While the phrase ‘family business’ may conjure up images of jovial mums and dads running small storefronts, in reality, these enterprises are often formidable market participants. What’s more, their family ownership may lend them several structural advantages over their rivals.
Family businesses boast a range of benefits over other organisations, including the unique relationships between staff members and consistent vision shared across leadership changes.
These innate qualities can provide a template for success but require appropriate planning and management to ensure they’re cemented into the foundations of the business.
Here, ANZ Private breaks down some of the attributes that clever leadership can unlock within family businesses.
Stickier staff
Australia is in the grips of the tightest labour market conditions seen since the 1970s. The unemployment rate currently hovers at about 3.5% – an almost 50-year low– and nine in 10 businesses expect to be slugged by staffing shortages this year, according to the Australian Industry Group (Ai Group).
Many businesses now worry these labour market challenges could stifle their growth. Research by the Ai Group found that:
- 36% of Australian businesses say their growth will be hampered by skills shortages, and
- 26% of Australian businesses say that total labour shortages – including both skilled and unskilled labour – will inhibit their growth.
In these conditions, family businesses have an advantage. Their secret weapon? The strength of their familial bonds.
EY research found annual staff turnover rates are lower in family businesses (at 9%) than their peers (11%), in part due to the closer relationships between staff.
There are some other benefits to working with family that may be harder to quantify. These can include a shared work ethic and the expertise family members bring to their roles.
Family members tend to be more invested in the success of the business that they’ve grown up with. Those years of experience – from watching mum and dad hard at work as a child to their first forays into the working world – can prove invaluable for long-term success.
Responsible revenues
COVID-19 propelled several changes in the global economy, one of which was a shift in consumer behaviours. Some of them were quite noticeable, such as the rapid increase in online shopping, while others were less immediately obvious.
Among this latter camp was the rise of the ‘conscious consumer’. Spurred on by concerns about health and safety, many consumers became deeply invested in protecting themselves and those around them from the spread of illness.
This concern for those around them extended beyond just health, however, with EY finding these same consumers are more willing to pay a premium for more environmentally responsible products.
Why does any of this matter to family businesses, though?
Well, research says that, on average, family-owned businesses get a better return on investment for their corporate social responsibility initiatives than other enterprises.
Professor Peter Jaskiewicz, who leads research on family enterprises at the Telfer School of Management in the University of Ottawa, found family businesses were more likely to consider the long-term effects of their corporate social responsibility (CSR) policies.
This is in part because families think about the longevity of their businesses in terms of generations, while other businesses may see a significant shift in CSR policy with each new CEO.
Jaskiewicz found that introducing substantive CSR policies also increases a family-owned business’ annual return on assets from 4.3% to 5.78%, and improved stock market performance by 15.5%.
Non-family-owned businesses saw none of these benefits.
Jaskiewicz’s work also revealed that consumers are likely to be more understanding and forgiving of a family-run business if their CSR policies are found to be just symbolic gestures.
Pooled perspectives
When discussing generational divides, it’s not uncommon to focus on the challenges that different aged cohorts face when working together. Rarer are conversations about how these differences can benefit everyone.
Younger members of a family may lack experience, but more often than not have their finger firmly on the pulse of modern culture and consumer attitudes.
Their elders may know how to run a successful business but may face some difficulties finding new ways to engage with modern audiences and consumers.
Bringing these two groups together – as often happens in a family business – creates the optimal conditions for both parties to succeed. Older family members can educate and train their younger ranks, while the next generation might introduce new and innovative ideas to the business that better reflect the contemporary world.
Lasting Legacies
Family businesses are not just a point of pride for their founders. When well-managed, they provide an enduring source of wealth and prosperity for future generations.
Consider the Nishiyama Onsen Keiunkan – a Japanese hotel owned and operated by a single family since 705 AD. This long-running business has financially supported 52 generations of a single family.
This kind of legacy doesn’t happen without effort. Successors need to be trained and prepared to take over the business.
Comprehensive wealth transfer plans need to be drawn up to protect the business and its assets from familial in-fighting or ex-spouses who might seek to make a claim for a business owner’s estate.
Fortunately, those writing up their plans currently feel positive about their heirs’ futures.
A study of Australian private banking clients found 74% of those actively planning a wealth transfer feel ‘very optimistic’ about the next generation.
With 70% of family offices predicting a generational shift in responsibilities in the next decade, it’s a promising sign that so many see a bright future ahead for the next generation of family business leaders.
Setting up for success
These unique factors have helped family businesses thrive in Australia, where they account for nearly 70% of all businesses in the country.
Given the sector’s importance to Australia’s economy, ANZ is proud of the work it does to support family-owned enterprises to develop and execute their plans and realise the potential within their businesses.
ANZ Private provides businesses with the tools and guidance they need to cultivate a deeper understanding of their financial position. That way they can structure an effective wealth transfer, establish philanthropic vehicles, and establish a lasting business to help provide for family and the wider community for generations to come.
To find out how ANZ Private helps keep business in the family, get in touch.
