Amid uncertainty and disruption, family businesses continue to show their unrivaled resilience and ability to reinvent themselves in dynamic and unpredictable environments.
Throughout the COVID-19 pandemic, for example, Millennial leaders in particular have played essential roles in proactively accelerating the adoption of new technologies to respond quickly to changing market demands while also advancing their businesses into the future.
Many family businesses have recognized that 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 fueled by a desire to keep the founders’ entrepreneurial spirit and personal ambition alive through a contemporary lens. And it’s also one of the secrets to their often enviable competitive advantage.
How do family businesses keep their founders’ entrepreneurial spirt alive and continue to grow from decade to decade and generation to generation? What’s the secret to their staying power and their ability to stay ahead of competitors? The STEP Project Global Consortium and KPMG Private Enterprise set out to find the answers. We wanted to understand how family businesses continue to be such regenerative powerhouses that not only flourish in good times, but also manage to respond positively to change during times of disruption.
Our exploration began with an in-depth survey of 2,439 family business leaders across the world, including 56 respondents from Malaysia. 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. We heard how their regenerative power begins simply enough — with the founders’ entrepreneurial ambition to turn an inspiring vision into a practical reality.
Regenerative powerhouses: Malaysia’s benchmark
Learn about the secrets behind the regenerative superpower of family businesses in Malaysia
Keeping the founder’s dream alive
Redefining wealth
A strong entrepreneurial orientation alone isn’t always sufficient to support the continuous renewal and rejuvenation that’s needed to sustain a family business for multiple generations. It can also require an understanding of the impact that the family’s engagement has on the decisions and performance of the business.
Beyond the independence of owning and managing a family business — and the financial benefits and prominence it can bestow — the control and influence and emotional attachment to the business (in other words, its “socioemotional wealth” ) defines the idea of “wealth” in much broader terms compared to other business types.
Socioemotional wealth: The family’s control and influence, emotional attachment and identification with the family business
In fact, “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 control and influence and identification with the business are major contributors to the company’s purpose, the drive for innovation and the impact that the business has on many different groups of stakeholders.
Leadership as the performance factor
Leadership style is a factor that often impacts performance. No leader has only one style, and it often changes (as it should) with the economic and social circumstances of the time. It not only needs to be “fit for purpose”, but also fit for the time and circumstances. When survey respondents were asked to identify their “preferred or most prevalent” leadership style, transformational was the overall preference of CEOs in every region, followed by charismatic, both of which reflect the ability to inspire and motivate others.
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.
In a post-COVID-19 world, we believe that continuing to fuel the regenerative power of family businesses will require charismatic and transformational styles of leadership to help ensure that family businesses continue to evolve successfully. We also strongly believe that greater diversity of views and experiences and inclusivity in the C-suite can add even further to that power.
Performance profiling
In our previous research, we have shown that the entrepreneurial orientation of family businesses is strongly related to their financial, social and non-financial performance. This is also true of the family’s level of socioemotional wealth as a contributing factor to its non-financial performance.
From the survey responses, we have been able to determine that when both the level of entrepreneurial orientation and socioemotional wealth are high, the company’s performance is also high in every aspect of the business and family. And, as might be expected, when the levels of entrepreneurial orientation and socioemotional wealth are low, performance is also low across every measurement.
Recognizing that there are many variations in performance between the highest and lowest levels of entrepreneurial orientation and socioemotional wealth, we have created four family business profiles: “Entrepreneurial families”, “Business-first families”, “Family-first businesses” and “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.
The performance snapshots in each of the profiles show how the level of entrepreneurialism and socioemotional wealth can impact the financial, social and family performance of family businesses.
If some aspects of your family business are reflected in one or more of these profiles, you’ll find practical insights and suggested actions for helping to sustain or improve levels of performance that have been provided by family business leaders, advisers and academics across the world. Professional guidance can be found in the report .The regenerative power of family businesses – Transgenerational entrepreneurship.
Key findings out of Malaysia
A continuous search for new opportunities
Proactiveness was the most common characteristic for family business leaders in Malaysia at 62 percent.
Instead of reacting to events that are often outside their control, Malaysian leaders are constantly searching for new opportunities at home and abroad, watching for clues that may indicate a change in market demands; and setting the competitive agenda that forces other companies to react.
Beyond financial wealth
Socioemotional wealth is seen as endowment to be protected and preserved for many generations to come.
41 percent of respondents from Malaysia reported a high level of family identification with their businesses, while 54 percent stated that the level of family control and influence within their firms was high. The impact of socioemotional wealth is reflected on the greater emphasis these leaders put on non-financial and internal social performance, recognizing these factors as fuel igniting their business regenerative power.
Leading with authority
Authoritarian leadership style was the most prominent at 59 percent among the survey respondents.
Authoritarian leaders exert powerful authority over their subordinates. Though it was the least preferred option globally, it did appear the most among CEOs from Malaysia. 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, which further motivates them to perform at a high level. Transformational and charismatic leadership style were reported at 48 percent and 34 percent respectively.