From trust to impact
Tomorrow's family business requires a new approach for lasting success — one based on digital transformation, prioritising sustainability goals and maintaining professional governance.
of Irish family businesses expect to see overall growth in 2021.
feel they have a responsibility to fight climate change and its consequences.
feel they have strong digital capabilities.
say there is family alignment on the direction of the business.
The year 2020 was a test for everyone, as COVID-19 disrupted lives and livelihoods. Thriving in today's new world will require a change of mindset. A rethinking of priorities and behaviours, heightened investment in the digital tools needed for economic resilience, and a new definition of legacy.
The 10th family business survey reveals that owners want, above all, to make a positive impact and ensure a legacy for future generations. They have earned a reputation for prioritising their employees and the communities they serve. They 'give back' in the traditional sense, but their approach is based on a definition of legacy that is changing.
We've uncovered four key themes:
The world is changing; now is the time to embrace a new formula for lasting family business success.
The pandemic has been an extraordinary test of resilience for almost all businesses. At a time when financial uncertainty was already affecting forecasts, family businesses are rising to meet the challenge.
Irish family businesses have proven to be robust and adaptable. As we have come to expect, they are taking a people-first approach, prioritising the well-being of their employees and supporting their local communities and customers throughout the crisis.
Ireland's situation is more positive than the global picture. Worldwide, 55% of family businesses grew while 19% shrunk. Irish family businesses have seen reasonably strong performance over the last financial year, with 67% experiencing growth and 9% seeing a sales reduction.
Irish businesses show cautious optimism for 2021. 58% of Irish family businesses expect to see growth, compared with 65% globally. Looking to the future, growth aims in Ireland are ambitious for 2022, with 87% expecting to see growth.
We can see from this that Irish family businesses are resilient and are prepared to lead the post-COVID-19 recovery.
Giving back is in the DNA of Irish family businesses. They think about the total impact of their business on society. They prioritise the well-being of their employees. They believe in supporting their communities and society.
What needs to change is how family businesses think about sustainability. To ensure they remain attractive to consumers and employees, sustainability needs to be central to their business operations. It needs to be more than simply embedded within their philanthropic activities.
The pressure on all businesses to contribute to a cleaner environment and fairer society is increasing. Actions around a sustainability agenda—not just commitments—are taking on a new urgency.
78% of Irish family businesses engage in some form of social responsibility activities. This tends to involve contributions to the local community.
59% of Irish family businesses feel they have a responsibility to fight climate change and its related consequences. However only 41% ensure sustainability is at the heart of everything they do as opposed to 49% globally. Only a third of Irish family businesses have a developed and communicated sustainability strategy.
Future intentions are encouraging, with 55% of Irish family businesses saying there is an opportunity to lead the way in sustainable business practices.
Environmental, social and governance (ESG) are existential issues. Businesses that don't demonstrate their commitment to sustainable practices could be punished by consumers, the media, investors and even regulators. Family business owners want, above all, to create an enduring asset for future generations.
The next generation's (NextGen's) interest in sustainability is important not only in encouraging family businesses to embrace ESG, but in attracting younger family members into the business.
Purpose and meaning are vital to this generation and ESG can provide both.
The pandemic demolished any lingering doubts about the benefits of digital transformation. Digitalised services became the norm overnight. Businesses with established digital capabilities fared better than those that had to scramble to keep up. This was true for family businesses. Those with strong digital capabilities and access to good data performed better than others.
Businesses with good digital capabilities found transitioning their employees to remote work easier. The agility of family businesses is apparent in the rapid adaptations that many made to their business model or operations. Intergenerational tension surrounding digital transformation also strikes a chord.
42% of Irish Family businesses feel they have strong digital capabilities. While this compares favourably with the global average of 38%, there is significant room for improvement.
The experience of family businesses that have upgraded their digital capabilities shows the vital importance of a clear road map. The actual advantages of digitalisation don't always match up to the assumed ones, so planning is key. For example, 51% of digitally strong Irish family businesses use technology to improve their compliance and reporting function. But only 48% of those planning a digital upgrade see this as a priority. This needs to change.
80% of Irish family businesses admit family conflict occurs within the business. Typically it is handled within the family without using third parties or resolution mechanisms. This may explain why levels of conflict remain high.
Family harmony should never be taken for granted. It needs work and planning, and it should be approached with the same focus and professionalism applied to business strategy and operational decisions.
71% of Irish family businesses have a clear sense of company and family values. According to our survey, these values have helped a clear majority of companies during the pandemic.
Younger generations are strongly motivated by meaning and purpose when it comes to their career. They can sometimes struggle to find these qualities in the family business. Clear values can help to bridge the generational gap and give the NextGen the sense of purpose they crave.
Family businesses with values in a written form are better prepared for succession and are more communicative and transparent. And they performed better than their peers during the pandemic, too.
Levels of trust, transparency and communication in Irish family businesses are felt to be quite high. 66% say there is family alignment on the direction of the business.
Just under three quarters of Irish family businesses feel they have a clear sense of company and family values. However, fewer than half have their values and company mission down in written form.
Succession planning is one of the most sensitive issues, and COVID-19 appears to have concentrated minds in this area. The survey confirms an uptake in business planning for succession.
Topics such as succession can be emotional, which makes them difficult to navigate and, as a result, tempting to avoid.
Our survey shows that 23% of Irish family businesses have a robust, documented and communicated succession plan in place, compared with 30% globally.
For Irish family businesses, there is good news in these survey findings but also a wake-up call.
Their financial resilience makes family businesses well placed to succeed, but they need to readjust both their view of society and themselves. If they can accomplish that, their power to fuel the post-pandemic recovery becomes even more important because of their financial impact around the world. To retain their licence to operate, they will need to revisit their purpose and use the trust they have gained to create measurable non-financial impact.
The NextGen family members will play a vital role in pushing family businesses forward in policy areas that are essential to the company's legacy.
There are three key areas in which immediate actions will help secure a lasting formula for success for the generations to come.
ESG has gone from a nice feature for a company to have to an imperative for success. Now is the time to translate core family values into concrete actions that demonstrate commitment to ESG. A good place to start is a diverse board, with independent input. This could act as a good proxy and challenge thinking around sustainability.
Digital technology helped firms pivot their operations quickly. Shifting the business model when the pandemic hit so that sales are online and moving from being a retail business to an internet delivery business is an example of the mentality you need during a crisis. Don't close the shops, change. Now is the time to prioritise your digital agenda by putting in place a strong digital strategy with meaningful, achievable deadlines.
Having a professional governance structure and a clear process for conflict resolution, preferably involving an independent party, makes business sense, particularly for family businesses. A professional approach strips emotion, personal and unconscious bias—common stumbling blocks for families—out of decisions. Now is the time to put good governance in place.
As the Irish survey results indicate, Irish family businesses are resilient, innovative and entrepreneurial. However, family businesses are telling us that there is room for improvement on family governance, digitalisation and sustainability. We invite business families to move from aspiration to action in these areas. We are ready to help you as you face the future. Contact us today.