Unlocking legacy

Family businesses form a significant part of many economies and have unique characteristics, which influence the way they need to plan their future development. They frequently have a long tradition, which can enhance their reputation on the market. Moreover, they can often be more focused on the long term, which can be an advantage. They can attract greater loyalty, not only from family members, but also from employees, who often feel they are part of a tradition. On the other hand, family businesses may face challenges in deciding the right balance between continuity of management within the family, and bringing in new expertise when it is needed. Adaptation to new circumstances may be more difficult.

KPMG member firms around the world have many family businesses among their clients. KPMG Private Enterprise, together with the STEP project global consortium for family enterprising, has conducted a comprehensive survey of family businesses around the world. In particular, the survey focused on legacy, and how family businesses can leverage it to their advantage.

The survey gave key insights into how legacy can help family businesses. Deep connections to the family’s history can foster a sense of pride and dedication to the business, which can be a key ingredient in family members’ socioeconomic wealth. Legacies not only create bonds between generations, but also shape the vision and strategic decisions for the future which foster sustainable business development.

One important message from the survey was that well run family businesses can often be highly focused on sustainability, helped by their long term approach and reputational considerations. The family’s legacy can influence important decisions. The shared purpose and values of the family can help guide decisions that affect the family, the business, customers, employees, suppliers and local communities. Moreover, the family’s accumulated wisdom can be a valuable asset. Knowledge, expertise and skills passed from one generation to another can help give family businesses a unique competitive edge.

Nevertheless, the legacy paradox needs to be understood, so that the family business takes advantage of the benefits of legacy without being held back by it. If an enterprise is too entrenched in tradition, this can stand in the way of innovation, change and agility. The key is to get the right balance. The survey introduces a new legacy matrix, which can help family businesses identify themselves withing four legacy types. This will help them to use legacy effectively. 

The legacy matrix is an outcome of extensive STEP Project Global Consortium research, and it has been brought to life through the 2024 Global Family Business survey data, which measures business families’ levels of transgenerational entrepreneurship (TE) and legacy scores. When these two factors were combined, four groups of family businesses that share similar characteristics and features were identified, each with different types of legacy; static, preservative, evolving and dynamic.

Those with static legacies (with low legacy and low TE scores) represent 34 percent of the survey respondents. These are located primarily in Europe, followed by the Americas and Asia and Oceania. This group has the highest percentage of family businesses with a single generation in management. It has the lowest number of female board members and the lowest business and sustainability performance.

Those with preservative legacies (with high legacy but low TE scores) represent 16 percent of those surveyed. These are the oldest businesses represented in the survey results. They are located primarily in the Americas, and are the highest number of family businesses led by members of the Baby Boomer generation. They have the highest percentage of family owned shares, the highest number of board seats and the highest percentage of family members on the board.

Businesses with evolving legacies (with low legacy and high TE scores), representing 16 percent of survey respondents, are typically led by a CEO with a short tenure. They are located primarily in Europe, followed by Asia and Oceania and the Americas. These are the youngest family businesses, with the lowest number of board seats, and the lowest percentage of family members on the board.

Finally, those with dynamic legacies (high legacy and high TE scores), represent 34 percent of the companies surveyed. They are located primarily in Europe, led by CEOs with long tenures, and mainly headed by a CEO who has acquired the position through being the first born child (primogeniture). They are the highest percentage of family businesses with a board of directors, and have the largest number of board seats held by females and female family members. This category achieves the highest business and sustainability performance. 

The legacy types have varying degrees of transgenerational entrepreneurship and legacy scores. But it is possible for a family business to plan a route to move up the hierarchy, for instance from a static to an evolving legacy or from an evolving or preservative legacy to a dynamic one. Hence it will be able to take greater advantage of legacy as a means to develop its business. The KPMG report sets out detailed information on how some of these transitions can be achieved.

Most family businesses in Romania are quite young, as they have mainly emerged since 1989. Hence the majority are at a fairly early stage of development in terms of having a legacy which can add value. Nevertheless, the successful ones will mature and grow, and over time legacy will become a more important consideration for them. KPMG in Romania has experts with a broad range of specialist skills and experience, who can support the growth of your family business.