What drives resilience in family businesses?

The common factors that make up the formula for family business resilience and regeneration are strong entrepreneurial orientation, emotional attachment to their business and ambitious next-generation leadership seeking new experiences beyond the family business, a study by ISB, STEP Project and KPMG has found.

Entrepreneurial spirit: ‘The Regenerative Power of Family Businesses: Transgenerational Entrepreneurship’ has noted that keeping the founder’s entrepreneurial spirit alive is a major contributor to innovation even in well-set family businesses. In a study of 2,439 family business leaders from family firms across 70 countries and territories, it found that potential next-generation successors are being educated on how to take calculated and responsible risks, and make judgements on their own, with small amounts of family capital enabling them to learn from first-hand experiences.

In addition to entrepreneurial spirit, socioemotional wealth and motivational leadership also hold the key to the resilience of family businesses.

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.

India findings

While these insights are from 2,439 family business leaders from family firms across 70 countries and territories, the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business conducted the survey in India, as an affiliate of the STEP Project.

Speaking of the 53 Indian firms in the sample, Nupur Pavan Bang, associate director, Thomas Schmidheiny Centre for Family Enterprise, ISB, said, “The good news is that Indian firms seem to have a better ability to defy the adage of from shirt sleeves to shirt sleeves in three generations. A greater proportion of Indian businesses are being managed by the third and fourth generation (25% and 8%) when compared to global averages (14% and 4%). This is also an indication of the longevity of family firms in India,” Bang said. “However, Indian firms lag behind the other global family businesses on the key aspect of involving women at the leadership level. Only 9% of Indian firms in the sample had a woman CEO compared to the global average of 19%.”

Prof Sougata Ray, executive director, Thomas Schmidheiny Centre for Family Enterprise, added, “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 said. “However, Indian business families are way behind their global peers in putting structured family governance in place as only 11% of Indian respondents reported to have a family council, compared to the global average of 24%.”