What have family businesses experienced in the past year and how is that shaping their plans for the future? The big-four consulting firm PwC just released its 2021 Family Business Survey, providing some answers and insights.
***Rebound in operations. Despite the many challenges, significantly more than half — 63% — of US family businesses surveyed reported growing this past year. Still, this indicates that 37% had flat or down results. The good news? By 2022, 96% of family businesses surveyed expect to be growing, up from 82% in 2021.
***Focus on diversification. The pandemic has led to a realization that more diversification is necessary to manage investment risk and preserve the family legacy. There’s quite a bit of work still to do on this front. Currently, just 27% of family businesses surveyed had diversified business operations and only 5% said their family investments were diversified.
What does diversification look like? We here at LNWM agree with PwC that answering this critical question requires a complete and meaningful assessment of what PwC calls “shared family capital,” including all financial and non-financial assets. This type of assessment is something we have been helping our business-owning clients do for decades. Only then is it possible to achieve the goals of both the family and the business.
***Opportunity in sustainability and ESG. Most family businesses surveyed participate in philanthropic efforts, especially in their local communities, but only 17% have developed, documented and communicated a sustainability strategy for their operations based on environmental, social and governance (ESG) factors.
Per PwC, family businesses now have an opportunity to be at the forefront of ESG issues. Although closing the ESG gap may be challenging, there are great incentives: more employees and customers are looking to work for, or buy from, companies whose products/services have a strong ESG orientation.
***Opportunity in digital innovation/integration. Family businesses have been traditionally slow to change, says PwC, which makes attracting and retaining talent more challenging. Workers are increasingly attracted to organizations that offer more digital skills, more inclusivity and more flexibility. Family businesses that fail to provide a path to digital upskilling could lose out in the intense competition for talent.
So what are US family businesses doing about this? They are incorporating technology into operations but not in a systematic or visionary way. According to the PwC survey, 80% use technology to improve efficiency, collaboration, and decision-making, and 65% have invested in digital capabilities for employees. However, only 42% have strong digital capabilities, and just 33% have developed a clear and documented roadmap for digital transformation, an essential tool for achieving digital goals.
***Need for succession planning. US family businesses are definitely not waiting to get the next generation involved: 67% already have next-gen family members working in the business whom they think will become majority shareholders within five years. Yet, only 34% say they have a robust, documented and communicated succession plan. As the events of the past year have made it even more clear, all businesses should have a near-term business continuity plan and a long-term succession plan; circumstances can change rapidly and in ways that are beyond a family’s control.
LNWM was founded (and is still owned) by the Laird Norton families, now in their 7th generation as successful business owners and entrepreneurs. In addition to them, we have advised hundreds of other business-owning families over many generations. And we have seen first-hand the critical importance of these two things: (1) proper diversification and (2) comprehensive succession planning. These are the lynchpins of longevity for both the family and the business, regardless of the industry. And we are here to help our clients achieve both so their family and their business can continue to prosper over many generations.