New global research shows what’s driving resilience and regeneration in today’s family businesses
“The regenerative power of family businesses – Transgenerational entrepreneurship”, a Global Family Business Report from KPMG Private Enterprise and the STEP Project Global Consortium brings together insights from 2,439 family business leaders from family firms across 70 countries and territories. Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business (ISB), conducted the survey in India, as an affiliate of the STEP Project.
The report illustrates the common factors that make up the formula for family business resilience and regeneration. Factors include a strong entrepreneurial orientation, emotional attachment to their business and ambitious next-generation leadership seeking new experiences beyond the family business. Appended is the link to the report.
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Speaking of the 53 Indian firms in the sample, Dr. Nupur Pavan Bang, Associate Director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business said, “The good news is that the Indian firms seem to have a better ability to defy the adage of from shirt sleeve to shirt sleeve in three generations. A greater proportion of Indian businesses are being managed by the third and fourth generation (25 percent and 8 percent) when compared to the global averages (14 percent and 4 percent). This is also an indication of the longevity of family firms in India. However, the Indian firms lag behind the other global family businesses on the key aspect of involving women at the leadership level. Only 9 percent of the Indian firms in the sample had a woman CEO compared to the global average of 19 percent.”
The report finds that the common factors that make up the formula for family business resilience and regeneration are:
1. Entrepreneurial orientation: The importance of keeping the founder’s entrepreneurial spirit alive is a major contributor to continuous innovation. Potential next-generation successors are being educated on how to take calculated and responsible risks and make judgments on their own, with small amounts of family capital enabling them to learn from firsthand experiences.
2. Socioemotional wealth: The family’s control and influence allow for quick decision-making. Their “socioemotional wealth” is viewed as an essential endowment — one that the family values and protects. For many of the respondents, this is a measure of performance beyond financial wealth and one that is often difficult to replicate in non-family businesses.
- Motivational leadership: Entrepreneurialism and socioemotional wealth are found to go hand-in-hand as competitive differentiators. They are further strengthened by the impact of a transformational or charismatic leader, as per the report.
Further, the report also found that a family business’s leadership style can influence its performance. The report developed profiles of four family business types — from top performers to underperforming businesses. It highlights factors that have contributed to the regenerative power and financial, family and social performance of each category of firms from generation to generation.
The family business profiles reveal that:
- Family businesses with a high level of entrepreneurial orientation, diversity and a charismatic leadership style showed higher financial and non-financial (social capital, emotional connection, etc.) performance than others. A commitment to continuous innovation and strong emotional attachments was also seen among the top performers.
- The transformational leadership style — where leaders put in the effort to change basic values, beliefs, and attitudes to motivate their “followers” to do more and perform beyond expectations — was the overall preference of family business CEOs across all regions, followed by the charismatic leadership style.
- Motivational leadership is ultimately rewarded with good financial, social, and environmental progress, while also helping to build and foster familial loyalty and identification with the business.
Professor Sougata Ray, Executive Director, Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business, remarks, “Indian family businesses seem to be well poised to sustain entrepreneurship. Entrepreneurial mindset, family’s identification with the business and family control and influence over the business, are amongst the highest for Indian family firms within the global sample”. Prof. Ray adds, “However, Indian business families are way behind their global peers in putting structured family governance in place as only 11 percent of the Indian respondents reported to have a family council, compared to the global average of 24 percent.”