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Succession planning 'crucial' as family businesses best placed to lead global recovery

By James Beech

Family businesses demonstrate greater resilience than non-family firms during the Covid-19 pandemic due to their patient capital, social responsibility and accelerated business transformation, but the crisis has brought home the need for families to formalise and communicate their succession plans.

A new report published today from the STEP Project Global Consortium and KPMG Private Enterprise found the unique structure of family businesses has empowered them to respond to the impact of the coronavirus, placing them in a key role to lead the economic recovery.  

Asked if family business recovery was at risk if succession planning was not formalised, Tom McGinness (pictured above), Global Leader, Family Business at KPMG Private Enterprise, said succession planning had become a “very hot topic” among the families he spoke with. Many families were putting in place learning and development plans for the next generation to assess whether they have the desire, but also the skills to join the business, McGinness said.

“They are definitely looking at governance formalisation, such as the family constitution, in order to make sure that it's very clear how succession planning will work. I think this is another aspect of managing risks that may come into the business, which they have learned from the pandemic.”

Andrea Calabro (pictured right), STEP Project Global Consortium Global Academic Director said the succession planning debate was core for family businesses and for them working with families.

“But I think that the global pandemic has put under the spotlight the importance of being organised, having a plan and the plan that is working is communicated and embraced by everyone. We are seeing that this is not just a normal crisis, it's still lasting and we are completely unsure of what will happen from here to six months. It is absolutely crucial, in my opinion, and crucial in the sense that the family businesses that are missing the opportunity to take a reflection on this are taking really high risks. I'm sure that the global pandemic, and also from different talks with family business, have increased the awareness about the importance of succession.”

Calabro said during the pandemic, some senior generations have recalled their wartime experiences of leading their family businesses, which spoke to family business resilience and recovery.

Asked if seniors should stay in the business or depart, McGinness said finding a role for them would be the best outcome in his experience because they have spent their lives building their businesses.

“It’s very difficult to walk away completely and in fact, it’s a crazy waste of their network. So many of my family businesses say, why don’t we retain the senior generation as kind of an ambassador, and they can help maintain some of those client relationships going forward and they can pass on some of their skills to the next generation.

“I think it's a different issue when you need to change, perhaps, the shareholding of the family, because the family, perhaps, has got bigger and perhaps the business cannot afford to pay all of the different family members the way that they did in the past, in which case you still need those senior family members to help you facilitate a change in the equity investment going forward. So there is definitely a role for that senior generation.”

Three core strategies

The report, Mastering a Comeback: How Family Businesses are Triumphing over Covid-19, includes insights from nearly 2,500 family businesses and more than 500 non-family businesses. It uncovers three core strategies used by family businesses to address the immediate impact of the virus:

1.            Exercising patience: Family businesses are focused on protecting their succession plans and long-term future for the next generation. This long-term mindset has enabled them to leverage their patient capital to understand the full impact of Covid-19 on their business and others in their industry, with a view to adopting plans for the long term, rather than just mitigating the short-term impact of the pandemic.

2.            Social responsibility: They took steps to address the impact of the pandemic not only on their family and business, but on the welfare of society, and the needs of all their stakeholders including employees, customers, suppliers and local communities.

3.            Business transformation: Family businesses were found to be 42% more likely to implement business transformation strategies than non-family businesses during the pandemic. Family businesses with multiple generations in the firm were 45% more likely to implement a business transformation strategy than single-generation family firms.

Key findings from Mastering a Comeback: How Family Businesses are Triumphing over Covid-19:

•             69% of family businesses reported that Covid-19 resulted in an initial revenue decline, 9% reported an increase specifically due to actions taken to pivot their business, and 22% reported no revenue changes

•             There was an 8.56% workforce reduction among family businesses globally, compared to a 10.24% reduction in non-family businesses

•             Three quarters (76%) of family firms globally made use of government support programmes, primarily in the form of low-cost loan arrangements. There was less interest in government subsidies among family firms compared to non-family businesses.

•             More than 70% reported that they maintained their R&D investments and continued to launch new products and services.

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