Family businesses: Continuing the future of a legacy

We agree that a sustained transgenerational entrepreneurial spirit and resilience, accumulated socioemotional wealth, and transformational leadership form the fuel that sustains family businesses through time. Yet, we also emphasise the importance of having good planning, control, and governance in place, and staying abreast of social, environmental, and technological developments to enable family businesses to sustain growth far into the future.

Legacy is built, not born. It is fair to say that family businesses must be nurtured and adapted to ensure their continuing growth and long-term prosperity.

The family business founders’ dream is to have their children and children’s children carry on their entrepreneurial vision and success, hence continuing the family legacy. Next generations are naturally bestowed upon them an obligation to foster entrepreneurialism in their unique abilities to sustain the family’s business heritage.

The task of enduring such family entrepreneurialism through generations often faces great challenges resulting from socioeconomic changes and generational differences. It is, however, proven that family businesses can prosper through the test of time by being resilient, innovative, and embracing changes. That is a strong ability and capacity to stand up from failures, overcome difficulties with prudence and positivity, and stay ahead of the curve.

Therefore, it is the responsibility of each generation to be the business custodian and take on new challenges and opportunities with renewed conviction, entrepreneurial prudence, and an unwavering sense of purpose and values. Over time, the combination of these traits translates into the unique capabilities of the family business that set itself apart from its rivals.

For family businesses, wealth does not always convert to asset enrichment and distribution. For the next generations, wealth can also mean pride and responsibility endowed upon them by being part of the family, a so-called socioemotional wealth. They naturally take the obligation to preserve the family heritage and ensure its succession to the following generations and ultimately become part of the legacy themselves.

It is hence crucial how family businesses tell their stories, cultivate culture, strategise, and adapt their business philosophies to foster stronger emotional connection and identification with the businesses by the younger generations.

Legacy is made of stories. Each generation has its own stories and experiences of failure and prevail. These stories enrich the wealth of the family businesses for generations to cherish and reflect upon.

Family businesses operate based on a set of values and beliefs that sustain through generations. These values and beliefs, however, are often challenged amid the ever-changing and increasingly disruptive socioeconomic, technological, and political environments.

Like any enterprise, family businesses must adapt and evolve to maintain their competitive relevance. Next-generation leaders must learn to assess challenges and opportunities from a global perspective at both industry and enterprise-level and be able to mobilise resources in innovative fashions.

Family governance. More often than not, family businesses face conflicting priorities which render effective decision making. Hence, there exists a practical need for family businesses to have the right governance, ownership structure, and leadership, all of which must be adapted for the businesses to remain fit for purpose from time to time.

It is always wise to start with reassessing existing family governance arrangements to ensure there is sufficient clarity and fairness in terms of accountability, succession, and mechanisms for addressing potential conflicts. Having these processes documented helps reaffirm what the business needs in planning for the future, maintain financial confidence, and protect the business brand and its legacy knowledge.

A well-defined family governance framework enables family members to mutually make business decisions based on established values, a shared mission or purpose, and a collectively aligned vision for the family’s future. Examples of family governance systems include family councils and boards of advisors.

Financial best practices. There is also a requirement for sound financial governance and management practices. These are necessary to ensure accurate and timely quantification and reporting of the business performance and assessing opportunities considering an everchanging competitive landscape.

Environmental, social, and governance (ESG). Family businesses play a vital role in the global economy, both as contributors and promoters of good social causes. There has never been a more relevant time than now for family businesses to take the leading charge on social changes due to its transgenerational influence. This means family businesses need to assess their strategies on environmental, social, and governance (ESG) factors to not only address compliance but also proactively develop frameworks and practices to achieve ESG objectives.

A carefully considered ESG strategy that is fully aligned with family values and a business vision can ensure a more sustainable business, increase trust with stakeholders, and create a positive impact on the business, community, and the planet for years to come. In this sense, both tangible and intangible values generated by such a strategy are truly transgenerational.

Digital undertaking.It is fair to say that no business can stay out of the digital revolution that has been innovatively reshaping the ways we live and work. Younger generations are born and bred in an ever-disruptive digital age and, thus, they inherit a natural inclination toward technologies. With the right strategies and professional advice, they should be entrusted with the task of revolutionising the family businesses by embarking on a transformative digitalisation journey. Read the full report on KPMG OnDemand.