Family-owned businesses form a key pillar of economic activity, offering stability, a commitment to the long term, and responsibility to their communities and employees. They face unique challenges however, particularly during crises, which differ to those of public or other forms of private businesses. In order to navigate those challenges, family business leaders should consider how their business fares against these six priority areas:
- Sustainability and resilience
- Succession and inheritance
- Diversification of family wealth and the next generation
- Social impact and building a better working world
- Global mobility and residence
- Navigating liquidity and financing
While COVID-19 has 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 for the future.
1. Sustainability and resilience are key to success
Sustainability, resilience and responding innovatively to periods of economic disruption have long been hallmarks of successful family businesses.
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.
One of the notable advantages enjoyed by many family-owned businesses is their ability to respond quickly to crises. COVID-19 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. Those that invest in sound governance frameworks are most likely to be able to adapt quickly during periods of crisis.
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 on effective long-term objectives.
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 landscape and public policy continues to evolve, we see family businesses focused on nine facets of resilience:
2. The importance of succession planning
Succession planning is critical to the success and continuity of any family business.
A common misconception is that there are certain pivotal points at which succession planning becomes a priority. In reality, like all businesses, family businesses are in a constant state of change and development. Therefore succession planning should be a consistent focus throughout a company’s lifecycle.
While around three quarters of family businesses plan to pass ownership to the next generation, according to the Family Business Survey by the National Bureau of Economic Research’s Family Business Alliance, many leaders find themselves so involved in day-to-day operations that they can lose their sense of objectivity in succession planning.
Long-term planning and education are central components in any succession plan. If the management and ownership of the family business is to be passed down to younger generations, they need time to develop the requisite skills and experience, as well as a genuine interest and passion for the business if they are to share the family’s long-term goals.
Family business leaders considering succession plans should be looking closely at:
- Setting up structures to define the boundaries between business and personal assets.
- Ensuring the tax and legal aspects of these structures support succession planning.
- Leveraging a broader group of non-family members to promote multi-generational growth.
- Focusing on “intra-preneurship” opportunities for different generations to develop within the enterprise.