Family business: Missing middle no more?

AS EASY AS ABC - Atty. Alex B. Cabrera (The Philippine Star) - February 28, 2021 - 12:00am

One thing you can bet on when it comes to a family business is that the family will protect the family asset. When the pandemic happened, they sure showed that they also protected their employees and helped their communities. It is no exclusive local thing, as the 2021 PwC Global Family Business Survey shows that these are prevalent traits worldwide.

Family businesses surveyed worldwide also showed that they are among the most financially resilient in the pandemic, with almost 80 percent saying they needed no additional capital in 2020. They also expect to recover quickly, with about 65 percent projecting growth in 2021 and more than 85 percent expecting steady or robust growth in 2022.

If the results of the survey of the family businesses appear optimistic, I am not surprised. Locally, we can see the stories of the country’s most successful businesses: the Sys, the Ayalas, the Gokongweis, the Gotianuns, the Aboitizes. All have robust growth from very determined, if not aggressive, business plans.

And the big conglomerate family corporations do not have a monopoly of this attitude as smaller family corporations in the country have the same instinct. Because when legacy is at stake, even the most difficult challenges do not downgrade ambitions. And when an intergenerational future is in play, then the incumbents cannot fail. There is a higher intensity of determination because it is self made, and founders become mentors, because the product of all their labors and dreams will be passed on, and because, at the risk of oversimplifying, there is love among family members that extends to the unborn.

Back in 2016, a staggering finding was brought out by the PwC Family Business Survey about the missing middle. I submit, however, that this puzzle about the missing middle may have been solved by the pandemic as one of its wonderful silver linings.

The “missing middle” is a strategy gap found after analyzing interviews with about 2,800 senior executives from family businesses across 50 countries. What it is, is that family businesses were found to be very good at dealing with everyday “nuts and bolts” of running their business and they could think in terms of generations vs merely in years. But the challenge is the middle, or that strategic plan in the next five to eight years, that can link the current business with the long-term vision of where it could be. In the same year (five years ago), from the PwC report, only one out of four businesses was worried about being prone to digital disruption, 43 percent of the businesses did not have a succession plan, and ESG (Environmental, Social, and Governance) did not appear to really figure in the strategic discussions.

The pandemic compelled those at the helm to be transformational leaders. The acceleration of change converted medium-term goals into urgent short-term plans, with a mindset that it must be embraced as the new norm.

The 2021 survey showed stronger business performance and faster recovery for those with strong digital capabilities. One simply cannot be agile enough to adapt without digital transformation that allows online sales, and faster and transparent sharing of information that feeds urgent decision-making among family members. As shared by one family leader in soft drink distribution: “We shifted the business model when the pandemic hit so that around 80 percent of sales were online and our shops delivered the coffee locally to customers. We moved from being a retail business to an Internet delivery business in just four months. That’s the mentality you need during a crisis – don’t close the shops, change.” (Alfonso Libano Daurella, Cobega Group, Spain)

Probably the most telling part of this 2021 survey is that the younger generation is inspired by a commitment to ESG but at the same time, incumbents admit that they need to graduate family values into acts that demonstrate ESG commitment. A family leader shared that “...ESG was thought about as something we do when everything else was OK” (Sara Hughes, Lwart Group, Brazil). And it may appear counter to the grain of values but some family members believe that companies must communicate the good that they’ve done. “In the past, we’ve never talked about [our positive impact], because if you do, you’re seen as boasting. That’s a mindset change that has to come.” (R. Dinesh, TVS Supply Chain Solutions Limited, India)

It seems that transformative change may well be in the shoulders of the Nextgens who are known to be digitally strong, and with the right heart and empathy to make an ESG-focused business model work.

But as an agent of change and successor, 36-year-old Nina Østergaard Borris of USTC, Denmark has this gem of wisdom: “My father is good at listening and asking the critical questions. As a NextGen, you have to be mindful not to throw out the good things because you are focused on something new.”

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of the Integrity Initiative, Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to aseasyasABC@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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