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Family Firms in Europe Fared Better In Response To Covid-19

According to the report Taking the long view: Lessons in endurance from European family businesses, based on a survey of 1,332 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 percent workforce reduction compared to 8.56 percent of family businesses globally.
  • Experienced only 15 percent closing their businesses temporarily.
  • Had less than 1 percent close permanently.
  • Saw revenue decline in the majority in the short term, however 11 percent had revenue increases.
  • Saw over 70 percent obtain government support, particularly special loan programs.
  • 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. While almost two-thirds of European family businesses (64 percent) reported initial revenue losses compared to 69 percent of family businesses globally, one-quarter (25 percent) managed to maintain their revenue levels, and 11 percent 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 environment, social and governance (ESG) issues as a high priority on their companies’ strategic agendas.”

Influence of family values

The report reveals that nearly one in four (22.56%) deferred or cancelled R&D projects, as the unpredictability of the pandemic led to short-term decisions to preserve some capital by pausing planned investments and to reallocate financial resources to retain and support employees. This does not mean family businesses 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.

According to Jesús Casado Navarro-Rubio, Secretary General, European Family Businesses (EFB):  “With their embedded long-term mindset, European family businesses were less likely to make employee reductions 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 desire to 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, values and 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 environmental, social and governance (ESG) issues as strategic priorities.
  • The family values that underpin their businesses were reflected in how families prioritized 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 says:  “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.”

About the report –  The report is the result of a collaboration between the STEP Project Global Consortium, European Family Businesses (EFB) and KPMG Private Enterprise. By coming together, these three organizations have successfully connected extensive family business research with professional practice. The report is based on a global survey of family businesses and non-family businesses conducted from June to October of 2020, with additional insights obtained through conversations with business families, KPMG professionals and STEP academics in January and March of 2021.

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