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:
- Structures and suitability
- Sustainability and resilience
- Transfer of roles and responsibility
- Social impact and building a better working world
- Global mobility and residence
- 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.