In a year where business has had to transform the way it meets the needs of society and the environment, family-owned businesses risk falling behind.
While more than half (55%) of respondents to a new global survey of 2 801 family business owners saw the potential for their business to lead on sustainability, only 37% have a defined strategy in place. European and American businesses are lagging their Asian counterparts in their commitment to prioritising sustainability in their strategy.
Seenty-nine percent of respondents in mainland China and 78% in Japan reported ‘putting sustainability at the heart of everything we do’ compared to 23% of US and 39% in the UK. Larger businesses and those owned by later generations also buck the trend, with greater focus on sustainability.
This reluctance to embrace sustainability comes despite the fact family owned businesses are highly likely to see a responsibility to society. Over 80% engage in proactive social responsibility activity, and 71% sought to retain as many staff as possible during the pandemic. Nor is it a function of economic pessimism – less than half (46%) expect sales to fall despite the pandemic and survey respondents felt optimistic about their business’ abilities to withstand and continue to grow in 2021 and 2022.
Instead, the issue is an increasingly out-of-date conception of how businesses should respond to society, with 76% in the US and 60% in the UK placing greater emphasis on their direct contribution, often through philanthropic initiatives, rather than through a strategic approach to ESG matters. Family businesses are also somewhat insulated from the investor pressure that is currently pushing public companies to put ESG at the heart of their long-term plans for commercial success.
Schalk Barnard, family business leader for PwC Africa, says: “The pressure on all businesses to contribute to a cleaner environment and fairer society is increasing. Actions around a sustainability agenda–not just commitments–have taken on a new urgency.
“Businesses that don’t demonstrate their commitment to sustainable practices could be penalised by regulators, consumers, the media and even regulators. Sustainability must be central to family business operations and processes. Family businesses need to learn how to measure and communicate their ESG agenda to a wider stakeholder group.”
Growth
The survey suggests family businesses have weathered the pandemic relatively well. Less than half (46%) expect sales to fall despite the pandemic and survey respondents felt optimistic about their business’ abilities to withstand and continue to grow in 2021 and 2022.
Family business lagging on digital transformation
Even though 80% of family businesses adapted to the challenges of the COVID-19 pandemic by enabling home working for employees, there are also concerns about their overall strength when it comes to digital transformation.
Sixty-two percent of respondents described their digital capabilities as ‘not strong,’ with a further 19% describing it as a work in progress.
Yet here there are clear generational differences: 41% of businesses that describe themselves as digitally strong are third or fourth generation, and Next Gens have taken an increased role in 46% of digitally strong businesses.
Barnard adds: “The Covid-19 pandemic has demonstrated the importance of strong digital capabilities for businesses. It is of concern, however, few family businesses say their digital transformation is advanced – though they continue to believe digitalisation is a top priority. Moving faster along a digital journey requires an understanding of the value of data and analytic tools, as well as a commitment to upskilling your workforce.”
The governance gap
While family businesses report good levels of trust, transparency and communication, the survey highlights the benefits of a professional governance structure. While 79% say they have some form of governance procedure or policy in place, the figures fall dramatically when it comes to important areas: just over a quarter state they have a family constitution or protocol, while only 15% have established conflict resolution mechanisms.
Barnard concludes: “Families’ sense of purpose must be shifted to the business operations for continued success. Codifying values helps with both performance and family communications.
“Furthermore, it is vitally important that businesses take a lead on ensuring they have formal governance processes, including succession plans, in place to ensure stability and continuity in the long run.”