A PwC survey finds growth opportunities in technology, governance and innovation.
According to PwC’s 2023 US Family Business Survey, three essential ways for family businesses to maintain trust in their brand long-term are to invest in technology, enhance governance capabilities and explore new opportunities for growth. We spoke with Jonathan Flack, PwC U.S. family enterprises leader, and Danielle Valkner, PwC U.S. family office leader, about family businesses’ proficiency with technology issues, governance areas in which family businesses are thriving and opportunities for innovative thinking.
Private Company Director: According to your report, what are family business owners’ views on their proficiency with technology issues, including cybersecurity and digital transformation?
Danielle Valkner: The pandemic pushed many businesses to adopt new digital capabilities relatively quickly, but there is still work to be done.
According to PwC’s 2023 US Family Business Survey, only 39% of family business leaders feel they have strong digital capabilities, which is down from 42% in 2021. This decline could mean that family businesses are becoming more self-aware about their role in an ever-changing digital world. Still, with that number so low, only 33% say improving their digital capabilities is a key priority over the next two years. Without prioritizing digital transformation, it could become a blind spot for these family businesses, putting them at risk of being complacent and facing disruption. The digital deficiencies can also lead to issues in cybersecurity. Just 40% of respondents say that they are very advanced in effectively responding to and addressing data/privacy breaches, and 35% say they are still on the path to achieving this.
Cybercriminals continue to grow more and more sophisticated, and we see the rate of cyberattacks continue to rise, which means that digital transformation can ultimately play a major role in the survivability of a family business. It’ll be important that family businesses choose tech-ready partners and vendors that can support their digital growth and keep their data safe.
PCD: When it comes to governance, what are the areas where family businesses are thriving, and what are the areas where they are falling short or need more concentration?
DV: Focus on governance is on the rise, especially stateside. Nearly all of our U.S. respondents (98%) say they have some form of governance in place, which is higher than the responses from global family businesses (81%).
The documents that make up the governance policies, however, can vary. The top three policies and procedures that our U.S. respondents have in place, according to the survey results, are shareholder agreements (75%), testaments/last wills (64%) and dividend policies (51%). While it’s great that family businesses have policies like these in place, it’s also important that there is clear consistency across the various documents. A document that says one thing and another document that says the opposite can spell trouble.
It’s important for business leaders to understand that governance plans must be adaptable and appropriate to meet not only the needs of the family, but also the business, its shareholders and its customers. Business leaders need to keep in mind that what works now may not work in the future, so agility and a willingness to adjust strategies over time is important, as well as frequently revisiting the process and documenting any changes. Governance documents should be looked at as living, breathing documents that need to be kept up to date.
Additionally, family businesses should establish governance built on a trusted structure and longevity, but the truth is that many aren’t doing this. Only 66% of respondents said they have a clear governance structure, and 65% said they have a person in charge of corporate governance — so again, there is some work to be done here as well.
Lastly, family businesses may not always like to discuss succession planning, but it’s key to their future success. Only 64% of respondents say they have a will in place, which is one of the most foundational components of estate and succession planning. With 78% of respondents saying that protecting the business as the most important family asset is their top goal for the next five years and 72% wanting to ensure the business stays in the family, succession planning needs to be a top priority, including an intentional focus to identify and develop future leaders for both the business and family.
PCD: How important is the idea of innovation and not staying complacent to the success of a family business? What can family businesses be doing to ensure they continue to look for outside-the-box opportunities to grow?
Jonathan Flack: Family businesses are often born from an entrepreneurial spirit, and it’s a feeling that should resonate throughout the lifetime of the company. However, only 19% of the respondents from our survey say they put “very much” of their focus, energy, investment and resources into innovation, research and development. It can be so easy for family businesses to stay the status quo because their existing policies and processes have worked for so long, but, in the long run, is that really the best plan for the longevity of their business? Probably not. Maintaining the value and philosophy of the business is important, but also creating better efficiencies and adaptation to today’s world is what will set these companies up for success. For a family business to continue growing, it’s critical that they keep innovation and the entrepreneurial spirit alive. What the business did for their first 100 years of existence is not going to get them through the next 100. Evolving is key.
If you’re a family business that has excess capital, why not consider M&A or strategic partnerships? For example, bringing in a business partner with advanced technical capabilities can help accelerate growth and enhance your digital risk management. Mergers and acquisitions can bring on new capabilities that draw in talent to expand your employee base and bring valuable ideas and capabilities into your company.