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Anchored in Purpose, Elevated by Transparency

by Jon Flack

In order to deepen trust among their stakeholders, family businesses need to lead with transparency.

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Family Businesses have a reputation for being able to outperform their competitors during periods of economic unrest. This past year brought much more than the typical dip in the market, between societal unrest and the pandemic continuing to shape the narrative of the current economic recovery. Unsurprisingly, family businesses have remained strong by following a simple equation: remain centered in values that are foundational to their organizations and act with purpose to positively impact their communities. With this perspective, they are emerging on the other side of this challenging year with a positive outlook. According to the US findings of PwC’s 2021 Family Business Survey, family businesses saw a reasonably strong performance over the last financial year (2019, pre-COVID-19), with 63% experiencing growth. More than three-quarters (82%) expect to see growth in 2021, with 96% anticipating the same in 2022. This is the most optimism in the more than 10 year history of our survey.  But that doesn’t mean there isn’t more that they can and need to do to drive growth and success both for their own organizations and the communities they serve.

It’s time to take ESG to the next level

Family businesses have long been focused on Environmental, Social and Governance (ESG) efforts within their communities, and in many cases they have been industry bellwethers of leading practices. These fundamental practices are part of what helps position family businesses as highly trusted organizations. The missing piece, though, is transparency. Family businesses commonly have close relationships with their communities, leading the way ahead of larger corporations who may still be determining their ESG priorities. Unfortunately, these private businesses may not have publicly communicated and reported their achievements. In order to deepen trust among their stakeholders—who are their employees, customers and the communities they serve—family businesses need to lead with transparency.

Public companies are required by the SEC to report on a number of ESG metrics like human capital disclosures, for example. Unlike their public company counterparts, private companies are not required to disclose any ESG metrics. But just because it isn’t required doesn’t mean it isn’t necessary. In fact, one could argue the opposite is true. Proactively disclosing information that isn’t required helps build and anchors trust in your company with stakeholders. As family businesses continue these efforts, a focus on transparency around their ESG activities is critical and can create advantages in the current environment.

Diversify your board

One area where family businesses can, for the most part, fall short is with regard to diversity and inclusion. This is partly due to the nature of family business structures—wherein many, if not most, of the board directors are family owners—it can be difficult to bring in outside perspectives.

However, the board of directors for family businesses pose the perfect opportunity for the company to  make significant strides with diversity and inclusion, as it is well known that outside perspectives help make a board even stronger. As shepherds of strategy and oversight, a board with the right mix of skills, experience, and backgrounds is necessary to guide the company through change and create paths for growth. The board can and should be composed of unique individuals with different backgrounds, skills and perspectives that support current and future strategies.

Finding the right directors for your family business board can be challenging. To help our clients we have created a database of potential directors and offer a board matching program to help family businesses diversify their boards and bring in valuable new perspectives into their organization. Whether you need to add a particular skill set or area of expertise, or someone with a different background, we can help. This is a great way to help you broaden your pool of candidates and find the right directors who can propel your family business forward.

Build on trust

It all comes back to trust. According to the 2019 Edelman Trust Barometer, 78% of the respondents said they trust family businesses, which was much higher than how they trusted businesses in general (54%). There is a reason why family businesses are so trusted—and that cannot be taken for granted.

Family businesses who align their ESG strategy with their organization’s fundamental values can be at an advantage. They can build onto their company’s inherent trust, reach new customers and attract and retain the leading talent—but only if they’re willing to step out of their comfort zone and shine a light on what they’re doing. By prioritizing ESG reporting and transparency, continuing good governance practices and diversifying the board, family businesses can really lean into the purpose and values upon which their organizations were built. This will help continue to build trust with stakeholders and will drive growth and success in family businesses for years to come.

Jon Flack is PwC’s US Family Enterprises and Business Leader.