8 minute read 23 Sep 2021
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Six things family business owners should be thinking about now

Authors
Alexander Hayward

EY UK&I Family Office Market Leader; Senior Manager; Private Client Tax, Ernst & Young LLP

Enhancing long-term success of family businesses. Focused on family governance, office set-up and review. Over 10 years of research-led consulting. Avid scuba diver. Trustee of a refugee charity.

Tom Evennett

EY UK&I Family Enterprise Leader; Partner, Private Client Services, Ernst & Young LLP

Advises UHNW individuals, families and entrepreneurs, and private offices and wealth structures in the UK and globally. Avid follower of Crystal Palace Football club.

8 minute read 23 Sep 2021

As countries continue to deal with the COVID-19 crisis, we see family office and family business leaders facing six common challenges.

In brief
  • Enhancing the family business and family office’s approach to sustainability, resilience and innovation are a hallmark of the response to economic disruption.
  • Developing the leadership and culture within the family business and family office have emerged as priorities, as a bedrock for the hybrid working model.
  • There is an increased focus on social impact, culture, remote working opportunities and financing growth while maintaining a positive reputation.

Family-owned businesses and family offices form a key pillar of economic activity, offering stability, a commitment to the long term, and responsibility to their communities and employees. In order to navigate challenges, family business and leaders should consider how their business fares against these six priority areas:

  1. Structures and suitability
  2. Sustainability and resilience
  3. Transfer of roles and responsibility
  4. Social impact and building a better working world
  5. Global mobility and residence
  6. Diversification of family wealth and long-term planning

While the last 18 months have presented personal and professional challenges for us all, it has also presented a unique opportunity for leaders to stop and take stock of their business models, question their operational sustainability and resilience, and to formalize their governance structures. This should enable changes that will safeguard businesses today and in the future.

1. Integrating structural change is a critical priority 

From geographic shifts, such as the relocation of family members, to intergenerational transfers and the evolution of transparency and reporting requirements, flexibility is now a primary component of their tax strategy. Moreover, as part of this drive for flexibility, we see many questioning whether structures, established 5-10 (or more) years ago, remain fit for purpose and suitable for the changing landscape. 

For the majority of clients, “fit for purpose” means the ability to balance individual and collective family goals across multiple generations, while providing tax efficiency and asset protection. In addition to this, an increasing number are modelling how and when these structures might interact with any potential post-COVID-19 measures from central governments, in order to provide to family principals and members an understanding of the impact these might have on their structures.

2. Sustainability and resilience are hallmarks of success 

In today’s rapidly changing business environment, with fluctuating market trends, new technologies and globalization forcing companies to regularly adapt their operations, it is increasingly important to be aware of what exactly it is that makes a family business resilient.

The last 18 months have highlighted the importance of flexibility, with companies forced to close offices, factories and warehouses almost overnight. The ability to successfully shift to full-time remote working has been key to survival during this period of uncertainty. 

Company governance and structure issues have traditionally presented challenges for some family businesses, often due to family dynamics. 

Identifying a business model that enables agility and adaptation is key, alongside strategic planning. Therefore, family businesses often thrive due to their commitment to delivering effective long-term objectives. Those that invest in sound governance frameworks are most likely to be able to adapt quickly during periods of crisis. Further, the ability of a business to attract and retain talent is often a good indicator of its resilience. In general, family businesses are more successful at retaining talent than most. A culture that helps drive low staff turnover is beneficial during a period of crisis, when employee commitment is key. 

As the COVID-19 landscape and public policy continues to evolve, we see family businesses and family offices focused on nine facets of resilience: 

3. Family businesses can become vulnerable during leadership transition

There can often be conflict caused by the desire to maintain and respect tradition, and the need to adapt and progress the business in response to the changing environment.

Younger generations may have a different vision for the future, such as exploring new technology, extending the company’s services or expanding into new markets.

As businesses continue to respond to COVID-19, there is an opportunity to explore these possibilities and allow the next generation to gain valuable crisis management experience, so they are prepared should a similar situation arise in the future.

When bringing the next generation into the business, key considerations for leaders include:  

  • Allowing the next generation to apply fresh ideas and skills to the business. This could make the difference between falling behind and flourishing in the current climate.
  • Inviting younger family members to join the board and involving them in key decision making and communication so they can develop a clear and confident voice with stakeholders.

4. Culture, purpose and value are a huge strategic focus

Family businesses, like others, are focusing further on their social and environmental impact, from how they take care of their employees during a crisis to steps they take to give back to and support their local communities.

In 2018 the high street retailer Timpson was awarded the Family Business Award of Excellence at the EY Entrepreneur of the Year UK Awards. Recognized for its creative approach to employee engagement and innovative work helping ex-offenders in the local community, Timpson was highlighted as a "national example of how a business demonstrates its values and social purpose."

Framing goals, not just around the immediate family but through the lens of local communities, can often help provide owners with a clear purpose and focus for how they want to use their wealth, particularly as new leaders begin to take over the reins.

Growing the family business sustainably, while taking responsibility for others through philanthropic and social engagements, should be a key focus for leaders.

As family leaders look over the horizon, they expect an increased focus on their company’s social impact and its importance for both their customers and their employees.

5. COVID-19 has highlighted the mobility of global workforces

When the lockdown began, there was an initial flurry of family business owners considering whether to stay residing in the country in which their company is based or quickly relocate abroad to second homes before borders closed. For those deciding to work remotely from abroad, this raised a multitude of questions around tax and whether their company would be liable to pay taxes under various jurisdictions.

While some tax authorities have issued temporary relaxation of rules around residency and permanent establishment to facilitate those remotely working from other jurisdictions, it is still unclear whether longer-term decisions will be contemplated which would safeguard family business leaders working on a remote basis from overseas.

The EY Tax COVID-19 Global Mobility Response Tracker provides regular updates on how governments around the world are changing their payroll, tax and social security laws to address the mobility implications of their response to the pandemic.

6. Family businesses should use crises as a prompt for reflection

While family businesses and family offices are always evolving and adapting, long-term planning is key to success. With the business climate continuously in a state of change, family business leaders can benefit from considering what they want to achieve personally, and for the business, and whether their current strategy will facilitate these objectives.

Owners are faced with a multitude of challenges as they try to combine growth acceleration with building the family legacy. Planning for the future can be daunting without detailed insights into what other family businesses are doing and how they are adapting to market disruption. Stopping to take stock of these priority areas, to assess whether more work needs to be done to develop a clear way forward for each strategic pillar, is the first step towards ensuring a family business is robust, resilient and ready to navigate through all market conditions.

Summary

In this article, Tom Evennett and Alexander Hayward discuss how leaders should use these disruptive times to consider what’s next for the business and indeed, the family as long-term planning is key to success.

About this article

Authors
Alexander Hayward

EY UK&I Family Office Market Leader; Senior Manager; Private Client Tax, Ernst & Young LLP

Enhancing long-term success of family businesses. Focused on family governance, office set-up and review. Over 10 years of research-led consulting. Avid scuba diver. Trustee of a refugee charity.

Tom Evennett

EY UK&I Family Enterprise Leader; Partner, Private Client Services, Ernst & Young LLP

Advises UHNW individuals, families and entrepreneurs, and private offices and wealth structures in the UK and globally. Avid follower of Crystal Palace Football club.