THE VALUES EFFECT PWC GLOBAL FAMILY - HOW TO BUILD A LASTING COMPETITIVE ADVANTAGE THROUGH YOUR VALUES AND PURPOSE IN A DIGITAL AGE
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PwC Global 1 | PwC Family Global Family Business Survey 2018 Business Survey 2018 The values effect How to build a lasting competitive advantage through your values and purpose in a digital age #pwcforfamilybusiness pwc.com/fambizsurvey2018
2 | PwC Global Family Business Survey 2018 Foreword We believe family businesses – built around strong values and with an aspirational purpose – have a competitive advantage in disruptive times. There is an enormous opportunity for family businesses to start generating real gains from their values and purpose by adopting an active approach that turns these into their most valuable asset.
3 | PwC Global Family Business Survey 2018 The release of our ninth PwC Global Family Business Survey comes at a time of No global survey of the health of family business in 2018 would be complete extraordinary transformation. Digital technology is disrupting whole industries; without looking at the challenge of digitalisation. There was a marked jump since sustainability is becoming central to the conduct of business; in the corporate our last survey (2016) in the number of businesses feeling vulnerable to digital and financial worlds, winning trust is more important than it’s ever been; and disruption – a trend highlighted in PwC’s latest annual flagship CEO Survey as millennials represent an enduring demographic change. well. Many family business leaders recognise the digital challenge, and many are preparing for it. But there’s a real opportunity to boost engagement in the digital We believe that family businesses – often built around strong values and with an realm by enlisting the help of the next generation. aspirational purpose in mind – have a competitive advantage at a time like this. They are trusted more than non-family businesses by a 16-point margin globally, Overall, our respondents expressed enormous optimism about future growth according to a special report in the 2017 Edelman Trust Barometer. And it’s but also increasing concern about changing business models, digitalisation, long been recognised that a family firm – ranging from a global enterprise cybersecurity, regulation and protectionism. They are thinking carefully about to a business in a small community – is more likely than other companies to innovation and attracting and keeping the right talent for their business. treat each day’s activity as an investment in the long term, prioritising broad This suggests that there’s never been a more pressing time to get the stakeholder interests over satisfying the quarterly earnings cycle. fundamentals right. Yet one consistent finding since we started this biannual survey in 2002 is that For this year’s report, we surveyed 2,953 companies in 53 territories, covering a many family businesses are not yet turning these inherent advantages into a wide range of sectors, from agriculture to technology. We would like to thank the winning strategy to help secure profitable, long-term legacies. This latest survey respondents for taking the time to participate. We were also privileged to speak suggests there is a great opportunity here. Indeed, a healthy 75% of our survey with leaders at 10 of the world’s most prestigious and successful global family respondents felt that having a clear set of values created a competitive advantage. businesses. We would like to express our sincere thanks to them for being so There was also evidence that businesses with annual growth of 10% or more generous with their time and insights (a full list of those interviewed is available tended to be those with a clear sense of agreed values and purpose. on page 54). This plays into legacy in an important way. Family businesses are being We hope you’ll find the report valuable and that its insights will help you make propelled towards a vastly different landscape. The strategies that worked well better decisions for your family business. in the past might not be sufficient to sustain their businesses in the future. How can family businesses harness the legacies of the past and strive for strategic renewal, using their values as a key differentiator? And how should the next generation play a role in tackling digital disruption while preserving the values of the business? There is an enormous opportunity for family businesses to start generating real David Wills Peter Englisch gains from their values and purpose by adopting an active approach that turns Global Leader - Entrepreneurial & Global and EMEA Family these into their most valuable asset. Private Business, PwC Australia Business Leader, PwC Germany
4 | PwC Global Family Business Survey 2018 Contents 6 13 25 Growth – and how to sustain it Getting value from your values Pursuing purpose 32 43 51 Securing legacy in a digital age Private equity: A final word thinking outside the family
5 | PwC Global Family Business Survey 2018 Case studies 11 18 21 23 28 Defining the role of Projecting a vision for Bringing values Taking the long view on Showing values business in five principles business in society to life values for sustainable through sustainability business Victoria Mars, André Hoffmann, Johan H. Andresen, Simone Bagel -Trah, Mars Inc. Roche Ferd Andrea Illy, Henkel illycaffè 30 39 41 47 49 The value of constant Channeling legacy in Always valuing Building on shared values The virtue of humility entrepreneurship valuable ways independence, across between families as a value generations Eddy Lee, Fernando Simões, Sumeet Valrani, GM Rao, Lee Kum Kee The JSL Group Reinhard Zinkann, Al Shirawi Group GMR Group Miele
6 | PwC Global Family Business Survey 2018 Growth – and how to sustain it This year’s survey finds family businesses in robust health, with levels of growth at their highest level since 2007. Yet there is a nagging sense among many family businesses that the trajectory of growth over the next two years and beyond can’t easily be charted, given a set of key challenges.
7 | PwC Global Family Business Survey 2018 This year’s survey finds family businesses in robust health, with Exhibit 1: Family business growth ambitions, by territory levels of growth at their highest since 2007. Revenues are expected to Key continue growing for the vast majority Percentage of respondents looking to of businesses (84%), with 16% saying grow quickly/aggressively growth will be ‘quick’ and ‘aggressive’ (see Exhibit 1). 100 Sixty-nine percent of our respondents saw revenue growth in the 12 months before the survey was conducted, compared to 64% reporting revenue growth over the same period when we last did the survey in 2016. These findings echo what we found in the private-company cut of our % of respondents 2018 CEO Survey, where a solid majority of private-company chief executives said they were somewhat confident or very confident about their company’s growth prospects in the Global average 16% next 12 months. Of the 722 private-company chief executives polled for that report, 85% said they were somewhat 0 confident or very confident about India Nigeria Indonesia China Keny a Russia Bangladesh South Africa Turkey Australia Hong Kong Malaysia Greece Taiwan UK Singapore Denm ark Canada Rom ania US Mexico Middle East Papua New Guinea Ireland Netherlands Finland Colom bia Ecuador Brazil Sweden Japan France Italy Poland Malta Spain Switzerland Belgium Austria Germany their company’s growth prospects in the next 12 months. Base: all respondents in each market (2018: all answering n=30–171 in each territory) Source: PwC Global Family Business Survey 2018
8 | PwC Global Family Business Survey 2018 Yet there is a nagging sense among many family businesses that the Exhibit 2: Key challenges for family businesses over the next two years trajectory of growth over the next two years and beyond can’t easily be charted, given a set of key The need to innovate to keep ahead 66% challenges (see Exhibit 2). Among the top five challenges were: innovation Accessing the right skills & capabilities 60% (66%), accessing the right skills and Economic environment 56% capabilities (60%) and digitalisation (44%). Indeed, 80% say digitalisation, Domestic competition 49% innovation and technology ranked Digitalisation 44% together as a significant challenge. Moreover, more businesses feel Prices of energy & raw materials 43% vulnerable to digital disruption specifically (30%) than at the time of Regulation 43% our 2016 survey (25%). Our survey Professionalisation of the business 41% respondents shared concerns about companies coming out of nowhere Cyber security 39% and toppling established businesses. Data management 39% International competition 38% Succession 33% Access to financing 25% Corruption in the countries where you operate 23% The growth of artificial intelligence/robotics 22% International tax reform 16% Conflict between family members 14% The UK's decision to leave the EU 11% Base: all global respondents (2018: all answering n=2,950 – 2,952). Source: PwC Global Family Business Survey 2018
9 | PwC Global Family Business Survey 2018 Our survey findings show that first- generation family businesses clearly Exhibit 3: Growth rate by generation running the business outperform those run by subsequent generations in their ability to achieve double digit growth, highlighting the need to balance business model continuity with an appetite for 48% disruption (see Exhibit 3). Reconciling optimism with concern will 44% Single-digit sales growth naturally seem challenging. But one big 42% 41% takeaway that emerges is this: those family businesses that are actively pursuing their values and purpose and 35% nailing down a clear strategic plan are showing the way. Specifically, 32% 32% respondents who said they deliver Double-digit sales growth 10% or more annual growth tend to 28% 27% have some consistent attributes (see Exhibit 4, page 10). Eighty-four percent say they have a clear sense of agreed 22% values and purpose, compared to 76% of those that had slower growth. Almost two-thirds (63%) said they intend to make significant strides in digital capabilities (compared to 54% among businesses that have slower 1st 2nd 3rd 4th 5th + growth). And 55% had a fully costed, generation generation generation generation generation formalised and documented strategic plan (compared with 46% for the slower growth group). This tells us that Generation running the business it pays to take an active approach to values and purpose. Base: all 1/2/3/4/5+ generation global respondents (2018: all answering n=1,040/1,082/480/187/127) Source: PwC Global Family Business Survey 2018
10 | PwC Global Family Business Survey 2018 It also pays to plan ahead. Mid-term key performance indicators (KPIs). strategic planning – over a three - to There is a correlation between Exhibit 4: Behaviours of family businesses with 10%+ growth five-year time frame – is often one these high-strategic planners of the biggest missing pieces of the and other high value groups. puzzle for family businesses. This High- strategic planners constitute was also a theme of our 2016 survey 56% of the companies with a (The ‘missing middle’: Bridging the high level of philanthropy; 53% of strategy gap in family businesses). those with a robust, documented and communicated succession This year, we found that survey plan; 46% of businesses with respondents fall into three groups: 84% 63% annual turnover above US$100m; • The first group, making up 21% 42% of companies with double- of the total, has no strategic digit growth; and 41% of those plan at all. These ‘low-strategic with a high level of focus on planners’ seem to be more focused digital technology. Have a clear sense of agreed Are aiming to make significant steps on keeping the boat afloat than values and purpose as a company in terms of digital capabilities High-strategic planners are (vs. 76% among those who have (vs. 54% among those who have thinking about where it’s going. translating their strategic goals into
11 | PwC Global Family Business Survey 2018 Defining the role of business in five principles Mars Inc., US Victoria Mars, Member, Board of Directors (Chairman of the Board from 2014 to 2017) Businesses often display their principles and values in 80 countries. The company’s five principles, which on their website and in their marketing materials. are visibly present in each of its hundreds of sites, Some even carve them onto the walls of their offices. unite Mars associates across geographies, languages, But do they live by their principles in everything cultures and generations. they do? Those looking from the outside at most The company’s approach makes a good example of businesses would probably need some convincing. what it means to have values clarified, codified and One company that might convince them is the family- communicated. The principles are not only written owned business Mars. A diversified, global business down, but are brought to life in detail in a 26-page in pet care, confectionery and food, Mars operates document on the company’s website. In it, each according to five principles that are deeply embedded value is given practical relevance and application for in the company’s culture. employees, suppliers and other stakeholders. Established: 1911 The Five Principles are: quality, responsibility, For instance, much is made of the way in which Mars mutuality, efficiency and freedom. “There’s not a is a decentralised organisation in which employees Current generation conversation I have with our associates and leaders, – which it calls associates – are given the “freedom leading the Fourth generation other corporations, government officials, or when business: to act with full responsibility for doing their assigned I speak in public that doesn’t weave in The Five jobs.” In the workplace, “divisive privileges” are to be Principles,” says Victoria Mars. Mars, the former Annual turnover More than avoided, and an egalitarian spirit is encouraged. chairman and current director of the Virginia-based (2017): US$35bn company and a member of the fourth generation Under the principle of mutuality, the company holds of the family owners, stresses the importance of that its business relationships should be measured by Number of nurturing these principles. “Repeat, repeat, repeat; the degree to which they create mutual benefits for the 115,000 employees: company and its stakeholders. Success is achieved demonstrate, demonstrate, demonstrate The Five Principles all the time. It’s so critical you don’t forget if quality and value are given to customers, suppliers, Pet care, distributors and others. “Gains that ignore this will be about these five principles.” Sector/s: confectionery, short-lived” is the powerful warning in this section. food Mars is one of the biggest privately-owned businesses in the world, and it employs more than 100,000 people The fifth principle, freedom, takes as its starting point
12 | PwC Global Family Business Survey 2018 Defining the role of business in five principles (cont.) the “deliberate choice” that Mars is with your associates, your community connector between the family and the “From one generation to a privately held company. Free from and all your business dealings as company are The Five Principles of what Mars calls the “restrictions” the very objective for the company’s how we do business. It’s the glue that the next, it was always of having to incur debt to grow – as existence. This has shaped the holds us together.” about how we did many publicly listed companies do – family’s values and principles, and was the company has more control over its further expanded when my father, my What these principles can mean business rather than what in practice has recently been affairs. It has the freedom to re-invest uncle and my aunt codified The Five demonstrated in the launch of we do as a business, and a substantial portion of its profits Principles in the early 1980s. They the company’s ‘Sustainable in a The Five Principles came each year. “As long as Mars remains have been updated a few times, but Generation’ plan. This comprehensive out of that legacy.” free, our well-being can always come what hasn’t changed is the principles programme was launched in 2017 before any other financial priority,” the themselves. What evolves more and has three pillars that the company and how governments feel about us company states in its description of constantly is the relevance of how one is working to create through its working in their country.” this fifth guiding principle. lives them in the current times. operations: ‘healthy planet’, focused Victoria Mars says it’s unlikely the “As a child, I grew up with these on climate change, land and water Mars also believes a broader definition company would have been as principles as part of how we lived as a stewardship and waste management; of the purpose of business is vital to successful building its business family. They weren’t hanging on a wall, ‘thriving people’, focused on, among engage the next generation. “Business without The Five Principles. “From one posted on the kitchen fridge. But they other things, increasing incomes and is more than earning a return. It is generation to the next, it was always guided our family and me on how we unlocking opportunities for smallholder about the impact you have on the about how we did business rather interacted with people. I thought this farmers in the company’s supply chain, world, and that is absolutely important than what we do as a business, and was just the norm.” including disadvantaged women; and to the next generation,” she says. The Five Principles came out of that ‘nourishing wellbeing’, focused on “As the fourth generation of our For the Mars family, having these legacy,” she says. health issues among people and – family, my siblings, cousins and I are principles helps the family steer what naturally – their pets, too. asking ourselves how we are going to The values embedded in the principles it believes is the right course for the come from Mars’ grandfather, Forrest business – and the principles are not Another practical expression of the keep our children, grandchildren and Mars, Sr., whose father, Frank, founded open to challenge, as Mars explains. company’s principles is highlighted by great-grandchildren connected to the Mars as a confectionery company – a “You can get managers that can their use in helping to recruit the right business when they aren’t going to precursor of today’s Mars company – come along who might say we need talent, says Mars. “Our principles and be as closely linked as we are,” Mars in the US state of Washington in 1911. to change aspects of the principles, values will attract the associates we are notes. “We’ve got to find another way but the family will say: ‘You don’t looking for to work in our business and to connect them. It’s easy to end up “My grandfather was a great believer with just words on a wall; you have understand; these are our principles, will keep the ones we have working in how you do business,” says Mars. to keep training, telling stories and our values. You don’t have the right to for us. They will encourage consumers “Around 15 years ago, we found demonstrating how you behave and change them.’ We own these principles to buy our products and affect how a letter written by him in 1947 that and values. The business doesn’t communities we work in feel about show how to live by these principles.” talked about this idea of mutuality own them; we own them. The real us being part of their communities,
13 | PwC Global Family Business Survey 2018 Getting value from your values As decision making grows more complex during an accelerated pace of change, family businesses need to implement guidelines and tools to codify their values as a way to make better decisions. And our research shows family businesses that make their values and purpose explicit and measurable, and incorporate them into strategic plans, see better returns and greater longevity. Adopting an active stance towards values really pays off.
14 | PwC Global Family Business Survey 2018 The values of a company are the worked with, products and services founding companies based on a “My grandfather was a operating beliefs and principles that launched and ways of managing clear set of values, and many of them guide behaviour among not just the employees. have themselves come from family- great believer in how you leadership but also its employees. Companies that are managed with led businesses, where they would do business. Around 15 These concepts often manifest in the have learned, first-hand, the role that years ago, we found a strong values, a clear purpose and an company’s culture. clearly articulated values can have. eye for legacy will tend to build trust Businesses that talk about their values letter written by him in They affect not just what a company and loyalty among staff, suppliers says but also what it does. For and consumers, and will have greater as ‘social capital’ and treat this as 1947 that talked about an asset that is relevant to today’s this idea of mutuality with example, a family business might resilience during downturns. This world can get better returns if they act collectively agree on the need for is why family businesses are often smartly and communicate their values your associates, your community investment, just as it viewed as more trustworthy than other might agree on the need for trust and companies.1 effectively. community and all your cohesion among family members Although many family businesses Businesses that embody their values business dealings.” and employees. Genuinely held in everyday practices and routines are strongly aligned around a shared - Victoria Mars, Member, Board of Directors values become ingrained in everyday get better results. “The ones that get sense of values, they don’t always (Chairman of the Board from 2014 to 2017), practice: the deals made, suppliers it right start with understanding the use them to their full advantage until Mars Inc. (US) value of values. They get that this is there is a crisis. A faulty product hits what distinguishes them in the market. they had a significant advantage over “You can only interpret the market and the company goes It’s their DNA, their secret sauce,” non-family businesses because they into crisis mode and has to remind the the values of the family market that it’s not some less-than- says Dr. Justin Craig, a professor have a stronger culture and values. of family enterprise at Northwestern – the values of the professional operation. Rather, it’s a University’s Kellogg School of This year, 79% felt they had a clear family business with its name on the business – by living door – one that cares deeply about Management. “This is what has helped sense of values and purpose as a company. Breaking it down by them personally and by its customers and stakeholders – and them across previous disruptions. The thing that distinguishes successful region, there were some interesting making everybody in the one with a legacy worth preserving. family businesses is that they take the differences: only 68% of respondents business aware of them, What if family businesses codified time to communicate and educate in Asia felt this to be the case, these values right from the start and compared with 86% in both Africa by making the ‘genetic and remind themselves, and the next and Latin America, 81% for North made them active? Our research generation, early and often about the code’ of these values shows family businesses that make value of values.” America and 80% for Europe (see comprehensible their values and purpose explicit This year, we set out to test some of Exhibit 5). Of the global total, 70% felt and measurable, and incorporate strongly that having a clear sense of to all.” them into strategic plans see better the findings about values from our agreed-on values increased revenues 2016 survey. That report found that and profitability. Critically, as many - Dr. Reinhard Zinkann, Co-owner, returns and greater longevity. Indeed, 74% of family businesses believed as 75% felt that having a clear sense Executive Director, Miele (Germany) many of today’s entrepreneurs are 1 Source: 2017 Edelman Trust Barometer, Special Report: Family Business
15 | PwC Global Family Business Survey 2018 Exhibit 5: Sense of agreed values and purpose, by region Key Proportion of respondents agreeing strongly with the statement: ‘You have a clear sense of agreed values and purpose as a company’ 79% 86% 86% 81% 80% 68% Africa Latin America North America Europe Asia of respondents on average globally felt they had a clear sense of values and purpose Base: all global respondents (2018: n=2,167) as a company. Source: PwC Global Family Business Survey 2018 of values gave them a competitive annual growth in our survey, 84% had a value”, page 49). Indeed, living up “Once we established advantage. a clear sense of agreed values and to codified values and purpose is the Ferd, we tried to make At the same time, only 49% of purpose, compared with 76% among best risk management system you can a conscious set of those with a lower growth rate. put into place. respondents actually had values assigned values – more articulated in written form. This rose These findings tell us that as decision When it comes to codifying values, noticeably to 53% among businesses making grows more complex during a good starting principle is keep precisely, values we generating double-digit growth. an accelerated pace of change, family it simple. The family that controls would like people to talk The message is clear: adopting an businesses need more than ever to Henkel, the Germany-based global to us about.” active stance towards values really implement guidelines and tools to chemicals and consumer goods pays off. codify their values as a way to make company, decided some time ago that - Johan H. Andresen, Owner and Chairman, better decisions (see case study on the business had too many values. Ferd (Norway) Other findings reinforce this point. GMR Group, “The virtue of humility as It cut the list down to a handful and Of the businesses with 10% or more
16 | PwC Global Family Business Survey 2018 “Our values are the core inscribed them on five pillars in the No matter how solid your values and shareholders. Everyone must be lobby of company headquarters in are, they will change over time. committed to the actions needed to of everything. They are Düsseldorf. “The previous set of values As the business grows and new support these shared values. One the first pillar of what wasn’t clear enough,” says Dr. Simone people join, leaders need to revisit example of how family businesses we do and why we do Bagel-Trah. “And we had too many what those values are and, in some are doing this is to develop a values of them. Reducing their number from cases, refresh them. Values cannot compass, as the family-owned it. Our values of ‘decent, 10 to five allowed us to ensure that simply be assumed; they need to be company Mars has done to great effect worthwhile, secure’ everyone remembers and understands brought to life by living up to them. (see case study, “Defining the role of them. It’s much easier to identify So, it is important to talk about and business in five principles,” page 11). underpin what we are with a set of values and act on them champion values regularly to make all about. None of them when they are clearly laid out and are sure people agree on what they mean It is also useful to recognise the difference between having family are more important than relevant to employees in their daily and their relevance. It is also crucial to values and having values that work work.” (See case study, “Showing examine whether values drive the right the others, because they values through sustainability,” behaviours to improve performance, for the business, as illustrated by our case study on Ferd, a Norwegian family work together. Those page 28). including those of management, staff three words are our benchmark for decision “We have many making.” thousands of employees - Jonathan Falder, Managing Director, and recruit many every HMG Paints (UK) year, but what we always try to do is use our values to help us make the right decisions when hiring. We always seek to hire people who have principles in their DNA that are in line with our values.” - Fernando Simões, Chief Executive, The JSL Group (Brazil)
17 | PwC Global Family Business Survey 2018 “We realised that we firm (see case study, “Bringing values largest independent agriculture group, Every employee who joins AX to life,” page 21). The company was which traces its roots to the owning Holdings, a diverse group in Malta could not do business established in its current form in the family’s farming activities in 1698. operating in hospitality, healthcare, with an opportunistic 1990s but has a pedigree stretching Chief Executive Tommie van Zyl says construction and development, must mind-set. Each business back more than 160 years. Before Ferd everyone from the purchasing office attend a course about the group, the was established, the Andresen family through to the logistics supply chain businesses, its values and how those was different, and there “internalised our values,” explains understands the business’s value values are applied. “In this way, we were no synergies Chairman Johan H. Andresen. “They system. “We adopted an ‘open systems have a cascading effect that ensures all were good, old-fashioned types of philosophy’ in our business. Instead employees adopt these values,” says between them. It values, like honesty, dedication and of focusing internally on the family or Chief Executive Michael Warrington. was very difficult to loyalty. But they weren’t something on the business all the time, the focus Values can also help with recruitment. synchronise all the that drove the business. should be outside of that, and thinking Our survey showed that 79% of about the interactions and the linkages businesses we had “We weren’t going to take our family in the wider world,” he says. respondents that had a clear sense values and say the business should be of values felt that this helped attract entered into. We then like this. You might say the company’s potential joiners. This is illustrated by thought that we should values [now] overwrite the family’s our case study on The JSL Group “It’s much easier to have a vision, have our values,” says Andresen, explaining of Brazil (see “Channelling legacy in that the family took the famous quote identify with a set of valuable ways,” page 39). own values and create by (the former US president) John F. values and act on them a robust organisational Kennedy, adapting it into ‘Ask not what when they are clearly laid structure.” the company can do for you, but what you can do for the company.’ out and are relevant to - GM Rao, Founder and Chairman, GMR Group (India) Values can also be creatively shared employees in their daily and reinforced in family businesses work.” involving more than one family (see case study on Al Shirawi Group, - Simone Bagel-Trah, Chairwoman, Supervisory Board, Henkel (Germany) “Building on shared values between families,” page 47). Values are more effective when Values should be communicated explicitly communicated to customers explicitly and clearly if they are to be and suppliers (see case study on adopted across the family business Miele, “Always valuing independence, and beyond (see case study on across generations,” page 41). That illycaffè, “Taking the long view on is exemplified in South Africa by the values for sustainable business,” approach taken by ZZ2, the country’s page 23).
18 | PwC Global Family Business Survey 2018 Projecting a vision for business in society Roche, Switzerland André Hoffmann, Vice Chairman When the Paris-based business school INSEAD received and is rarely interested in its impact on society and the a donation of €40 million in the summer of 2018, it was environment. This needs to change, in his view. the largest gift made by anyone in its 61-year history. “The economist Milton Friedman once said, ‘The The donor was André Hoffmann, Vice Chairman of business of business is business.’ So, what he was pharmaceuticals group Roche and a member of the saying was: ‘Let us make money, and the rest will take family with a controlling shareholding in the group care of itself. We don’t have to worry about externalities.’ since 1948. But this is clearly, to my understanding, not true,” says Hoffmann. Yet the money – actually gifted in his name and that of his wife, Rosalie – was not just an eye-catching case “We need to look at financial returns, because without Established 1896 of corporate and personal largesse. It is being used to that, there’s nothing. But you also need to look at set up the Hoffmann Global Institute for Business and environmental and social returns. We can satisfy Society which, as an INSEAD announcement said at shareholders; we can have a profitable business; Current generation the time, “promises to bring fresh perspectives and we can have a forward-looking business. But we can leading the Fourth generation business: innovative solutions to the most intractable global issues also minimise the impact of our footprint on society and that threaten our sustainable future.” the environment. My dream is to position Roche and Annual turnover many other companies into this territory where they US$54bn The Institute will explore issues such as ethics, gender (2017): can become net contributors to societies – and not balance, humanitarian operations, social impact, the opposite.” sustainability, technology for good, wealth inequality and Number of 93,700 other topics related to the role of business in society. Hoffmann, who earned a Masters in Business employees: Administration from INSEAD in 1990, believes one of These are issues of great importance to Hoffmann, who Pharmaceuticals the main ways the Institute can help to bring about that Sector/s: has a clear vision for the role of business in society and diagnostics change is by influencing how business is taught. “The and in particular for how it gives his family’s business Institute for Business and Society aims at changing the a clear purpose beyond generating profit. Business is norm in which business is taught,” he says. “We have often too focused on short-term gains, Hoffmann says,
19 | PwC Global Family Business Survey 2018 to realise the way we teach business security: we have the voting shares, by his father’s commitment to For Hoffmann, all of this lays the management is only aligned on the and we have a dividend certificate. the environment. foundations for Roche’s legacy: single metrics, which is financial That means that we are under the “I think that one of the legacies a “I grew up in this conservation return. The rankings of business scrutiny of every investor on the family business has is this long-term environment, and I spent a lot of time schools are often based on the salary planet, but we’re also able to take thinking. It’s this backbone that trying to protect species. Today, I’m you earn when you graduate. But long-term decisions because we have is always there, despite changes more and more convinced that what judging success just on the amount of the majority of the vote.” in fashion, despite the change in matters is the interface between money you receive, as we know now, technologies, despite digitalisation, This means that when the company humanity and nature,” he says. is no longer suitable. And business despite all these challenges that the makes a decision, it is likely to schools need to wake up to this fact.” world is throwing at business.” influence the fifth and even sixth Purpose has a particular role to play generations as well, says Hoffmann, “I think that one of at Roche itself, too. “The purpose who is a member of the fourth of Roche is not to make money; generation of the family. “This the legacies a family the purpose of ours is to satisfy a means business thinking has to business has is this community and in particular to satisfy be transgenerational. long-term thinking. the patients’ community,” Hoffmann explains. “How can we create new “That’s what separates us from non It’s this backbone that family-owned businesses. It’s the ideas which will make the life of the concept of sustainability, which, I’m is always there.” patient easier and perhaps even glad to say, is much in favour at the cure them?” moment. And this sustainability is When it comes to the more than A family business structure supports lived by the family.” 93,000 employees at Roche and its that purpose, thanks to the multi- future employees, Hoffmann believes To illustrate this, one need look no generational, long-term approach that having a strong sense of purpose further than Hoffmann’s early life. taken by many family businesses – is an excellent recruitment incentive. His father, Luc, was one of the co- including Roche, which was founded “How do we make sure that the founders of the World Wide Fund for by Hoffmann’s great-grandfather people who want to make an impact Nature and dedicated his working life Fritz Hoffmann-La Roche in 1896. on public health or even on disease to conservation projects. The younger The structure of Roche’s ‘hybrid’ solutions come to Roche rather than Hoffmann was brought up in the ownership helps in this regard. The go to other businesses?” he says. Camargue region of France, where family has most of the voting shares “We need to be able to provide the his father had set up an institute to but doesn’t control the quoted shares right environment and have sufficient protect the Mediterranean wetlands. on the stock exchange, Hoffmann stability while still maintaining a certain And he was deeply influenced explains. “So, we have two types of amount of excitement.”
20 | PwC Global Family Business Survey 2018 Five principles for getting Peter Englisch, value from your values Global and EMEA Family Business Leader, PwC Germany 1. Be specific about your values: codify them, write them down and act on them. Do this with the full involvement of family members. This will strengthen not only your family cohesion but help you make better decisions for the family business. 2. Communicate your values internally and externally to activate your family business advantage. Many family businesses have values but don’t always bring them to others’ attention. You can’t get value from your values if you don’t communicate them. 3. Develop business principles and a code of conduct that brings your values to life. This helps build trust and credibility internally and externally and open doors for new business partners. 4. Put values at the forefront of your recruitment efforts and embed them into your workplace, as you seek to bring the best talent to your business. Displaying your values is a good way to attract and retain the best talent for your business. 5. Focus on value creation along the entire value chain, such as ensuring that you work according to shared ethical standards. Your values have a mutually reinforcing impact beyond your own business.
21 | PwC Global Family Business Survey 2018 Bringing values to life Ferd, Norway Johan H. Andresen, Owner and Chairman “Ask not what the company can do for you, but what on tobacco companies from governments and anti- you can do for the company.” tobacco groups, the family decided tobacco was no longer a business they wanted to be in. It would be hard to beat this for originality and creativity as a family business mission statement, They sold off the tobacco interests and established paraphrased, of course, from former US president Ferd, which has holdings in a range of businesses, John F. Kennedy’s most resonant quote. including some highly successful non-listed companies. Many of these are in Norway’s energy But for Norwegian business leader Johan H. sector, like oil and renewable energy services Andresen, it is simply an effective way to express company Aibel; oilfield technology business Interwell; how he and his family have approached defining, and the country’s biggest ferry operator, Fjord Line. articulating and living the values that drive the Ferd Ferd (from a Nordic word for ‘journey without an end’) group of companies, which operate in the Nordic also invests in publicly-listed stocks, hedge funds Established: 1849 region. In essence, the family decided that it had and real estate. The Oslo-based investment group to live up to the company’s long-cherished values, has also pioneered social entrepreneurship and rather than the other way around. Current generation pursued many so-called impact investments – those leading the Fifth generation Pinpointing this distinction was part of deliberations designed to create a social or environmental benefit. business: that took place 20 years ago at an important juncture When Ferd was created, Andresen, his family and in the trajectory of the family’s business interests. Annual turnover 30.8bn those running the new business felt able to set out (2017): Norwegian Krone Ferd’s origins go back more than 160 years, a properly defined set of values. Although a set when Andresen’s great-great-grandfather, also of family values had guided the legacy business Number of called Johan, bought a tobacco company called for almost two centuries, they decided they really 8,857 employees: Tiedemanns, which became the basis of the family needed values to guide the company and the family’s business. Tiedemanns soon became one of the interaction with it. Conglomerate, biggest tobacco firms in Scandinavia. The family industrial “Previous to establishing Ferd, we as a family Sector/s: used money from Tiedemanns to diversify into and financial internalised our values,” explains Andresen. “They investments shipping, publishing, packaging and consumer were good, old-fashioned types of values, like products. But in the 1990s, with increasing pressure
22 | PwC Global Family Business Survey 2018 Bringing values to life (cont.) honesty, dedication and loyalty. But Credibility is very important to Ferd, when it comes to evaluating returns. who built a business empire endures. they weren’t something that drove the says Andresen. It means something But Andresen feels Ferd has added Andresen says he honours that business. Once we established Ferd, more than trust. “Credibility isn’t a new twist to the concept. “I’ve through his efforts beyond Ferd, such we tried to make a conscious set of something you have. You can’t buy it; reformulated the traditional idea of the as setting up a microfinance fund and assigned values – more precisely, you can’t make it up and say you’re long term with the idea of ‘we can be Ferd’s social enterprise efforts. He values we would like people to talk to more credible today than you were impatient for a very long time.’ In other is also chair of a council of ethics for us about, in those terms. yesterday. Credibility is different words, the concept of the long term Norway’s oil fund, one of the world’s from trust; it means that you actually for a family business is not a resting biggest sovereign wealth funds. “As “We weren’t going to take our family believe in someone who’s doing point; it isn’t a pillar that enables family owners, we always said the values and say, ‘The business something they’ve never done before things to fix themselves. No, things leader doesn’t just lead in a closed should be like this’. You might say – and that is something we are doing won’t fix themselves. You need to company. They have two roles. One the company’s values overwrite the all the time. We always do something be constantly impatient for success, was to run the company, and the family’s values.” we haven’t done before.” but against the background of long- other was to play an active role in term objectives.” society. Successive generations have Andresen says this idea of credibility tried to live up to that responsibility. “Of course, there is a is also an important factor in Ferd’s A strong indication that values All these things stretch and modernise legacy, all the stuff we’ve efforts to attract the best talent. “The are also important in generating the legacy,” Andresen says. “You’re people we are trying to hire have deal flow is that the most recent done. But let’s look at an option. They can go elsewhere investments made by Ferd were in making a legacy outside of the company that feeds back to the what we are going to do. because they have a huge amount of two other family businesses where the values of credibility.” potential; everyone wants them. But owners selected Ferd as their partner That is the best way of if you’re a values-based owner with over other suitors. having a legacy.” credibility, those high-potential people Family businesses like Ferd that select you.” reinvent themselves perhaps don’t That’s where Kennedy’s aphorism Part of the hiring effort is geared get too bogged down with the idea of comes in. “The family’s values are a towards the ‘team play’ value. And legacy. As Andresen says: “Of course, reflection of [that],” says Andresen. Andresen says the fact that Ferd has there is a legacy, all the stuff we’ve little staff turnover is a testament to its done. But let’s look at what we are They laid out the company’s values success in recruiting team players. going to do. That is the best way of in four points: credibility; a spirit of having a legacy.” adventure; team play; and a long-term Family businesses often take a long- view of goals and success. term view in their decision-making That said, the impact of five processes and value the concept generations of the Andresen family
23 | PwC Global Family Business Survey 2018 Taking the long view on values for sustainable business illycaffè, Italy Andrea Illy, Chairman During a global coffee crisis from 1998 to 2002, Francesco, who started the business in 1933, and prices skyrocketed, consumption fell and the their father, Ernesto, who ran it until 1994. The euro was in turmoil. Instead of cutting staff or company’s purpose is to deliver the world’s best renegotiating supplier contracts, Italy–based illycaffè cup of coffee by pursuing excellence for everyone – more commonly known as illy – stayed its course, involved. Even more simply, illy is about happiness. holding fast to its policies. “That’s the real goal in life,” says Illy. “In order to be creative in your life, you need to be inspired, and in “We just sacrificed our profit in the short term order to be inspired, you need to be happy.” for the long term, maintaining financial stability,” says Andrea Illy, the founder’s grandson and The company’s values underscore that mission. the company’s chairman. “We started working One is to “create and share superior stakeholder Established: 1933 immediately to improve our situation and recover as value over time through our commitment to soon as possible after the crisis.” improvement, transparency, sustainability and people Current generation development.” Another is to inspire everyone in the Third and fourth This approach to weathering business challenges leading the value chain – “from bean to cup” – to create what the generation by taking the long view is typical of many family business: company calls “beautiful experiences” and products businesses. Liberated from quarterly financial to delight customers. Annual turnover demands, they are freer to put the needs of €467m employees, suppliers, customers and society first. Pursuing that mission has not always been a smooth (2017): Their competitive advantage comes from benefitting process. Following the dissolution of an international Number of all stakeholders, not just those with financial stakes. coffee agreement in the late 1980s, which fixed 1,290 employees: And at a time when there is a heightened sense that prices and guaranteed quantity and pricing quotas, business should be about a purpose beyond profit, a black market thrived and prices plummeted. Beverages and illy’s approach serves as a good example. Meanwhile, new coffee exporters like Vietnam Sector/s: coffee emerged, leading to oversupply and lower prices. The Andrea Illy, his sister and two brothers stay true to market was flooded with often low-quality coffees. the purpose and values set by their grandfather,
24 | PwC Global Family Business Survey 2018 Taking the long view on values for sustainable business (cont.) In 1990, Andrea Illy, armed with a 20,000 people a year in 25 countries, In the end, it’s about values. The the company’s more than 100,000 chemistry degree, joined the family including not just farmers but also company prioritises the needs of retailers, cafes and shops. They all business as a quality supervisor. people who serve and enjoy coffee. stakeholders like farmers over its own make it possible to get illy coffee To ensure illy was delivering on its family of shareholders, continuing into the hands of its customers in To keep its suppliers thriving and loyal mission to make the world’s best to pay farmers premium prices 140 countries. to the company, illy pays on average coffee – and bought only the highest even when times are tough. Their 30% over market value for its higher Last but not least is the family, which quality beans during this tumultuous businesses must be sustained just like quality beans. It also keeps dividends is there not to enrich itself but to serve period – he made some changes. their coffee crops. “For a company for shareholders modest and invests the company and the community. Inspired by practices he saw in founded on ethical values, it’s very most profits in the company to further “This is our philosophy,” says Illy. Japan, Illy developed a ‘total quality’ hard to accept that you are basically improve quality. “This is our family business.” programme to set standards at the enriching people’s lives with a well- company and for the industry. being of coffee and you cannot give back to those who produce the Then, in 1991, the company began “For a company founded product,” adds Illy. directly sourcing beans from coffee on ethical values, it’s very growers in Brazil to guarantee Illy calls this a virtuous cycle in a reliable supply of high-quality, hard to accept that you which everyone benefits. He thinks sustainably farmed beans. are basically enriching of the company as a ‘shared- value company,’ one in which To be sure that its suppliers’ people’s lives with a competitiveness and the health practices truly were sustainable for well-being of coffee and and success of its communities are the environment and society – in 2011 – illy partnered with DNV GL you cannot give back inextricably linked. Companies aren’t profit machines but rather Group, an international certification to those who produce social institutions that use profits to body. Today, illy is audited on more the product.” create well-being for stakeholders, than 60 important performance explains Illy. indicators. To share knowledge and passion for coffee all around the “The better quality we offer to our And the consumer comes first. “My world as well as teach sustainability consumer, the more they will drink and father used to say the consumer is the and environmentally responsible the higher premium they will pay, and owner; we are not the owner. He or cultivation, along with better business this can be reinvested for growth and she is the real boss,” Illy says. practices, illy set up the ‘University development for those who produce Next come the suppliers, other of Coffee.’ Twenty years on, the it,” says Illy. partners and about 1,200 staff at university educates more than
25 | PwC Global Family Business Survey 2018 Pursuing purpose Business leaders are talking more than ever about finding the right balance between the profit motive in business and a heightened sense of purpose that runs through the C-suite.
26 | PwC Global Family Business Survey 2018 The purpose of an enterprise is its legislate morality. Examples include In our survey, 68% of family businesses “If I were to speak from reason for existence: the expectations a UK requirement that companies of globally had a documented vision and you have about what products and a certain size report their gender pay purpose, or mission statement, for my heart, the most services you produce, why those gaps; regulations in China to more their company. important part of the create value and what you will do aggressively tax polluters; and laws “A family business without a business is that we with the value you create in the world. in South Africa obliging companies to Beyond making money, your purpose value non-financial stakeholders the common purpose won’t survive,” are two families. It says Dr. Peter May, Family Business might include providing for your same way as financial stakeholders. Consultant and Strategic Adviser to is our greatest value family and community, fostering an innovative way to improve the world PwC’s family business practice in as a business – this Germany, “particularly in the turbulent at large or realising another aspiration. “My father used to say the cooperation between environment we’re in at the moment The family originally founded or consumer is the owner. when everything is changing, whether the families.” acquired this business for a purpose, it be digitally or with the political and unless that has changed, you are We are not the owner. He uncertainty we see globally. Family - Sumeet Valrani, Director still here to realise it. Al Shirawi Group (United Arab Emirates) or she is the real boss.” businesses must be clear: what is our Today, business leaders are talking reason to stand together for the next -Andrea Illy, Chairman, more than ever about finding the 20 to 30 years and the next generation illycaffè (Italy) right balance between the profit to come?” motive in business and a heightened sense of purpose that runs through Survey after survey shows that the the C-suite. Corporate malfeasance millennial generation, which makes up has increased public distrust and led a sizeable portion of the workforce in government leaders to attempt to most countries, expects companies to contribute to society, have a clear “When we do things, purpose based on values and be “The purpose of Roche more sustainable. They want to work is not to make money; we have to think about for companies they feel good about how other people might and tend to buy from those that the purpose of ours is to be affected by our meet their ethical standards. To be satisfy a community and accountable in this way, businesses actions and take these will increasingly need to track their in particular to satisfy the into account.” activity and its impact. Roche, the patients’ community.” pharmaceuticals group, has a clear - André Hoffmann, Vice Chairman, - Eddy Lee, Director, sense of community purpose (see case Roche (Switzerland) Lee Kum Kee (Hong Kong) study on Roche “Projecting a vision for business in society,” page 18).
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