The strengths that helped many family-run businesses weather the pandemic can be put to good use in building back better.
Driven mainly by the economic fallout from the protracted Covid pandemic, the tumultuous events of the past year have presented family businesses with unprecedented challenges.
Although many have demonstrated significant resilience, the rapidly changing state of the world has served as a wake-up call for family business leaders looking toward the future.
Yet even as they reconfigured their operations to combat shrinking economies and an uncertain future, the health and safety of their people was the priority.
The people-first approach also extended to supporting the communities where they do business. They believe the strong fundamentals that are their hallmark -- commitment to values, long-term thinking and sensible leverage -- are what recoveries are based on.
It happened in 2009 after the financial crisis when family businesses rebounded to build back opportunities in a weakened world economy. And it will happen again in the post–Covid recovery for two key reasons: family businesses are more trusted than other institutions and leaders, and, in most sectors, they are more resilient.
"The unprecedented Covid-19 pandemic has tested business families' capacity to adapt to change and be resilient across generations," said Farhad Forbes, chairman of the Lausanne-based Family Business Network (FBN), the world's largest organisation of its kind.
"Family businesses contribute meaningfully to both economic growth and employment, and with their inherent focus on long-term success and responsible ownership, many create a more purpose-driven model of business. These contributions have also been amply demonstrated during the pandemic."
The FBN gathers 4,000 business families in 65 countries, encompassing 17,000 individuals, of whom 6,400 are next-generation leaders. Mr Forbes is the chairman of Forbes Marshall, an engineering and utilities management company based in Pune, India.
FBN collaborated with PwC for the latter's Family Business Survey 2021, the tenth edition of the global survey, conducted from October to early December 2020. The responses from 2,801 family businesses in 87 territories confirmed their resilience and optimism about the future.
Before the pandemic, 55% of respondents were predicting growth for 2020 - the lowest percentage since 2010, the year following the global financial crisis. But at a time when companies raised a record US$3.6 trillion in capital from public investors to ensure liquidity, only 21% of family businesses said they required additional capital in 2020.
"Family-run businesses are more efficient and nimble and move faster. We take action faster, both going forward and reversing," says Supat Ratanasirivilai, managing director of Thai Metal Aluminum Co Ltd. SUPPLIED
Now, looking beyond Covid, almost half (46%) of family businesses expect sales to decline. But 86% anticipate a return to pre-pandemic growth rates by 2022, an impressive level of optimism given that no vaccines had been approved when the survey was conducted.
Not surprisingly, the impact of the pandemic on sales has been uneven across sectors. Eighty-four percent of those in hospitality and leisure -- the highest proportion of any sector -- expect a contraction, followed by 64% in automotive and 63% in entertainment and media.
Only one-third (34%) of businesses have had to cut dividends, while 31% of family members have taken salary cuts. Overall, only 21% needed to access extra capital; 15% of the owners are putting in more of their own cash, and a further 23% say they are prepared to do so if necessary.
This optimism isn't blind; it's based on planning and risk management. Four out of five (82%) are prioritising diversification and/or expanding into new markets or products. These are two of the three top priorities for businesses over the next two years, the survey noted.
Nonetheless, the results show that the world is changing, and so is the formula for lasting family business success.
"If family businesses want to get to the sweet spot where competence and ethics converge, it requires a change of mindset, a rethinking of their priorities and behaviours and a new definition of legacy," said Peter Englisch, global family business leader and a partner with PwC Germany.
STRENGTHS OR WEAKNESSES
According to McKinsey & Company, about one-third of the Fortune 500 today comprises family-run or family-owned businesses, with a large portion coming from emerging economies in Asia.
"In the past three decades, changing trends in consumers, manufacturing and supply chain, cross-border trade flows, and technology, have all contributed to lifting both multinationals and family-run businesses to new growth levels," it said.
Family businesses have certain strengths but if they are not properly managed and cultivated, they could become weaknesses in the long term, McKinsey pointed out.
A core strength is personal commitment/ownership, compared with public companies that have larger groups of external shareholders.
"How this personal investment fits into the company's governance structure is important. If left unchecked, concentrated ownership, lack of transparency and poor investor relations may occur," said the McKinsey research shared with Asia Focus.
"Achieving the right governance balance requires putting in place a strong board and advisory council, and fostering employee engagement, empowerment and incentives."
Other aspects of family involvement are often expressed in intangible terms through the organisation's culture, values and brand. This too can be a double-edged sword.
"If not properly managed, these factors can result in a rigid culture marked by blind trust and complacency, authoritative leadership style, and lack of innovation," the international consulting firm cautioned.
"Being aware of the dark side of family capital is often the first step to properly managing it, followed by cultivating an open and transparent culture, fair talent and performance management, and diversity and inclusion."
Harald Link, the third-generation chairman of B.Grimm, said family businesses in principle always have a long-term view, whereas large corporations are run by people with a maximum five-year contract. "They have a five-year view, so don't lose my job before the end of the contact," he joked during a conversation with Asia Focus.
When a crisis comes, the first thing large companies think about is how to cut costs. They don't care as much about the people, said Mr Link, whose family founded B.Grimm, now one of Thailand's largest industrial conglomerates with businesses that span Asean and beyond, more than 142 years ago.
"In family-run companies, we don't think first about how many people will be let go," he said. "We think about how we can look after our people and how can we look after the business at the same time. You will find high personal and social engagement with the community and with the people, with the long-term view.
"When you have a family business, how do you develop the family so that the love remains and all the family members keep supporting the business, either with the heart or with the hand or with both."
Family businesses, says Mr Link, have a stronger chance of survival. "They are owned and run by people whose life depends on that and they don't have anyone else to support them. They also want to be part of society. That's why I think that for long-term success, family businesses maybe have a chance of a better outlook."
It is important for the family to instil the love for the company, he pointed out. "Sometimes, some founders or business owners are so married to their work and they forget how to pass it on. So communication is very important.
"It is very important to be clear with your children, and for your children to be clear with you that what they want, what they think they can achieve and how to work, or to run the business and how to pass it on, because finally it's about passing it on.
"Many of my friends, at my age, they have this issue about how they can pass it on properly," said Mr Link, who is 66.
Supat Ratanasirivilai, managing director of Thai Metal Aluminum Co Ltd, said family-run businesses make much quicker decisions. Directors and decision-makers of large corporations always require well-rounded information and that makes the decision-making process much slower.
"Family-run businesses are more efficient and nimble and move faster. We take action faster, both going forward and reversing. In effect, it allows us to take advantage of opportunities while limiting the drawbacks of bad moves by reversing quickly as well," said Mr Supat, who eight years ago took over the company that was founded by his father.
"As well, being smaller and nimbler, we also carry less overhead costs than big corporations. So we can price our products and services lower in general," he told Asia Focus.
"Sometimes, some founders or business owners are so married to their work and they forget how to pass it on. So communication is very important," says Harald Link, chairman of B.Grimm. SUPPLIED
SUSTAINABLE & DIGITAL
One interesting finding of the PwC report is that Asian family businesses show a stronger commitment to prioritising sustainability than their European and American counterparts.
"79% of respondents in mainland China and 78% in Japan reported 'putting sustainability at the heart of everything we do' compared to 23% in the US and 39% in the UK," it noted.
"It is clear that family businesses globally have a strong commitment to a wider social purpose," said Mr Englisch. "But there is growing pressure from customers, lenders, shareholders and even employees, to demonstrate a meaningful impact around sustainability and wider ESG (environmental, social and governance) issues.
"Many listed companies have started to respond but this survey indicates that family businesses have a more traditional approach to social contribution.
"This is not just about stating a commitment to doing good but setting meaningful targets and reporting that demonstrate a clear sense of their values and purpose when it comes to helping economies and societies build back better."
The pandemic, meanwhile, has demolished any lingering doubts about the benefits of digital transformation. Digitised services became the norm overnight, and businesses with digital capabilities fared better than those that had to scramble to keep up.
And while 80% of family businesses surveyed by PwC adapted to the challenges of the pandemic by enabling home working for employees, there are concerns about their overall strength when it comes to digital transformation.
"There is clear evidence that having strong digital capabilities enables agility and success, and that [businesses that are strong digitally] have a similar enthusiasm for sustainability," Mr Englisch said.
"Businesses should consider how they can engage the experience and fresh insight of next-gens when it comes to prioritising their digital journey."
B.Grimm's Mr Link acknowledged that when family businesses look at making digital moves, they tend to be pragmatic, looking at the tangible benefits for the business. "Not just to do stuff so you can say, 'I'm digitised, and I do digital things.' It has to be purpose-oriented," he said.
Mr Supat believes digitisation depends largely on the profile and background of the owners.
"In our case, my sister is quite tech-savvy and, in my opinion, she deploys the power of digitisation to the maximum possible level for an organisation like ours," he said. "We computerised documentation in our production processes. For example, we use iPads rather than paper for the instruction manuals for production of different products."
McKinsey argues that many family companies in Asia have in fact been driving digital disruption and innovation for years. "Even before the Covid outbreak, Asian companies were among the most technologically advanced, serving the world's most digitally savvy consumers," it pointed out.
According to new research by the McKinsey Global Institute (MGI), over the last decade, Asia has accounted for 52% of global growth in technology company revenues, 43% of startup funding, 51% of research and development spending, and 87% of patents filed.
Family companies in Asia have played a tremendous role in advancing the progress of new technologies, facilitated by the region's existing strengths in manufacturing and infrastructure. "As Asian economies continue to globalise and grow in scale and influence, family companies are likely to play increasingly important roles in contributing to the digital and innovation capabilities of the region," McKinsey said.
The PwC survey, meanwhile, observed that while financial resilience makes family businesses well-placed to succeed, they should take a closer look at their role in society in the post-Covid age. "They will need to revisit their purpose and use the trust they have gained to create measurable non-financial impact," it said.
Next-generation family members, it added, "will play a vital role in pushing family businesses forward in policy areas that are essential to the company's legacy".