Head, KPMG Private Enterprise, commented, “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. These NextGen influencers also recognised that implementing an ambitious ESG strategy was an essential ingredient in the transformation of the family business. As a result, they have expedited the operational changes necessary for achieving their firms’ environmental and societal goals and firmly embedded ESG as a strategic business priority.”

However, not every family business was positioned to benefit in the same way. KPMG found that 84% of global family businesses currently only have a single generation active in their running, while that rises to 87% in Europe and the Americas – potentially stifling their recovery. Family businesses with one generation leading them were 45% less likely to have implemented business transformations than those with two generations.