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‘Robust business structure enabled family businesses to respond suitably to COVID-19’: ‘Family businesses to play a catalytic role in revival of the global economy’: Study

[March 30, 2021]: A new report from the STEP Project Global Consortium and KPMG Private Enterprise finds that the unique structure of family businesses empowered them to respond to the impact of COVID-19. The study found that the involvement of the family and their long-term mindset has enabled them to demonstrate resilience in the face of the pandemic, which has placed them in a key role to lead the economic recovery.   

The report, titled –‘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, across 75 countries. Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business (ISB), being the only member from India conducted the survey in India. Appended is the link to the report pl.

https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/03/family-business-survey-report.pdf

Talking about the Indian context, Dr. Nupur Pavan Bang, Associate Director, Thomas Schmidheiny Centre for Family Enterprise, said, “Lower percent of companies in India (29 percent) took actions to reduce/eliminate labor costs when compared to the global average of 36 percent. Emphasis on cost reduction through cutting operating costs, cut down on investments, restructuring, deferring payments and expenses, and reducing the top management team's compensation was more in India compared to family firms globally."           

The report uncovers three core strategies used by family businesses to address the immediate impact of COVID-19, to respond to the challenges and opportunities it presented, and accelerate the involvement of family members to prepare the plan for the future:
 

1. 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 as a whole, and the needs of all their stakeholders including employees, customers, suppliers and local communities.
2. Business transformation: Family businesses were found to be 42 percent more likely to implement business transformation strategies when compared to non-family businesses during the pandemic. Family businesses with multiple generations in the firm were 45 percent more likely to implement a business transformation strategy when compared to single-generation family firms.
3. 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. They have a view for adopting plans for the long term, rather than just mitigating the short-term impact of the pandemic.

Family businesses constitute the earliest and most common business model in the world and range from local, small businesses to some of the world’s biggest companies like Wal-Mart and Heineken. Due to this range, different kinds of family businesses chose to deploy the three strategies at different times and in different ways. 

Greater family involvement led to greater social responsibility

Further, the report identifies two key factors that influenced families’ strategy decisions:  whether the business is led by a family or non-family CEO, and whether the ownership is distributed amongst a small or large number of family members.

Businesses led by a family-CEO and with high family involvement were more likely to adopt a social responsibility strategy as one of their choices to focus on the welfare of employees and the communities where the family lives and operates. In the cases where a family business is led by a non-family executive or with lower family involvement, there was a higher likelihood that the business leader made difficult decisions to soften the impact on the business such as reducing employee numbers, general cost cutting and potential restructuring.

Multiple generations working together accelerated business transformation

In addition to leadership and ownership factors, the study reveals the pivotal role that multiple generations of the family have played in their response to COVID-19. Crucially, families were able to draw on support from multiple generations, leveraging the past experiences of older generations to help manage critical challenges and utilizing the insights of younger members to drive modernisation.

Families’ abilities to leverage the past experiences of older generations represent a crucial component of their reactive pivots (e.g. deferring or reducing executive pay). As time went on, the focus shifted to proactive pivots (e.g. streamlining their operations by implementing new technologies), which benefitted from the knowledge and insights of multiple generations, particularly the innovation of younger members.  

When two or more generations of the family are involved in the business, next-generation family members helped to advance two critical agendas: their firms’ rapid digital advancement and putting ESG in the strategy spotlight.  Being able to draw on intergenerational knowledge and experience meant that 70 percent of families reported that they maintained their R&D investments and continued to launch new products and services throughout the pandemic.

Patience and long-term thinking

The size, scale and age of the business also contributed to how businesses chose to respond to COVID-19. The report concludes that because older business families have been so committed to sustaining entrepreneurship across the generations, a deeply resilient instinct has been embedded in their DNA which led them to act carefully and focus on longer-term solutions. Their patient capital and financial resources, especially among older and larger family businesses, allowed them to withstand major changes and challenges to their operations in the short term and to identify opportunities for the long term.

The report affirms that now is the time to commit to the future and use the competitive advantages of purpose, community and patience as guideposts for all family businesses to make a long-term comeback and lead the global economic recovery.

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About the Successful Transgenerational Entrepreneurship Practices (STEP) Project Global Consortium

The STEP Project Global Consortium is a global applied research initiative that explores family and business practices within business families and generates solutions that have immediate application for family business leaders. The STEP Project Global Consortium aims to be a leading global family business research project with an international reputation. The research insights are specifically drawn to be of relevance to developing new theoretical insights that can offer novel and valuable best practices recommendations to the business stakeholders and the practice community at large. www.thestepproject.org

About the KPMG Private Enterprise Global Center of Excellence for Family Business
As with your family, your business doesn’t stand still — it evolves. Family businesses are unique and KPMG Private Enterprise Family Business advisers understand the dynamics of a successful family business and work with you to provide tailored advice and experienced guidance to help you succeed. To support the unique needs of family businesses, KPMG Private Enterprise coordinates with a global network of member firms dedicated to offering relevant information and advice to family-owned companies.

About ISB
The Indian School of Business (ISB) is a global business school offering world class management education to professionals at its two LEED rated green building campuses – Hyderabad and Mohali. A rich and vibrant pool of research-oriented resident faculty, robust academic partnerships, thriving alumni network, and backing of an influential board and guidance of industry’s thought leadership has enabled ISB to fast emerge and consolidate itself as a premier global business school in the emerging markets. The school is also one of the largest providers of executive education in Asia and the most research-productive Indian management institution.

The school, over the last twenty years has grown at a rapid pace and has earned several prestigious accolades. ISB is the youngest business school to consistently rank among the top global MBA programmes. In December 2019 Poets & Quants gave ISB an integrated ranking of #16 worldwide across FT, Forbes and Bloomberg Businessweek. The resident faculty is ranked in the top 25 globally in terms of per capita research productivity in the leading global management journals.  ISB had the honour of receiving accreditations from the Association of MBAs (AMBA), EFMD Quality Improvement System (EQUIS) and the Association to Advance Collegiate Schools of Business (AACSB). ISB gains the unique distinction of becoming the 100th business school in the world to achieve the coveted ‘Triple Crown’ accreditations- AMBA, EQUIS and AACSB. ISB envisions to become an internationally top-ranked, research-driven, and independent management institute that grooms future leaders for India and the world. To know more about ISB, please visit: www.isb.edu.