The pandemic has created profound economic, cultural, financial and political dislocation. While many family enterprises are optimistic, they are also aware they must remain flexible in this dynamic environment.
As family enterprises continue to assess business plans, growth assumptions, capital or asset allocation decisions, and possibly entire business models, they may want to prioritize these four COVID-driven areas that will be instrumental in shaping the future of business.
1. Harness digitalization to win market share.
In 2020, digitalization soared. The COVID-19 crisis accelerated digitalization with an emphasis on data, streaming, connectivity, small-cell Wi-Fi, 5G, AI, Industry 4.0, and automation and robotics. These technologies have played and will continue to play an important role in how companies learn about, influence and serve critical stakeholder groups such as customers and employees. Appropriately harnessing digital technologies to develop and execute business strategy could ultimately help companies gain ground against competitors and win market share.
Many family business leaders manage their companies with a legacy mindset, anticipating trends and innovating to stay competitive. Prior to the pandemic, family business CEOs were racing to embrace AI and showing interest in the transformative potential of digitalization (EY Growth Barometer 2018). Wise family enterprise leaders will examine how they can build on the transformation they initiated during the pandemic while continuing to invest in and develop digital capabilities, such as AI and analytics. It's important to also recognize that in this digital era, employees may need to be retrained so the company can continue to grow and innovate.
2. Continue to invest in your communities as small cities become economic hubs.
The COVID-19 pandemic accelerated the outflow of people from major cities. This shift was already underway in some parts of the United States, with data from the past several years showing the shift from the larger metropolitan cities on the East and West Coasts to smaller cities, towns and rural regions, according to proprietary research from EY Family Enterprise Business Services (FEBS). The transition to remote working and virtual communications has allowed businesses to reimagine their workplaces, including geographical locations, in once-unimaginable ways.
Within those regions, capital investment and trading opportunities are growing. In some cases, cities are offering strong incentives for pandemic relocation. Family enterprises should examine how these shifts will impact their ability to access talent, how they might take advantage of these growing markets and how they can support their regions. FEBS research has found that 80% of the larger family businesses and family offices are located within 38 smaller city regions.
Family enterprises are typically well positioned to make significant contributions to their communities, driven in large part by their sense of purpose. Even before the pandemic, many family firms embraced their commitments to their employees and communities. Families and their businesses supported local organizations, family members volunteered their time, and family enterprises focused on their environmental, social and governance responsibilities. Throughout the COVID-19 crisis, some family companies lived their purpose by avoiding layoffs, while others provided even more support to their communities at a time of great need.
The well-funded family offices and larger family enterprises have the potential to be viewed as benefactors of small-city economies and social fabric, creating a win-win situation for the companies by actualizing a sense of purpose for employees and reinforcing the economies that sustain them.
3. As you change course, don't neglect your legacy plans.
In the United States today, about 35% of family enterprises have CEOs who are age 72 or older, according to FEBS data. A transition wave is on the horizon. In the wake of the current crisis, many family enterprises are reconsidering their long-term plans.
Because the pandemic depressed revenues and earnings of many companies, family business leaders who were thinking about exiting and monetizing their companies may have to put their plans on hold or accept materially lower valuations. Those who defer exits may want to consider professionalizing governance or addressing management succession. Those who were planning to recapitalize or refinance their businesses to provide liquidity to fund older owners' retirements may find fewer funding options and less favorable terms and conditions. This could impact succession plans, prompting some who had been planning to roll forward ownership into the next generation to exit and monetize.
As owners adjust to these circumstances, those with a legacy mindset may want to consider revising their exit, generational transition, shareholder liquidity, governance and/or succession plans. Changes to these plans can affect more than the family, because family-owned businesses play a key role in the broader community as employers and philanthropists. That's one reason why considering these factors is so important to many family enterprises.
4. Maximize employee resilience.
The economic dislocation, focus on health care disparities, and social and racial upheaval of 2020 have taxed employees heavily. They have been asked to adjust and adapt in unprecedented ways. The stress and fatigue can be overwhelming even as the need to connect is more urgent.
These factors have intensified the growing societal focus on wellness and preventive health care. Many companies understand that taking care of employees during this difficult time can lead to greater loyalty and productivity. More and more, businesses are offering resources to help employees enhance well-being, boost resiliency and collaborate more effectively in a virtual working world.
Family enterprises are known for their relationship-oriented cultures; leaders with deep management experience; and an emphasis on cohesiveness, inclusiveness, a long-term outlook and commitment to family and non-family employees.
As pressures persist, family enterprises are well positioned to continue learning about employees' needs and adjusting to meet those needs.
Some companies, for example, have adapted their benefit offerings. This might include providing instructional videos and tips on practicing mindfulness and working from home, expanding counseling and childcare resources, and reimbursing employees for activities and equipment that promote health and wellness. In addition, the pandemic has boosted the use of telemedicine and diagnostic tools in health care facilities and at personal residences.
Staying abreast of the latest research on maximizing employee resilience and thoughtfully implementing programs and policies to bring out the best in employees are more important than ever. Doing so will pay long-term dividends and reinforce the strengths of a multigenerational family business culture.
What's next and beyond
It has been a difficult and unpredictable period, but many family enterprises are nonetheless feeling optimistic. By understanding the powerful trends that are accelerating around them and building on their inherent strengths, family enterprises can move confidently into the future.
Robert (Bobby) Stover Jr. now leads the EY Americas Family Enterprise group in addition to continuing his role as EY Americas Family Office Leader.