Regenerative family enterprises
How do family businesses keep their founders’ entrepreneurial spirt alive while continuing to grow from decade to decade and generation to generation? The STEP Project Global Consortium and KPMG Private Enterprise set out to find the answers.
We began with an in-depth survey of 2,439 family business leaders across the world between September and November 2021. After a detailed academic analysis of the survey data, we moderated a series of roundtable discussions in February 2022 with family business CEOs along with family business academics and professional advisers.
The discussions focused on the factors and challenges that are influencing the continuous renewal and performance of family businesses.
What is the secret of family business resilience?
How do family businesses grow from generation to generation and stay ahead of the competition?
How do family business owners maintain their competitive edge?
Keeping the founder's dream alive
The enduring entrepreneurialism of family businesses not only keeps their vibrant culture of innovation alive, but it also contributes to superior financial, social and non-financial performance. The strength of a company's entrepreneurial orientation is one of the most important keys for unlocking the ability of family businesses to adapt, innovate and grow.
To achieve high entrepreneurial performance, next-generation family members must be given opportunities to take risks and make judgments on their own — and not simply follow the lead of older generations forever.
Their staying power is fuelled by a desire to keep the founders' entrepreneurial spirit and personal ambition alive through a contemporary lens.
Along with entrepreneurial orientation, business success also relies on understanding the impact that the family's engagement (or socioemotional wealth) has on the decisions and performance of the business.
Socioemotional wealth: The family's control and influence, emotional attachment and identification with the family business
The family's emotional attachment to the business is also a source of long-term performance and regenerative power.
The family's control, influence and identification with the business support the drive for innovation and environmental, social and governanance-related (ESG) progress.
Socioemotional wealth reflects the unique ways that families look at problems and how their actions might affect their control and influence, emotional attachment and business's reputation.
Socioemotional wealth is often viewed as an endowment in family businesses, and it can influence the unique way they look at problems. If the endowment is threatened, for example, the family's decisions may be driven more by the importance of preserving the status quo and less on the potential economic value of their actions.
At the same time, the family's socioemotional wealth is a major contributor to the company's purpose, the drive for innovation and the impact that the business has on different groups of stakeholders.
In striving for peak performance, family businesses should measure:
- Financial performance
- Entreprenuerial orientation
- External social performance
- Internal social performance
- Non-financial performance
Discussions about performance in family businesses go beyond the traditional balance sheet. Growth in market share, profitability and return on equity are important measures but so are technological leadership, innovation, environmental impact, family unity and inclusion.
A holistic view of both business and family outcomes is essential for success in family businesses, and the combined strengths of the business and the family contribute directly to their regenerative power.
Leadership as a performance factor
Leadership style impacts performance. No leader has only one style, and it often changes (as it should) with the economic and social circumstances of the time.
Transformational leaders typically deliver good financial results as well as social and environmental progress, while also building the family's loyalty and identification with the business. This style was the overall preference of CEOs across all regions.
Charismatic leaders typically show better financial, internal and external social results and build strong bonds between the family and the business. The style was second-highest preference of the respondents.
Authoritarian. The primary impact of an authoritarian/patriarchal style of leadership is seen in the strength of family bonds and their emotional attachment to the business. This was the least prominent leadership style.
Understandably, CEOs from the Silent Generation (those born between 1925-1945) generally showed low levels of transformational leadership and high authoritarian levels, which is often the case in first-generation businesses that are led forcefully by a founder’s vision and direction.
The regenerative power of family businesses requires charismatic and transformational styles of leadership. We strongly believe that greater diversity of views and experiences and inclusivity in the C-suite can add even further to that power.
Entrepreneurial orientation of family businesses is a strong contributor to their financial, social and non-financial performance. But entrepreneurialism alone isn't enough. The pride and emotional value that family members gain by owning and managing the business (socioemotional wealth) also contributes to the overall performance of their firm beyond financial results.
When levels of entrepreneurial orientation and socioemotional wealth are high, the company's performance is also high. When the levels are low, performance is also low across every measurement. Recognizing that there are many variations in performance between the highest and lowest levels, we have created four family business profiles:
- Entrepreneurial families
- Business-first families
- Family-first businesses
- Underperforming businesses
Each profile illustrates the contributing factors to the performance of family businesses and the actions that can be taken to sustain and improve it.
We believe the regenerative capability of family businesses is their superpower. Build on the strengths that already exist in your family business and leverage our global insights to fill the gaps:
- Entrepreneurial orientation can unlock the ability to adapt, innovate and grow. How would you score your company's current level of entrepreneurialism?
- Are next-generation family members being given opportunities to take risks and make judgments on their own?
- Evidence suggests that next-generation leaders, particularly young women, are digitally savvy – are you making the most of this?
- Does your family have a strong emotional attachment to your business?
- Are family members growing up in a stewardship climate to pass along the purpose and values of the family and the business?
- Is it time to revitalize the leadership approach in your business to keep it fit for the times?
Refer to the benchmarking reports for analysis of several questions from the global survey. Explore the important characteristics of family businesses such as their entrepreneurial capabilities and the family’s identification and emotional attachment to the business, which contribute to their financial, social and family performance.
Benchmarking reports are available for countries, regions and territories with 35 or more survey responses. They should be read in conjunction with Global report.
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Get in touch
We work with family businesses – helping them to solve problems, leverage opportunities and thrive from generation to generation. With our deep sector experience, we can work with you to preserve that entrepreneurial spirit, develop an adaptable leadership style, measure performance and lean into the family engagement and commitment needed for a future-ready business.
We look forward to hearing from you.
Find out more
Resilience, governance and succession – what Australian family businesses can learn from their global peers.
Global insights informing Australian family business transformation.