PwC explains why family businesses need to act now to ensure their legacy tomorrow.
In the best of times, the strengths of family businesses are often overlooked as unicorns take flight and the stock market follows. But when times are tough, the strong fundamentals that are their hallmark—commitment to values, long-term thinking, sensible leverage—are what recoveries are based on. It happened in 2009 after the financial crisis when family businesses rebounded to build back opportunities in a shattered world economy. And it will happen again in the post–COVID-19 recovery for two key reasons: family businesses are more trusted than other institutions and leaders, and, in most sectors, they are more resilient.
The Edelman Trust Barometer confirms the first reason: 67% of respondents in Edelman’s 2020 report said they trusted family businesses—against 58% for public companies— making family businesses the most trusted type of enterprise. And our tenth Family Business Survey, conducted from October through early December 2020, confirms the second. Only 21% of family businesses say they required additional capital in 2020, at a time when companies raised a record US$3.6tn in capital from public investors to ensure liquidity. And the majority of survey respondents expect a return to strong growth by 2022.
This is good news for the world economy, given that family businesses are estimated to contribute more than half of GDP and two-thirds of employment. But it goes deeper than that. In a world where capitalism is under fire and people are demanding more accountability, family businesses can help win back trust. The Edelman Trust Barometer clearly shows how trust is built on a foundation of competence and ethics. Of the four main institutions of society—government, business, non-governmental organisations and the media— only business scores positively on both counts.
Family businesses have the characteristics and capabilities needed to claim the sweet spot where competence and ethics converge. But, as the results of our survey also show, thriving in today’s world will require a change of mindset; a rethinking of their priorities and behaviours, including heightened investment in the digital tools needed for economic resilience; and a new definition of legacy. The world is changing, and so is the formula for lasting family business success.
Family business owners want, above all, to create a company that makes a positive impact and ensures a legacy for future generations. They have earned a reputation for prioritising their employees and the communities they serve. They ‘give back’ in the traditional sense, but their approach is based on a definition of legacy that is changing.
In today’s business environment, in which the pace of change is accelerating, profit will need to be aligned with purpose. And as more pressure is put on companies to demonstrate their environmental, social and corporate governance (ESG) credentials, our survey indicates that family businesses are not assuming the leadership role they could. They are not prioritising key areas such as sustainability, which is no longer a ‘nice to have’ for those who can afford to show concern; rather, it’s a business imperative. If family businesses fail to demonstrate their commitment to sustainability with concrete actions, they may risk losing the trust and goodwill that give them licence to operate.
We surveyed 2,801 family businesses in 87 territories and then conducted three panel discussions with family business leaders to test our findings. Based on the results, we argue that family businesses, though resilient, should recognise their blind spots and take a leadership role that demonstrates their commitment to sustainability.
As our surveys in the past have shown, family businesses are on a learning curve to marry their personal values with their business purpose, and vice versa. ESG was already rising up the list of business resolutions long before the arrival and spread of COVID-19. Today, it’s not a question of whether it’s a good idea to prioritise ESG practices, but only of how long it will take for consumers, investors, lenders and governments to punish those that don’t. The OECD has warned against a return to business as usual, arguing that COVID-19 highlighted the vulnerabilities in our societies and economic system. Public sentiment, too, has shifted; even before the pandemic, 43% of consumers expected businesses to be accountable for their environmental impact. Companies with the highest ESG ratings are outperforming others and recovered more quickly from the first wave of the pandemic.
The time to act is now if family businesses want to keep their legacy for future generations.