The pandemic has reduced next generation members’ involvement in the family business.
While sustainability is recognised by next generation (NextGen) family business members as key to long-term growth, only 28% are currently engaged in the matter, a new study from PwC reveals.
The research reveals that 65% of family business members say achieving business growth is a top priority. At the same time, nearly the same number, 64%, say their family business has the opportunity to lead the way in sustainable business practices.
“It is difficult for a family business to survive multiple generations”
71% recognise their business has a responsibility to fight climate change and its related consequences, yet nearly half (45%) do not believe their family business puts sustainability at the heart of everything they do.
Given the consequences of the war in Ukraine, such as increased geopolitical uncertainty, rising prices and supply chain disruption, businesses may find themselves more focused on short-term issues.
PwC’s 2022 Global NextGen Survey surveyed more than one thousand NextGen members in family businesses across 68 countries globally including Ireland to understand their key priorities and challenges.
Sustainability and survival
“It is difficult for a family business to survive multiple generations,” explained John Dillon, partner at PwC Ireland’s Entrepreneurial and Private Companies Practice.
“The NextGen members we surveyed, like the current generation, understand the fundamental need for growth to create value and a legacy for future generations. The NextGens also recognise that it will take new approaches and skills to keep the business thriving. The survey confirms that addressing sustainability and climate change ambitions are high on their agenda, but more action is needed to fully embed sustainable practices right across their businesses.”
While NextGens clearly see sustainable business practices as integral to long-term success, the survey shows they need to step up their engagement in the near term. Only 28% say they are currently engaged in increasing the focus on sustainability and impact, though 72% say they expect to be involved in it in the future. Similarly, just a quarter of NextGens say they are presently engaged in reducing their business’ environmental impact, whereas 65% expect to be in the future.
Other areas where NextGens say they are actively engaged at present include achieving business growth (59%), ensuring the business is offering the right products and services (50%) and adopting new technologies (44%).
For future generations
The Covid-19 pandemic was a double-edged sword for NexGen involvement in the family business. More than half, 56%, believe that communication between family members about the business increased during the pandemic.
However, less than half of respondents, 43%, say they feel more committed to the business than they did prior to the pandemic. The uncertainty created by the pandemic also appears to have made the current generation less likely to relinquish control and more difficult for NextGens to establish themselves.
Only 28% of NextGens say they are given significant internal operations to run, compared to 48% in our 2019 survey; 32% say they are used as a sounding board, down from 36% in 2019; and 45% find it difficult to prove themselves as a new leader or board member.
Reluctance of some of the current generation to provide a seat at the table poses a particular challenge for NextGens, according to 57% of those surveyed. Further, four out of ten (39%) NextGens say there is resistance within the business to embrace change.
At the same time, a very positive development for NextGens and family business is that 61% say the family has a succession plan, but only four out of ten (39%) of NextGens say they were involved in its development.
“Robust succession planning is essential for the family business, particularly as we head into a period of greater uncertainty,” said Mairead Harbron, director, PwC Ireland Private Business Practice.
“The challenge is to build confidence between the current and next generation. Our survey shows communication has increased. This is the time to flesh out succession plans and to define the leadership skills required to deliver growth in the future. That way the current generation can transition to a supporting role with greater confidence,” Harbron said.