What’s behind the resilience and regeneration in today's family businesses?

New research emphasizes essential factors to enable future success for family enterprises around the world

What’s behind the resilience and regeneration in today's family businesses?

The sustained profitability of family firms can be ascribed to various traits and next-generation leadership abilities unique to their business models, according to a Global Family Business Report from KPMG Private Enterprise and the STEP Project Global Consortium.

"The regenerative power of family businesses – Transgenerational entrepreneurship" brings together insights from 2,439 CEOs and other leaders from top family businesses in 70 countries and territories.

It found numerous factors make up the formula for family business resilience and regeneration, including a strong entrepreneurial orientation; emotional attachment to their business; and ambitious next-generation leadership seeking new experiences outside the family corporation.

Among the report’s key findings was that next-generation successors are pursuing alternative career paths before returning to the family business, frequently using small sums of family wealth to help them learn and take risks. Ultimately, this strategy was found to contribute to long-term outperformance among the family company cohort surveyed in the report.

The main keys that family firms use to unlock their regenerative capacities, according to the KPMG Private Enterprise and STEP Project Global Consortium report, are:

  • Entrepreneurial orientation: This is a one-of-a-kind asset that is necessary for generational innovation and progress. Maintaining the founder's entrepreneurial spirit is critical to their ongoing innovation attitude. In line with this, the report found future successors are being provided with small amounts of capital to let them learn how to take calculated risks and make judgments on their own.
  • Socioemotional wealth: The family's power and influence enable swift decisions, and their "socioemotional riches" is seen as a valuable asset that must be protected. For many of the respondents, this is a metric of success that extends beyond financial prosperity and is difficult to recreate in non-family enterprises.
  • Motivational leadership: While entrepreneurship and socioemotional wealth go hand in hand as competitive differentiators, they are bolstered by the impact of a transformative or charismatic leader.

According to Andrea Calabrò, Global Academic Director, STEP Project Global Consortium, “Success in family businesses is defined by both financial and non-financial objectives, such as control, transgenerational succession, social capital, emotional connection to the firm and reputation. Keeping and accumulating socioemotional wealth is an important part of a family firm’s success.”

“The level of socioemotional wealth can change as family firms transition from one generation to the next, which is precisely the time to ensure the family’s control and influence, identification and emotional attachment to the firm are transitioned as well,” Calabrò added.

The leadership style of a family firm might also affect its performance, according to the analysis.

Drawing from survey responses, KPMG Private Enterprise and The STEP Project Global Consortium developed profiles of four family business types, each highlighting factors that have contributed to their regenerative power and financial, family, and social results from generation to generation.

The report found family businesses with a high level of entrepreneurial orientation and diversity, as well as a charismatic leadership style, outperformed others in terms of both financial and non-financial performance (social capital, emotional connection, etc.).

Family business CEOs across all regions preferred transformational leadership, which involves disrupting core values, beliefs, and attitudes in order to drive their "followers" to accomplish more and perform above expectations.

The research also found motivational leadership can lead to positive financial, social, and environmental outcomes, as well as helping to establish and foster familial loyalty and identification with the company.

Tom McGinness, Global Leader, Family Business, KPMG Private Enterprise, KPMG International, stated, “According to the report findings, when both the level of entrepreneurial orientation and emotional attachment to the business are high, every aspect of the company’s performance is also high. Even though the family business success formula is based on their unique characteristics, there are also many lessons and practices for non-family businesses to take away.”