Leading professional services firm, PwC, has released its 10th global bi-annual survey of family business owners which reveals the current thinking and outlook of 2801 family business leaders across 87 territories including Nigeria.
Family businesses are essential to the success of the global economy, responsible for half of the global GDP and employment: the largest 750 alone have combined revenues of $9 trillion a year and employ more than 30 million people. They helped the world reboot after the financial crisis; they need to be strong to do it again after COVID-19 and provide the legacy they want.
It will surprise no one that family business is the most trusted form of business (Edelman trust barometer – 2019 family business 67% vs. publicly owned 58%). That they have been more resilient may come as a surprise to those outside of family businesses. Only 21% needed to seek outside capital to weather the pandemic in 2020.
The survey suggests that family businesses have weathered the pandemic relatively well Growth and the Sustainability agenda
While more than half (55%) of respondents saw the potential for their business to lead on sustainability, only 37% have a defined strategy in place. European and American businesses are lagging their Asian counterparts in their commitment to prioritising sustainability in their strategy. 79% of respondents in mainland China and 78% in Japan reported ‘putting sustainability at the heart of everything we do’ compared to 23% of US, 39% in the UK and 16% in Nigeria. Larger businesses and those owned by later generations also buck the trend, with greater focus on sustainability.
This reluctance to embrace sustainability comes despite the fact that family owned businesses are highly likely to see a responsibility to society.
Over 80% engage in proactive social responsibility activity, and 71% sought to retain as many staff as possible during the pandemic. Nor is it a function of economic pessimism – less than half (46%) expect sales to fall despite the pandemic and survey respondents felt optimistic about their business’ abilities to withstand and continue to grow in 2021 and 2022.
Instead, the issue is an increasingly out-of-date conception of how businesses should respond to society, with 76% in the US and 60% in the UK placing greater emphasis on their direct contribution, often through philanthropic initiatives, rather than through a strategic approach to Environmental Social Governance (ESG) matters.
Family businesses are also somewhat insulated from the investor pressure that is currently pushing public companies to put ESG at the heart of their long-term plans for commercial success.
Peter Englisch, global family business leader at PwC says,
Family businesses globally have a strong commitment to a wider social purpose. But there is a growing pressure from customers, lenders, shareholders and even employees, to demonstrate a meaningful impact around sustainability and wider ESG issues. Many listed companies have started to respond but this survey indicates that family businesses have a more traditional approach to social contribution.
‘Family businesses must adapt to changing expectations and, by failing to do so, are creating a potential business risk. This is not just about stating a commitment to doing good but setting meaningful targets and reporting that demonstrate a clear sense of their values and purpose when it comes to helping economies and societies build back better.’
Family business lagging on digital transformation
Even though 80% of family businesses adapted to the challenges of the COVID-19 pandemic by enabling home working for employees, there are also concerns about their overall strength when it comes to digital transformation.
62% of respondents described their digital capabilities as ‘not strong,’ with a further 19% describing it as a work in progress.
Yet here, there are clear generational differences: 41% of businesses that describe themselves as digitally strong are 3rd or 4th generation, and Next Gens have taken an increased role in 46% of digitally strong businesses.
What are the trends for Family Businesses in Nigeria?
The key priorities facing Nigerian family businesses are somewhat different to the global trends which reflects the market condition. Over the next two years Nigerian family businesses are introducing new products/services, rethinking/changing/adapting their business models, expanding into new markets/client segments, improving digital capabilities and increasing the use of new technologies.
This means whole scale transformations are the order of the day. However, they could benefit by thinking strategically. This could include:
a) finding new markets for existing products especially with a better understanding of how the African Continental Free Trade Area (AfCFTA) agreement can help
b) radically rethinking business models – for instance, how can we serve international clients using Nigerian brains sitting in Nigeria;
c) how we can be structured to ensure we build lasting businesses that defy changing generations and provide the much-needed stability to over 60% of the Nigerian economy. These range from governance, tax efficiencies and great indices on the financials; and
d) how can we leverage technology especially digital capabilities. Only 40% feel they have strong digital capabilities in Nigeria.
The sustainability meter
91% of Nigerian family businesses engage in some form of social responsibility activities. In the main, this tends to involve contribution to the local community or traditional forms of philanthropy.
There is much to be learnt from global trends of social impact investing and Environmental Social Governance (ESG) investing, which is where the world has moved on to, forcing more outcome focussed social investing. This is an area that the Nigerian market is starting to take an interest in.
The governance gap
While family businesses report good levels of trust, transparency and communication, the survey highlights the benefits of a professional governance structure.
While 79% say they have some form of governance procedure or policy in place, the figures fall dramatically when it comes to important areas: just over a quarter state they have a family constitution or protocol, while only 15% have established conflict resolution mechanisms.
These issues will be sure to be on the agenda of all family businesses as there are growing concerns from regulators around the world about family businesses and the individuals who have the ultimate ownership.
Esiri Agbeyi, Lead for Family Business and Private Client Services Nigeria says, ‘Nigerian Family Businesses have had a challenging year – but rewarding as well.
\They have had to face tremendous headwinds with the currency issues and stock market fluctuations in addition to the pandemic. Growth is slowly returning to the market.
We have seen how they have stepped in with their generous support of the communities during the pandemic.
The families are thinking about how to protect their legacy and getting the NextGen upskilled to be able to professionalise their organisations.
The NextGen are also the ones to bring in a more evidence-based approach both for the business and philanthropy as well as leverage technology and digital trends.
The time to act is now if family businesses want to keep their legacy for future generations.