Family businesses in Europe fared better than other regions in response to COVID-19, says new report
According to the report Taking the long view: Lessons in endurance from European family businesses, based on a survey of 1332 European family business leaders and prepared through a collaboration between the STEP Project Global Consortium, European Family Businesses (EFB) and KPMG Private Enterprise, family businesses in Europe:
- Witnessed a 4,1%workforce reduction compared to 8,56% of family businesses globally
- Only 15% closed their businesses temporarily
- Less than1% closed permanently
- The majority saw revenues decline in the short term, however 11%had revenue increases.
- Over 70% obtained government support, particularly special loan programmes.
- Were more likely to raise additional capital and take on more debt to maintain their independence and control, compared to other regions.
For businesses of all types, the first impact on the pandemic was felt on revenues. 64% of European family businesses reported initial revenue losses compared to 69% of family businesses globally, 25% managed to maintain their revenue levels, and 11% experienced increases.
Families took three immediate actions to address the impact of declining revenues on their business: 1) stabilising the business through employment changes and expense reductions; 2) accessing government support; 3) streamlining their operations and reimagining the future for their companies. Retaining as many employees as possible as well as long-term relationships with suppliers, customers and other important stakeholders were made a priority.
Importance of a long-term mindset
The rapid initial responses, combined with a focus on the future, have placed family businesses in a strong position to support the recovery of Europe’s economy. Tom McGinness, Global Leader, Family Business, KPMG Private Enterprise, and Partner, KPMG in the UK, said: “It is widely recognised that family businesses think in terms of quarter centuries, not the next quarter’s financial results. The importance of a long-term mindset is embedded from generation to generation, and it is a distinctive characteristic of family businesses. It has also proven to be a vital source of their endurance throughout the pandemic in Europe.They have been a strong, stabilising influence in the majority of European countries, and the diverse skills, knowledge and insights extended across multiple generations are making an important contribution to the restart of Europe’s economic engine. Not the least of these has been the opportunity for younger members of the family to put ESG issues as a high priority on their companies’ strategic agendas.”
The report suggests that, due to the unpredictability of the pandemic, some family businesses likely made short-term decisions to preserve some of their capital by pausing or deferring planned investments and to reallocate their financial resources to retain and support their employees. This does not mean they are abandoning their long-term plans. Rather, it is more likely that they have prioritised the need to stabilise their businesses and keep their employees engaged to ensure a strong position for the future. 22,56% reported deferring or cancelling their R&D investments, particularly in the short term, compared to 17,1% of non-family European businesses.
Influence of family values
23% of European family businesses deferred or reduced executive pay, compared to 29% globally. Only 13% considered alternative compensation arrangements for their executives.Jesús Casado Navarro-Rubio, Secretary General, European Family Businesses (EFB) said:“With their embedded long-term mindset, European family businesses were less likely to make employee reductions or adjust the compensation of their executives compared to other regions. This may be explained, in part, by the underlying family values that influence the decisions of family businesses. In times of crisis and economic challenges, the short-term financial motivations within family businesses are typically secondary to the long-term viability of the company and the desireto reinforce and retain their longstanding relationships with employees.”
Exercising the power of the family
The report highlights a unique source of competitive advantage among family businesses compared to other business types, which is the family’s purpose and values and their involvement in the business. With multiple generations participating in decision-making, family businesses reacted quickly to protect the business and agree on its strategic direction.
- Family businesses successfully stabilised their businesses in the short term in response to the direct impact of COVID-19, while leveraging their entrepreneurial mindset to sustain a sharp focus on longer-term prospects.
- The knowledge and skills of multiple generations of family members were rallied in order to reimagine the strategic direction of the business, while also increasing their awareness of the need to address ESG issues as strategic priorities.
- The family values that underpin their businesses were reflected in how families prioritised the concerns of all their stakeholders in addressing the impact of the pandemic.
In drawing attention to the important role of the family in family business, Andrea Calabrò,STEP Project Global Consortium Global Academic Director said: “Many senior family members came back into their family businesses to bring a historical context – or what is often referred to as ‘historical memory’ – to address the immediate impact of the pandemic, and the decisions that needed to be made to keep the business moving forward. At the same time, younger family members were relied upon to uncover digital solutions to transform their business operations and develop new technology products or service offerings.This is the power of the family business: the combination of a fresh mindset with the practical experience of having dealt successfully with crises in the past.”
Demetris Vakis, Board Member and Head of Family Business at KPMG in Cyprus said:
“Europe’s Green Deal, rapidly developing new technologies, changing consumer habits and increasing competition from new innovative startups and global operators, mean that family businesses in Cyprus must modernise and streamline operations, set new ambitions and strategies and leverage technology. Enhancing their uniqueness, which stems from their family values and tradition, will be crucial in achieving sustainable profitability, as one generation passes the torch to the next.”