KPMG: Family businesses better weathered the pandemic

Family businesses better weathered the pandemic storm, according to a recent global survey from KPMG. The survey polled 2,500 family businesses globally – including 76 in Canada – and 500 non-family businesses globally in June and October 2020.

According to a 2019 report from the Family Enterprise Xchange Foundation, a family-owned business is one that is majority-owned by a married couple or majority-owned by two or more people with the same family name.

Family enterprises represented $574.6 billion, or 35%, of Canada’s GDP in 2017. They make up a majority of small- and medium-sized enterprises (0-500 people), supporting 90% of jobs in the SME category – which accounts for the vast majority (99.8%) of businesses in Canada.

Many of the largest companies in Canada, however, are also family businesses: just think of the Rogers, Weston, and Thomson family empires. Approximately 34% of GDP generated by large firms came from family enterprises, according to the Xchange report, so they account for a significant though smaller slice of large companies as well.

Family businesses are dominant in certain industries. Specifically, they represent 80% of Canadian GDP in agriculture, more than 70% of accommodation and food services, and nearly 70% of retail and wholesale. Family businesses also account for more than 60% of GDP in manufacturing, construction, and transportation and warehousing.

So if a family business can represent both a small family farm, a local Thai restaurant, and Thomson Reuters, what utility does it have as a descriptor?

According to the KPMG report, the unique character of family businesses helped them better cope with pandemic challenges.

"Family business owners tend to look beyond short-term profits and measure success by the ability to sustain and protect the longevity of the business and succession plans for the next generation," said Yannick Archambault, partner and national family office lead, KPMG Enterprise. "Many leaders took the opportunity of a slowdown to fully understand business and industry impacts, carefully leverage their patient capital, and explore new business models and markets.''

The KPMG report’s Canadian sample size of 76 businesses is too small to derive any defensible conclusions, however. Previous research pointed out that large companies (which can be family-owned) fared better in the pandemic than smaller companies because they were likelier to have easier access to capital as well as greater resources to digitally pivot. Large companies were also likelier to be in industries that weathered the storm well, such as pharmaceuticals and technology. 

The more general assumption would be that family businesses, accounting for a higher proportion of ravaged retail and hospitality sectors, would fare worse overall than non-family businesses – which would be likelier to occupy larger shares in other sectors. Also, the family business would still have to exist to be surveyed, so the survey is only hearing from survivors.

Across the larger global sample size of 2,500 family and 500 non-family businesses, the respondents would still have to form a fair representation of size and industry share to bestow any illustrative insight into the family versus non-family binary.

According to the KPMG survey, 53% of Canadian family business respondents saw an initial decline in revenue during the pandemic, compared to 69% globally. Though most saw revenue declines, 17% of Canadian respondents saw revenues increase and 30% had flat revenues, compared to 9% and 22% of global respondents, respectively.

Eight percent of Canadian and global family firms reported a workforce reduction, compared to 10% of non-family firms.

"The pivotal role of the family helped to safeguard both financial investments and family legacies,” said Mary Jo Fedy, national enterprise leader, KPMG in Canada. “A long-term mindset and other key differentiators helped many family-owned firms gain a competitive advantage and positions them to drive future economic growth.”

A family business’ emphasis on long-term planning to ensure intergenerational transfer of wealth is unlikely to have made any real difference to the pandemic destruction of a local restaurant, just as the family business ethos didn’t help Loblaws Companies ride increased pandemic-era grocery shopping to record revenues. These two family businesses have, in fact, little in common, and the categorization has little explanatory power for variability in pandemic performance. A better explanation is industry and company size.

It would have been more interesting for the report to compare a large sample of family versus non-family businesses of a similar size in a single industry to determine if there was significant variability in pandemic impact and response. The wide swath approach, at least in terms of assessing pandemic outcomes, is of lesser value.