Family businesses in Europe fared better than other regions in response to COVID-19, says new report

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.
• Only 15 percent closed their businesses temporarily.
• Less than 1 percent closed permanently.
• The majority saw revenues decline in the short term, however 11 percent had revenue increases.
• Over 70 percent obtained 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) stabilizing 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.

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.

The report suggests that, due to the unpredictability of the pandemic, some family businesses likely made short-term decisions to preserve some of their capital by pausing or deferring planned investments and to reallocate their financial resources to retain and support their employees. This does not mean they are abandoning their long-term plans. Rather, it is more likely that they have prioritized the need to stabilize their businesses and keep their employees engaged to ensure a strong position for the future.

• 22.56% reported deferring or cancelling their R&D investments, particularly in the short term, compared to 17.09% of non-family European businesses.

• 23% of European family businesses deferred or reduced executive pay, compared to 29% globally.
• Only 13% considered alternative compensation arrangements for their executives.

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 or adjust the compensation of their executives 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.”

The report highlights a unique source of competitive advantage among family businesses compared to other business types, which is the family’s purpose and values and their 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 stabilized 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.”

Note to editors: 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.

Melany Eli
KPMG Private Enterprise
+1 416 399 6179
melanyeli@kpmg.ca

The Successful Transgenerational Entrepreneurship Practices (STEP) Project Global Consortium is a global applied research initiative that explores family and business practices within business families and generates solutions that have immediate application for family business leaders. The STEP Project Global Consortium aims to be a leading global family business research project with an international reputation. The research insights are specifically drawn to be of relevance to developing new theoretical insights that can offer novel and valuable best practices recommendations to the business stakeholders and the practice community at large. Having a global worldwide orientation, the STEP Project Global Consortium offers networking opportunities for researchers, family business owners and consultants coming from five continents.

Visit: thestepproject.org

European Family Businesses (EFB) is the EU federation of national associations representing long-term, family-owned enterprises, including small, medium-sized and larger companies. The organization was created in 1997 and represents EUR1 trillion in aggregated turnover, 9 percent of European gross domestic product. EFB’s mission is to press for policies that recognize the fundamental contribution of family businesses in Europe’s economy and create a level playing field when compared to other types of companies.

Visit: europeanfamilybusinesses.eu

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