PwC1 | PwCGlobal Global Family 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 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 % of respondents Global average 16% next 12 months. Of the 722 private-company chief executives polled for that report, 85% said they were somewhat 0 l t

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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: 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 84% 63% 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 thinking about where it’s going. (vs. 76% among those who have (vs. 54% among those who have translating their strategic goals into <10% growth) <10% growth) • The second group makes up everyday practices and building up another 30% of the total. These the habits that, over time, create a companies have a plan in mind, distinctive legacy. but it is not far advanced; it isn’t explicit about costs or methods for achieving the company’s goals. Together, these first two groups represent a little more than half of the companies surveyed, and, as a whole, they are more likely to fall behind over time. 55% 22% Have a fully costed, formalised and Are aiming to earn the majority of • The third group, the remaining documented strategic plan revenue from new products or services 49%, are those with a costed, (vs. 46% among those who have (vs. 16% among those who have formalised and documented mid- <10% growth) <10% growth) term plan. Within this, we have defined a sub-group (36%) of ‘high-strategic planners’ who also Base: all global respondents with 10%+/<10% growth (2018: all answering n=1,000/1,001) have financial and non-financial Source: PwC Global Family Business Survey 2018 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 conversation I have with our associates and leaders, Current generation – which it calls associates – are given the “freedom leading the Fourth generation other corporations, government officials, or when to act with full responsibility for doing their assigned business: 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 avoided, and an egalitarian spirit is encouraged. Annual turnover More than 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 115,000 nurturing these principles. “Repeat, repeat, repeat; the degree to which they create mutual benefits for the employees: demonstrate, demonstrate, demonstrate The Five company and its stakeholders. Success is achieved Principles all the time. It’s so critical you don’t forget if quality and value are given to customers, suppliers, Pet care, about these five principles.” distributors and others. “Gains that ignore this will be 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 What these principles can mean the company has more control over its further expanded when my father, my 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 free, our well-being can always come what hasn’t changed is the principles out of that legacy.” programme was launched in 2017 before any other financial priority,” the themselves. What evolves more and has three pillars that the company company states in its description of constantly is the relevance of how one and how governments feel about us is working to create through its this fifth guiding principle. lives them in the current times. working in their country.” 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 For the Mars family, having these “As the fourth generation of our legacy,” she says. health issues among people and – principles helps the family steer what family, my siblings, cousins and I are naturally – their pets, too. The values embedded in the principles it believes is the right course for the asking ourselves how we are going to 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 understand; these are our principles, will keep the ones we have working with just words on a wall; you have in how you do business,” says Mars. our values. You don’t have the right to for us. They will encourage consumers to keep training, telling stories and “Around 15 years ago, we found change them.’ We own these principles to buy our products and affect how demonstrating how you behave and 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. led businesses, where they would Companies that are managed with do business. Around 15 These concepts often manifest in the have learned, first-hand, the role that strong values, a clear purpose and an years ago, we found a 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 as ‘social capital’ and treat this as says but also what it does. For and consumers, and will have greater 1947 that talked about an asset that is relevant to today’s example, a family business might resilience during downturns. This this idea of mutuality with 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 effectively. might agree on the need for trust and companies.1 community and all your cohesion among family members Businesses that embody their values Although many family businesses business dealings.” and employees. Genuinely held in everyday practices and routines are strongly aligned around a shared values become ingrained in everyday get better results. “The ones that get - Victoria Mars, Member, Board of Directors 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. the market and the company goes they had a significant advantage over “You can only interpret It’s their DNA, their secret sauce,” into crisis mode and has to remind the non-family businesses because they says Dr. Justin Craig, a professor the values of the family market that it’s not some less-than- 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 Management. “This is what has helped sense of values and purpose as door – one that cares deeply about them across previous disruptions. The a company. Breaking it down by them personally and by its customers and stakeholders – and thing that distinguishes successful region, there were some interesting one with a legacy worth preserving. making everybody in the 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, by making the ‘genetic these values right from the start and and remind themselves, and the next compared with 86% in both Africa made them active? Our research generation, early and often about the and Latin America, 81% for North code’ of these values shows family businesses that make value of values.” America and 80% for Europe (see their values and purpose explicit Exhibit 5). Of the global total, 70% felt comprehensible This year, we set out to test some of and measurable, and incorporate strongly that having a clear sense of to all.” the findings about values from our them into strategic plans see better agreed-on values increased revenues 2016 survey. That report found that returns and greater longevity. Indeed, and profitability. Critically, as many - Dr. Reinhard Zinkann, Co-owner, 74% of family businesses believed Executive Director, Miele (Germany) many of today’s entrepreneurs are as 75% felt that having a clear sense

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

“Once we established of values gave them a competitive annual growth in our survey, 84% had a value”, page 49). Indeed, living up advantage. a clear sense of agreed values and to codified values and purpose is the Ferd, we tried to make purpose, compared with 76% among best risk management system you can At the same time, only 49% of 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, precisely, values we noticeably to 53% among businesses making grows more complex during a good starting principle is keep 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 underpin what we are them. It’s much easier to identify So, it is important to talk about and business in five principles,” page 11). with a set of values and act on them champion values regularly to make It is also useful to recognise the all about. None of them when they are clearly laid out and are sure people agree on what they mean difference between having family relevant to employees in their daily and their relevance. It is also crucial to are more important than values and having values that work work.” (See case study, “Showing examine whether values drive the right the others, because they for the business, as illustrated by our values through sustainability,” behaviours to improve performance, 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 between them. It were good, old-fashioned types of philosophy’ in our business. Instead employees adopt these values,” says 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. that drove the business. should be outside of that, and thinking synchronise all the Our survey showed that 79% of about the interactions and the linkages businesses we had “We weren’t going to take our family respondents that had a clear sense in the wider world,” he says. entered into. We then values and say the business should be of values felt that this helped attract like this. You might say the company’s potential joiners. This is illustrated by thought that we should values [now] overwrite the family’s “It’s much easier to our case study on The JSL Group have a vision, have our values,” says Andresen, explaining of Brazil (see “Channelling legacy in identify with a set of own values and create that the family took the famous quote valuable ways,” page 39). 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, employees in their daily GMR Group (India) Values can also be creatively shared and reinforced in family businesses work.” involving more than one family (see case study on Al Shirawi Group, - Simone Bagel-Trah, Chairwoman, “Building on shared values between Supervisory Board, Henkel (Germany) 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 employees: other topics related to the role of business in society. Hoffmann, who earned a Masters in Business Administration from INSEAD in 1990, believes one of These are issues of great importance to Hoffmann, who the main ways the Institute can help to bring about that Pharmaceuticals has a clear vision for the role of business in society Sector/s: change is by influencing how business is taught. “The and diagnostics 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 the legacies a family of Roche is not to make money; generation of the family. “This 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 “That’s what separates us from non explains. “How can we create new It’s this backbone that family-owned businesses. It’s the ideas which will make the life of the is always there.” concept of sustainability, which, I’m 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, Global and EMEA Family value from your values 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.

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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 region. In essence, the family decided that it had Established: 1849 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 shipping, publishing, packaging and consumer investments 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 efforts to attract the best talent. “The are also important in generating legacy, all the stuff we’ve the legacy,” Andresen says. “You’re people we are trying to hire have deal flow is that the most recent making a legacy outside of the done. But let’s look at an option. They can go elsewhere investments made by Ferd were in 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.” That is the best way of potential; everyone wants them. But owners selected Ferd as their partner 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 (2017): € employees, suppliers, customers and society first. Pursuing that mission has not always been a smooth 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 Sector/s: illy’s approach serves as a good example. Meanwhile, new coffee exporters like Vietnam 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 inextricably linked. Companies 2011 – illy partnered with DNV GL you cannot give back 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 common purpose won’t survive,” Beyond making money, your purpose value non-financial stakeholders the 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 PwC’s family business practice in as a business – this innovative way to improve the world Germany, “particularly in the turbulent at large or realising another aspiration. cooperation between “My father used to say the environment we’re in at the moment The family originally founded or when everything is changing, whether the families.” acquired this business for a purpose, consumer is the owner. it be digitally or with the political and unless that has changed, you are - Sumeet Valrani, Director We are not the owner. He uncertainty we see globally. Family 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 more than ever about finding the -Andrea Illy, Chairman, 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 in particular to satisfy the actions and take these will increasingly need to track their 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). 27 | PwC Global Family Business Survey 2018

Five principles for Ganesh Raju, Family Business Leader, pursuing purpose PwC India

1. Purpose defines your ‘licence to operate’ beyond making money. Be clear on which problems your business is committed to solve, and what kind of value you want to generate for your customers, employees, stakeholders and society. 2. Define the link between your products and services and the company’s purpose. For example, running a company in India producing machinery for farmers means not just being great in engineering terms. It is also about a broader purpose that has to do with feeding populations and helping farmers achieve this efficiently. 3. Focus on real and sustainable value-creation according to your defined purpose along the entire value chain. Consider the impact on your business model and leave room for necessary adjustments. Staying with the farming example, do you really need to be producing highly engineered machinery for farmers in a developing country, or is your purpose better-served by producing less technically complex machinery that suits local conditions? 4. Apply and monitor Corporate Social Responsibility (CSR) principles and define key non-financial performance indicators that support you better in long-term decision making to achieve your goals and support your family business brand. 5. Communicate your defined purpose internally and externally, as well as what you are doing to achieve it. This will help you align and unify various stakeholders, strengthen your employer branding and bring your competitive family business advantage to life. 28 | PwC Global Family Business Survey 2018

Showing values through sustainability Henkel, Germany Simone Bagel -Trah, Chairwoman, Supervisory Board

Fritz Henkel was probably among the first sustainability allow future generations to live a good life, too,” says entrepreneurs in history. After founding Henkel, now Bagel -Trah. one of the world’s biggest industrial and consumer Henkel is collaborating with partners along the businesses, in 1876, he made sure the chimneys in his entire value chain to get this done. One example is factory were built taller than what was legally required. its cooperation with Plastic Bank, a Canada-based He didn’t want ash falling on his neighbour’s fields and social enterprise that collects plastic waste before it harming their crops. enters the ocean, while creating income-generating “My great-great-grandfather was keen to build good and opportunities for people living in poverty. Henkel long-lasting relationships with his employees, business supports collection centres in Haiti, one of the poorest partners and neighbourhood,” says Dr. Simone Bagel- countries in the world and one with no recycling Established 1876 Trah, Chairwoman of Henkel’s Shareholders’ Committee infrastructure. Local collectors pick up plastic they find and Supervisory Board. That visionary commitment in waterways or in the street, hand it in at a collection Current generation to sustainability and social responsibility has been an centre and, in return, get cash, cooking fuel or free Fifth generation leading the business: overriding principle for Henkel since its earliest days. charging for their mobile phones. In 2010, Henkel developed an ambitious sustainability Henkel is also incorporating the plastic collected into Annual turnover About US$23bn (2017): strategy known as ‘Factor 3.’ It lays out the company’s its own product packaging, which marks another step goals for 2030: to create more value with a reduced towards creating a ‘circular economy.’ This is just one Number of ecological footprint and to become three times more of many sustainability initiatives that Henkel supports More than 53,000 employees: efficient. It aims to do this either by creating three times around the world, in addition to driving resource the value created in 2010, while using the same amount efficiency within its own operations and business. This Adhesive of resources, or by producing the same value as in commitment is regularly recognised in external ratings technologies, 2010 with only one-third of the resources. “Achieving and rankings. Sector/s: beauty care, more with less: this idea is at the heart of our strategy, laundry and home care because we need sustainable solutions that will 29 | PwC Global Family Business Survey 2018

So, sustainability is a core value for laid out and are relevant to employees best of both worlds. The family is “We live our values both the company and its founding in their daily work.” still the biggest shareholder, but we family – one of five company values also have outside shareholders and without needing to The company’s values also have inscribed on five pillars in the foyer of fulfil all the requirements of a listed constantly and explicitly implications for the way Henkel Henkel’s headquarters in Düsseldorf: company in terms of transparency attracts and recruits new employees. refer to them. Seeing how and governance.” • We put our customers and “We want to make sure that they fit we interact makes it clear consumers at the centre of what into our company culture, and vice The Henkel family owners are spread we do. versa,” says Bagel-Trah. out all over the world and include that they are important more than 150 members, including and highly relevant to us.” • We value, challenge and reward Fritz Henkel’s legacy is still alive Christoph Henkel and Konstantin our people. through these values today. “He might von Unger, who sit on the company’s have worded them a little differently • We drive excellent, sustainable Shareholders’ Committee with back then, but they contain the financial performance. Bagel-Trah. Together, the family has essence of what was important to him put more than 60% of the ordinary • We are committed to leadership in his time,” says Bagel-Trah. “A few shares in Henkel in a share-pooling in sustainability. years ago, I did some research in our agreement, which is the cornerstone archives. I read a lot about the era • We shape our future with a strong of the family’s governance structure. in which he lived, about what he did entrepreneurial spirit based on our Under the agreement, the family and said, the letters he wrote, what he family business tradition. shareholders have committed not to said to his employees. I found all of sell their shares - at least not outside The five values were adapted in 2010 our current values reflected in many of of the family. after a comprehensive consultation those documents.” with different stakeholders. The Bagel-Trah says one of the ways the Henkel is a publicly-listed company, company then held workshops with family reinforces its values to all of with a majority shareholding by all of its 50,000 employees globally to its members and passes them on to the Henkel family. “However, we integrate the values into the company. the next generation is through regular are not like many other family-run “The previous set of values wasn’t family events. “We organise many businesses where the business is clear enough,” says Bagel-Trah. “And family meetings. We live our values entirely in the hands of its founding we had too many of them. Reducing without needing to constantly and family,” Bagel-Trah says. “Henkel their number from 10 to five allowed explicitly refer to them,” she says. is more than 140 years old, but we us to ensure that everyone remembers “Seeing how we interact makes it have been a listed company for more and understands them. It’s much clear that they are important and than three decades. In essence, easier to identify with a set of values highly relevant to us.” and act on them when they are clearly we are a ‘hybrid’ that combines the 30 | PwC Global Family Business Survey 2018

The value of constant entrepreneurship Lee Kum Kee, Hong Kong Eddy Lee, Director (also Chairman of the Lee Kum Kee Family Investments Ltd.)

Ten years ago, the family owners of Lee Kum Kee, Those values have helped build a business that is the famous for its oyster sauce, unveiled a sculpture in its world’s largest manufacturer of oyster sauce and one main production base in China’s Guangdong province. of the largest producers of soy sauce. Under the fourth The Willow sculpture celebrated Lee Kum Kee’s 120 generation of the family, Lee Kum Kee has diversified years of existence, but it was also designed to represent into being a maker and supplier of Chinese herbal the company’s core value of ‘Si Li Ji Ren,’ which medicines through its LKK Health Products Group. The translates to ‘considering others’ interests.’ business has diversified further in recent years, including into real estate. In 2017, the Lee family acquired the ‘20 It’s a value that has guided the company through Fenchurch’ skyscraper – better known as the ‘Walkie- sometimes tumultuous times and continues to do so as Talkie’ – in London’s financial district for a record- the company strives to be a successful family business breaking £1.3bn. Established 1888 many years into the future. But it is perhaps its oyster sauce that best encapsulates “This is our core value,” says Eddy Lee, a fourth- Current generation the values of Lee Kum Kee to the broader public. The generation member of the Lee family owners and the leading the Fourth generation branding on the sauce bottles usually portrays a stylised, person in charge of the family’s affairs and investments. business: traditional scene of a woman dressed in a cheongsam “When we do things, we have to think about how other and a boy paddling a sampan full of oysters. Number of people might be affected by our actions and take these 10,000 employees: into account.” The family came up with the idea for a sculpture to Sector/s: Conglomerate symbolise Lee Kum Kee’s values. He says the artwork “We have to continuously look for also integrates three crucial elements of being a family business: the interrelationship between the family, the change and also be able to take a company and the community. “These are very important certain degree of risk.” to us as a business and a family,” he says. 31 | PwC Global Family Business Survey 2018

The labelling is in Chinese and English Despite Lee Kum Kee’s success rules such as a mandatory retirement script with, among other information, today, not so long ago, family age for family members working a simple “Since 1888”. To the disharmony threatened to bring in the company and allowing more consumer, this portrays a product the business down. To ensure the engagement by non-family members that has survived the test of time – business survived, the family had to on the various boards that run the exemplifying quality and longevity, two evaluate their values and implement company and its subsidiaries. of the most outstanding values of a various structures. The family also makes it a priority to family business anywhere. Lee Man Tat, Lee’s father, was taken meet together to resolve any issues The efforts to diversify and bring to court by his brother for control that might affect family harmony. in different streams of revenue is of the business more than 30 years And their successful efforts have also a testament to the Lee family’s ago. Man Tat resolved the conflict by brought in the engagement of the next entrepreneurship, which Lee says is buying out his brother’s shares of the generation into the family business itself a significant value. “We call it company. But this conflict between through the use of external advisors. constant entrepreneurship,” he says. siblings and another one that occurred Lee and his siblings, together with “We have to continuously look for within the second generation led their father and members of the change and also be able to take a members of the fourth generation – fifth generation, believe they have a certain degree of risk.” Lee and his three brothers, David, framework for taking the business Sammy and Charlie, and their sister, Lee says the family nurtures this forward for many years into the future. Elizabeth Mok – to formalise a family constant entrepreneurship through Along with its clear set of values and governance structure. what its members call the ‘6-6-7-7’ its legacy, family members now even concept. “This idea means you don’t They established a family council talk about creating a company that have to have a 100% [certainty] of in 2002 and drafted a family will last many hundreds of years into making a success of a new initiative. constitution. “Together, we built a the future. You need maybe about 66% to 77%. mission and vision statement for It means to take the risk and go ahead generations three and four,” Lee and do it.” says. “And we developed the values and principles that hold all of our But it is perhaps through an initiative businesses together.” of Lee’s brother Sammy in setting up a venture capital company called Lee says the council has been a useful Happiness Capital, where Lee Kum forum for resolving difficult issues Kee’s values as a family business are and refining the family’s connection evolving most clearly. with the business. It has brought in 32 | PwC Global Family Business Survey 2018

Securing legacy in a digital age Although family businesses recognise the challenge of digital technology, that doesn’t mean they are ready for it. One place to start is the board, where a strong combination of directors with the right skills can be hugely beneficial as family businesses look to tackle digitalisation. Another focus can be on millennials, who are the best-educated generation in history and are extremely tech-savvy. Part of family business legacy will be determined by the way in which the next generation is encouraged to be involved. 33 | PwC Global Family Business Survey 2018

Family business leaders are waking up to the disruptive reality of artificial Exhibit 6: Where family businesses see themselves in two years intelligence (AI), the Internet of Things, digital fabrication (3D printing) Key and robotics. Proportion of respondents believing statements cited Thirty percent of our respondents will be true of their business in two years’ time said they feel vulnerable to digital disruption, significantly higher than Will have made significant steps in terms of % the number that said so in our 2016 digital capabilities 57 survey (25%). More than half (57%) are aiming to make significant steps in Will have brought in experienced professionals terms of digital capabilities in the next 53% two years (see Exhibit 6). from outside the family to help run the business Among the specific technological advances cited as challenges by the Will be selling its goods or services in new countries 38% survey respondents were digitalisation (44%), the growth of AI and robotics (22%) and cybersecurity (39%). The largest businesses, with more than Will have been involved in buying or merging with other domestic companies 24% US$100m in annual turnover, were more likely to see AI and robotics as significant challenges (see Exhibit 7, page 34). Will have significantly changed its business model 20%

Will earn the majority of its revenues from new products or services 18%

Will have been involved in buying or merging with other companies outside of its domestic market 18%

Base: all global respondents (2018: all answering n=2,948-2,051) Source: PwC Global Family Business Survey 2018 34 | PwC Global Family Business Survey 2018

Although family businesses are Chief Financial Officer of Cretex, a Exhibit 7: Percentage of companies saying AI/robotics will be a key starting to recognise the challenge of diversified group focused on medical, challenge over the next two years, by revenue (US$) digital technology, that doesn’t mean aerospace and defence, infrastructure they are ready for it. The most likely and industrial, based in the US state respondents to say they felt vulnerable of Minnesota. The firm has been to digital disruption were in these investing heavily in technology that is sectors: retail (53%), financial services directly linked to the manufacturing (52%) and media and entertainment process and sees itself as leading the (65%). When asked specifically about industry in technologies like additive digital disruption, only a minority could manufacturing and 3D printing. talk about specific technologies, and But, Ragaller says, “there’s the whole only 20% of respondents felt they other side of technology that is the would have significantly changed their digitalisation of business processes business models within two years. 26% and the communication between you In Singapore, one of the most digitally and the customer – shortening the time 23% connected cities on earth, we recently frame associated with all the activities More than conducted a separate survey of family before you get to manufacturing a $100m businesses in conjunction with the product. That, we’re not leading in, and 16% $21m to $100m financial services firm UBS Group that’s where my biggest concern is.” and the Singapore Chinese Chamber Digital technology is a critical priority $20m or less of Commerce & Industry. Even when seeking potential employees. there, readiness was less than ideal. The ability to innovate and find the Just over 34% of those surveyed right people to keep the company said digitalisation was included in competitive is a rising concern. their firm’s strategic plan but also Innovation and skills gaps were the volunteered that it had not been two biggest challenges mentioned, mapped out in a well-thought-out while business leaders cited hiring, approach. One quarter of respondents keeping and rewarding employees as said they were in the early stages of top priorities. rolling out their digital strategy. “We realise the importance of Some family business leaders transforming digitally, but finding the recognise this gap and are expressing Base: all global respondents with turnover of $20m or less/$21m–100m/over $100m (2018: right talent to help us initiate and lead concern. Others kept coming back n=684/1,032/985) this process is another matter,” says to the challenge of keeping up with Source: PwC Global Family Business Survey 2018 Joseph Foo, Chief Executive of Jason digital disruption. Steve Ragaller is Marine, a family firm in Singapore 35 | PwC Global Family Business Survey 2018

that provides integrated solutions for family businesses. “Once they get Interestingly, in our survey we found different paths, 2017), we found that for communication, navigation and these younger people, it’s important that 69% of respondents expected or young family members are joining their automation systems for the marine to empower and enable the disruptive encouraged the next generations they family’s enterprise and already making and offshore oil and gas industries. generation and allow them to do their hire – including their family members a difference in digital technology. “Not only do we need talent who are job. The family businesses that don’t – to gain experience outside the family skilled in all things digital, but we embrace change probably won’t be business. They recognise that no also need people who possess an here in 20 years’ time because they company has a monopoly on digital intimate knowledge of our business haven’t taken the steps to address innovation, and it’s better to learn and who understand how to navigate these issues now. When they do, it from a broad base of experience. In the challenges that are unique to our may be too late.” PwC’s recent study (Same passions, business and industry. It is hard to find someone who ticks all the right boxes.” One place to start is the board, where a strong combination of directors with the right skills can be hugely beneficial as family businesses look to tackle digitalisation. Another focus can be on millennials, who are the best-educated generation in history and are extremely tech-savvy. They have a significant amount to offer families grappling with issues such as digitalisation. They are global citizens and represent a rich source of solutions to the skills gap, given their experience and education. And here’s an important point: part of legacy will be determined by the way in which family businesses encourage the next generation to be involved. “There’s a big generational divide between the older, grey-haired, silver foxes and the next generation coming in,” says Paul Andrews, Founder and Managing Director of Family Business United, a UK-based resource centre 36 | PwC Global Family Business Survey 2018

“Digital transformation not only requires new technical solutions, it also requires a new culture. Family businesses are well- advised to use the digital skills of the next generation to successfully shape change.”

- Prof. Martin Viessmann, Chairman of the Board, Viessmann Group (Germany)

When families recognise the value digital transformation before taking on He explains how he has employed of the next generation and empower a larger role in the company. “Digital his son in a new role: developing an them to take the initiative on digital transformation not only requires new online store for the company’s current technology, it can be transformative technical solutions, it also requires a and prospective customers. for the enterprise. At Viessmann new culture. Family businesses are “My son Richard has been working Group, a German energy solutions well-advised to use the digital skills in the organisation for close to 18 provider, Chairman Martin Viessmann of the next generation to successfully months, but you know, we’re dealing explained in a recent PwC study shape change,” Viessmann said. with Gen Y here. We have to sit down (PwC/INTES 2017, Strategien Rikki Maizey, one of our survey and listen to the younger generation erfolgreicher Familienunternehmen: respondents, is Chief Executive of and understand what drives them and Konservative Innovatoren) that his Maizey Plastics, a large South African what makes them tick, and then see son had been responsible for driving maker of industrial plastics. how we can use that in our business. 37 | PwC Global Family Business Survey 2018

So, that’s why I’ve been very specific work and have higher expectations sauce and condiments of the same “It’s…dangerous to put with him on developing the online from employers. Luring home next- name (see case study, “The value of store for us,” Maizey says. generation family members after constant entrepreneurship,” page 30). an unmanageable or educating them abroad and widening Lee, who is in charge of the family’s There is an important note of caution unfair burden on the their horizons presents the same hiring affairs and investment, says the here. Anecdotally, we hear from next generation. You challenge. Why should young people company is making an extra effort to leaders that getting their own kids return to the family firm in Vietnam integrate the next generation into the have to create a climate to join the business is difficult and when they can start something new family business in various ways. requires increasing flexibility about and a system where with university friends in Montreal? what roles they might play. Next- future success is not generation members as a group Eddy Lee is a fourth-generation solely dependent on are better educated and have more member of the owning family of choices than preceding generations. Lee Kum Kee, a Hong Kong–based the next generation. They demand more meaningful firm famous for making the oyster You have to create a system where the next generation can slot in and feel happy and at home and enabled. You can’t rely too much on them, but at the same time, let them fly. There should be a balance.”

- Tommie Van Zyl, Chief Executive, ZZ2 (South Africa) 38 | PwC Global Family Business Survey 2018

Five principles for Five principles for Ng Siew Quan, Asia Pacific Leader - building a digital Entrepreneurial & a forward-looking Jonathan Flack, Private Business, US Family Business legacy PwC Singapore legacy Services Leader, PwC US

1. Accept the reality that, thanks to the digital revolution, the world is different 1. Thinking about the family business legacy – and how the family can and from the one you have experienced in the past as a family business founder should continue it – can often boil down to simply thinking about succession. and owner. You might have to rethink your assumptions about the way your But there is much more to think about. Legacy should involve a plan for business creates value. leadership succession, board succession and ownership succession, all combined. Pulling all this together into a comprehensive, formalised 2. Recognise that the next generation in your family business can play an ‘continuity plan’ really helps. important role in ensuring you are digitally fit-for-purpose – and so ensure your legacy in a rapidly changing world. Accept that you need help. 2. Build this up as your forward-looking, mid-term strategic plan for the What better way to get help than from the next-generation members of your business. Remember that it doesn’t merely focus on how you transition to the own family? next generation and how they become the new managers of the business. 3. Empower your next-generation family members, let them experiment 3. It’s important to emphasise that leadership succession is best handled and let them gain experience outside your business. Crucially, let them through long-term strategy, not tactically at the time when the successor is have the resources to do so. When they enter your business, agree with needed. When planned over five to 15 years, the family can find a variety of them on whether they have a custodial or ‘intrapreneurial’ role in a digital candidates – family and non-family – and give them training and opportunities transformation – that is, whether they are merely stewards of the existing to grow. business or they will be given support and space to try a digital idea – 4. Board members with multiple industry perspectives can prove helpful when some incubation capital, for example. navigating the vast amount of change that businesses are faced with today, 4. Enlist and encourage next generations to bring older employees along on the especially those we highlight in this report around digital disruption. digital journey through ‘reverse mentoring.’ Reverse mentoring of parents 5. A good ownership succession plan should look at the most effective counts, too! ownership structure for the business and revisit it regularly to determine 5. Inculcate the family’s values and those of the business into the new digital whether adjustments or improvements should be made. It is a continuous business you are building. Don’t assume that by adopting digital strategies process and is not something done one time. It is something the leadership of you somehow need to change your family or business values; they usually a family should continually assess. remain as they were. 39 | PwC Global Family Business Survey 2018

Channeling legacy in valuable ways The JSL Group, Brazil Fernando Simões, Chief Executive

The Instituto Julio Simões in the Brazilian city of Mogi had revenues of R$8.1bn. It is also listed on the “B3” das Cruzes has a replica of an old truck on display. stock exchange in São Paolo, although Simões family In any other context, the truck would have little or members are the biggest shareholders. no relevance, but for JSL, Brazil’s biggest logistics Simões says that one of the company’s main values and company, it has special significance. a significant factor in JSL’s success has been putting the “It was the truck where it all began,” says Fernando customer first. “This has always been a big part of the Simões, Chief Executive of the JSL Group, “the first company’s culture, something that started with my father truck my father used to start the business in the and moved over to the next generation,” he says. “We 1950s.” Simões’ father, Júlio Simões, left a sizable seek to understand the real needs of each client – seek legacy. An immigrant from Portugal, Júlio created the to provide the best service – which all helps us to have Established: 1956 biggest logistics company in Latin America’s largest long-term business relationships.” economy. It’s a legacy that is intertwined with the Simões’ work at the family business began early. He Current generation extraordinary growth of the Brazilian economy in the Second generation started working for his father’s company when he was leading the business: years since JSL was founded. And it’s the legacy of a just 14, in 1981. company that has done as much as any company in the Annual turnover The role of his father at this early stage was obvious, US$2.48bn country to create employment opportunities and better (2017): working conditions. Simões says. “I did not start working here because I liked the company; I started working here because I Number of JSL employs 24,000 people and operates a fleet of 24,000 liked my father.” employees: thousands of trucks and cars. It has diversified into vehicle dealerships and leasing through its subsidiary His skills also were a significant factor in following in They are present Movida. It also has a car and truck rental business. his father’s footsteps. Simões moved up through the in more than 16 company and in the early 1990s, he began sharing economy sectors In the first decade of the new millennium, JSL witnessed management of the business with his father. Sector/s: featuring: cellulose unprecedented growth, with net revenue rising from and paper, R$181m in 2000 to R$1.5bn by 2009. In 2017, JSL automotive, metals and mining 40 | PwC Global Family Business Survey 2018

Channeling legacy in valuable ways (cont.)

“We always seek to In 2009, Júlio passed him the The institute has concentrated on drawn up a family constitution, but chairmanship of the company, which areas like raising awareness of the “this is something we are looking at”, hire people who have he took public a year later, changing importance of primary healthcare and Simões says. principles in their the company name at the same providing free healthcare to many of DNA that are in line time. Simões says this is also when JSL’s vehicle drivers. Launched by the the company sought to reinforce institute in 2011 and still an essential with our values.” the importance of perpetuating its part of its work today, the Pela Vida core values, which were defined and Program aims to minimise the risks shared at the company in 1991. Those to driver safety. Drivers often deal values are the importance of the client, with long hours, poor eating habits, the employees, hard work, simplicity irregular sleep and social isolation. and profit. The institute is also trying to become He says these values are important to a reference point for good safety the overall culture of the business and practices in road transport and are used when recruiting staff. sustainable development in the logistics sector. “We have many thousands of employees and recruit many every Simões, now in his early 50s, likes to year, but what we always try to do is emphasise not just the role his father use our values to help us make the played in his life and the business right decisions when hiring,” he says. but also the role of his mother, Elvina “We always seek to hire people who Benedicta Simões. Without her have principles in their DNA that are in influence on encouraging harmony line with our values.” within the family of eight, he says, his father wouldn’t have been able to In 2006, the family business set create the business he did. up the Instituto Julio Simões, a nonprofit organisation that channels Simões says the values and the legacy JSL’s investments in socioeconomic of his father and mother are in good projects. It not only focuses the hands with the next generation. His group’s values “more practically,” son Fernando Simões Filho sits on the says Simões, but also “helps to board of JSL. The family has not yet channel the legacy of my father.” 41 | PwC Global Family Business Survey 2018

Always valuing independence, across generations Miele, Germany Reinhard Zinkann, Executive Director

Dr. Reinhard Zinkann recalls an occasion a couple The way in which Miele finances itself is a rarity in of years ago when he was asked why his company, business, and so is its ownership structure – even Miele, was not interested in receiving a credit line – a relative to other family businesses. Co-founded by common type of bank funding for companies. He Zinkann’s great-grandfather – also called Reinhard explained to the person he was talking with that Miele Zinkann – and his business partner, Carl Miele, in simply doesn’t use credit lines. 1899, the company is owned almost equally by Markus Miele (left) and Reinhard Zinkann two families: the Mieles (51%) and the Zinkanns Miele is known globally for its premium domestic (49%). Markus Miele – like the present-day Reinhard appliances, such as washing machines, ovens, Zinkann, one of the great-grandsons of the co- dishwashers and vacuum cleaners. In its 119-year founders – represents the Miele family within the history, the company has only ever used its own company. Only direct descendants of the co- Established 1899 funds, eschewing bank loans, stock exchange founders are granted shareholder status. The families funding or other forms of external capital. have never intermarried and stay equally committed Current generation “Keeping the company free from the often short- to the business and its ownership structure. leading the Fourth generation term interests of the capital market has helped us business: When it comes to manufacturing and the customer, overcome economic crises, changes of government Miele has always been guided by its promise of Annual turnover and periods of high inflation,” says Zinkann, one of US$4.8bn ‘Forever Better.’ The phrase was devised by the two (2018): Miele’s five executive directors. founders and has guided Miele and its employees This helps the company take a long-term view of ever since, according to Zinkann. This notion forms Number of 20,100 business, especially at a time when pressure on employees: the basis for the company’s aspiration to be the publicly-listed companies to deliver on a quarterly quality and innovation leader in the industry, as well Manufacturer basis has arguably never been greater. “Finally,” says as for its focus on maintaining the Miele brand’s of premium Zinkann, “it helps us to strengthen our position as an position in the premium segment. These core values Sector/s: domestic independent, family-driven enterprise as well, which remain unchanged but are interpreted in line with the appliances is our overriding strategic goal.” times. ‘Forever Better’ doesn’t just refer to the idea 42 | PwC Global Family Business Survey 2018

Always valuing independence, across generations (cont.) “You can only interpret of having a quality product that helps As part of this programme, new This structure filters down through people handle laborious household colleagues get to know the executive senior management. The operational the values of the chores with ease, but also endeavours directors and co-proprietors, who management team is made up of five family – the values of to inspire people and enrich their lives. make a point of being accessible executive directors who works on and approachable in the course of an equal footing and who arrive at the business – by living Miele’s values help with its recruitment daily work. decisions unanimously. them personally and by efforts, too, says Zinkann: “We offer secure and well-paid jobs in a highly “An old calendar motto still hangs on Says Zinkann: “You can only interpret making everybody in the respected company, which combines the wall in Carl Miele’s former office, the values of the family – the values business aware of them.” the values and appreciative culture of which says, ‘Freude ernährt; Unfriede of the business – by living them a family-run business with the job and verzehrt,’ which can be interpreted personally and by making everybody career perspectives of a successful as ‘In peace, we flourish; in discord, in the business aware of them, by global player. This distinguishes Miele we wilt.’ Together with a sense of making the ‘genetic code’ of these from many other employers and mutual respect, this notion possibly values comprehensible to all. In the makes Miele attractive to potential made it easier for our two-family end it all boils down to defining why employees.” business to avoid existential conflicts you are in business.” among partners than what you can “Our notion of ‘thinking in generations’ find at a one-family company, where and a family-like atmosphere of several family groupings may have to appreciation are very tangible at coexist,” Zinkann says. This spirit of Miele. Like the two proprietor families, cooperation between both families we have some employees who also created a strong legacy at Miele that represent the third or fourth generation remains in place today. of their families.” That spirit has forged deep roots in Every new manager is taken the company’s governance structure. through an induction programme, Miele has a ‘family council,’ made up which involves visiting company of three representatives from each headquarters in the German town of family, which was put in place to make Gütersloh, as well as visiting sales sure that one family cannot out-vote offices elsewhere, to give them a the other in company meetings. sense of the way values are brought to life on a daily basis throughout the company. 43 | PwC Global Family Business Survey 2018

Private equity: thinking outside the family Family businesses and private equity are reaching a moment of convergence of interests – on goals, and even values and purpose – at a time when there is an increasing focus on long-term value generation, succession and professionalisation at family businesses. 44 | PwC Global Family Business Survey 2018

Family business leaders have This tells us that family businesses and traditionally viewed private equity private equity are reaching a moment investors as not necessarily of convergence of interests – on goals, compatible with their long-term and even values and purpose – at strategies and values. Nonetheless, a time when there is an increasing we included questions on external focus on long-term value-generation, financing this year. succession and professionalisation at family businesses. One of the most striking findings is that while 81% of respondents Demographics and legacy are big continue to rely more on banks for factors. Over the coming decades, funding needs, more than a third of trillions of dollars will be passed family business leaders said they down from one generation to the would consider private equity. next in the largest transfer of wealth in history. More than 350,000 family That echoes what PwC has found and private businesses will change in other recent studies, notably in hands as owners retire, according to a Germany, home to tens of thousands 2018 PwC Australia study on the role of privately-held Mittelstand of private equity in family business companies that form the backbone (Once in a lifetime: Creating the of the country’s economy. When right growth for Australian private respondents were asked in a PwC and family business). Germany study in 2011 whether they would be open to private In this situation, family business equity, a mere 18% said yes. That leaders often face a choice between proportion grew to 61% by 2013 and an outright sale, maximising growth a staggering 83% by 2017, the latest potential before a sale, or ‘going for year the survey was done (Private growth’ and engaging with private Equity in Familienunternehmen: equity. Der Beginn einer wunderbaren Freundschaft?). 45 | PwC Global Family Business Survey 2018

One of the most striking findings is that while 81% of respondents continue to rely more on banks for funded needs, more than a third of family business leaders said they would consider private equity.

Those seeking to maximise growth amounts of money - but with few This means that family businesses need a partner who offers more than good deals to invest in. Investors have an opportunity to learn more money. The right partner will help are now increasingly looking for about the benefits private equity improve governance and procedures, opportunities with family businesses, can bring. add a more challenging board which are attractive because they tend member, expand the network and to be stable – and often undervalued. eventually help prepare the business To attract these family companies, for a successful exit or succession. private equity firms are acting in a An increasing number of family more collaborative way, focusing businesses might be starting to view on building operational value and private equity as a smart choice. making portfolios bigger, stronger and more reliable instead of just trying to At the same time, private equity generate quick returns. businesses are sitting on significant 46 | PwC Global Family Business Survey 2018

Family offices can help Sian Steele, Global Family Office in a private equity world Leader, PwC UK

Family businesses consistently deliver long-term, sport.’ But we are seeing a shift of attitude on both sides. sustainable growth, underpinned by their focus on values On the private equity side, several global private equity and profit with purpose. houses are renewing their focus on the family business sector and carving out teams with the right skills and Yet the research we have undertaken over the last 14 years experience for the space. shows us that they don’t always achieve the growth they aspire to. It also shows that attitudes to leverage – the At the same time, we see family businesses starting to taking on of debt – within the business can be polarised. A embrace the opportunity to strengthen their boards, company’s decision to take a prudent approach to debt is improve corporate governance and take steps to separate entirely understandable when the economy is coming out of ownership and management. The process of engaging a period of global recession. But are family businesses now with this type of investor can be hugely valuable in bringing ready for a period of more ambitious growth and a refresh fresh perspectives. The finding in our survey that well of views on fundraising? Specifically, could it be time to over a third of respondents would be open to private equity look at the benefits of private equity in family businesses? is telling. For many family business owners, there is an eternal With this shift in appetite for separation of management triangle of conflict formed by the desire to diversify outside and ownership, we also see a sharp uptick in the use of the business, the need to raise capital for growth and family offices to give structure and governance around the the unwillingness to lose control. This trifecta might be family, including instilling in the next generation of owners fuelled by concerns that divergent views will lead to family the power of vision, underpinned with purpose and values. conflict and challenges over how to recruit and keep The remit of a family office will be a varied one. But it must important talent. provide the financial management and controls to not just preserve but also grow the wealth that the family has Historically, when we have asked family businesses how created for current and future generations, taking legacy to they might raise funds for diversification and growth, the next level. private equity would have been very much a ‘minority 47 | PwC Global Family Business Survey 2018

Building on shared values between families Al Shirawi Group, United Arab Emirates Sumeet Valrani, Director

Sumeet Valrani believes businesses often father, as a trading business and has since become underestimate the value of cooperation, particularly one of the biggest conglomerates in the United Arab among the people within a company. That is hardly Emirates. It operates in multiple sectors, including surprising, because the two businesses of which oil and gas, manufacturing, logistics, publishing and Valrani is Chief Executive are part of the Oasis education. The group employs more than 10,000 Investment Company and represent a model for people across the Middle East. how two families can come together and build a Valrani believes the two-family ownership structure successful company. has been beneficial in reaching important decisions. Dubai-based Oasis Investment Company, holding “The fact that we are two families means we each company of Al Shirawi Group (where Valrani is also behave with more decorum and with more unity,” Established: 1971 a board member) are rare in the world of family he says. “Each family keeps each family united. businesses in that they are run by two families from Whenever there is any decision, one member of Current generation Second generation two different countries and cultures who have come each family must be part of that decision. We’re their leading the business: together to form a company and have managed a regulators, and they are ours.” successful transition to the second generation of Annual turnover He adds: “If I were to speak from my heart, US$761m both families. (2017): the most important part of the business is “We are a business between an Emirati family that we are two families. It is our greatest value as a Number of employees: 10,032 and an Indian family in partnership,” says Valrani. business – this cooperation between the families.” “We have common values and operate within Perhaps the best example of the benefits of the two- Printing and this model extremely successfully. I believe the family dynamic happened when the business went packaging, oil underlying dynamic of the business is built on our through tough times in the 1980s. In 1986, the price and gas, logistics, two-family dynamic.” heavy equipment, of oil collapsed, and the group faced an existential Sector/s: publishing, The Al Shirawi Group was founded in 1971 by threat. A massive restructuring was started. manufacturing, Abdullah Al Shirawi and Mohan Valrani, Sumeet’s engineering services, trading and education 48 | PwC Global Family Business Survey 2018

Building on shared values between families (cont.)

But everyone stuck together, went met to talk about how they should The two founders did not participate in family’s wealth. “The business is through the painful process of cutting proceed. The final version of the plan the formation of the protocol, instead focused on profitability within the the business back to a much smaller was presented to all members of the choosing to stand back and allow the rules and regulations of the countries operation and started recovery efforts second generation. second generation a free hand to draw we operate in,” says Valrani. “With – and eventual renewal. “That process it up. Valrani reckons this is another this being the case, we separate would have severely tested any reason the two families work so well company wealth and family wealth relation between business owners, “Each family keeps each together: the ability to cooperate at very, very clearly.” but, if anything, the bond between all levels and to let go. “The legacy family united. Whenever He adds: “The minute we start Uncle Abdullah and my father of the first generation is the ability to bringing in the question of a non- strengthened,” explains Valrani. there is any decision, give up control in their lifetime,” he measurable, non-commercial purpose, says. The ‘letting go’ by the founder- The crisis also led to the decision by one member of each we are very scared that we get into entrepreneur is often one of the most the founding fathers that has become family must be part of subjective decision making, and that challenging family governance issues a guiding principle for the Al Shirawi could undermine the business.” that decision. We’re faced by a business transitioning to Group: it won’t open any offices the second generation. “The two families respect each other’s abroad unless a family member is their regulators, and they families values and cultures,” says committed to going there to sort There are seven members of the are ours.” Valrani. “And for this to work well, out any problems. “Unless we are second generation working in the philanthropic efforts are always a prepared to roll up our sleeves to fix business now. According to the personal decision and a private one.” the problems, then we don’t open Those efforts led to the group’s protocol, each member is allowed an office there,” says Valrani. “That so-called ‘protocol’, the first formal to bring one child into the company. is a big part of our philosophy as a structure addressing how the two Both families believe this rule will business today.” families interact with the business. help maintain unity as the business “The protocol remains in place today eventually transitions to the third The second generation of both pretty much exactly how it was generation. Any member of the third families – whose senior members formulated,” says Valrani. “Through generation who isn’t entering the are represented by Valrani; his the protocol, everyone knows where business will be fully supported, brother Navin; Mohammed Abdulla they stand. So far, it has stood the test including with the provision of capital, Al Shirawi; and Hisham Al Shirawi of time, and that’s a testament to the to assist their entrepreneurial ambitions. – came together in the early 2000s strength of the relationship between to formalise a family governance Another significant value for the the two families.” structure. Two members from the Al Shirawi Group is the separation second generation of each family of the company’s wealth and the 49 | PwC Global Family Business Survey 2018

The virtue of humility as a value GMR Group, India GM Rao, Founder and Chairman

In 1998, when the family that owns GMR Group took he says. “We then thought that we should have a stock of where the business had come 20 years vision, have our own values and create a robust after it started in a rural part of India, it could look organisational structure.” back with satisfaction on what had been achieved. In particular, Rao and his family members wondered The business had grown from a tiny jute-milling if the group’s success so far had been based on operation in Andhra Pradesh state with only hard work – or just luck. “We wanted to understand US$5,000 in capital to a diversified operation our DNA and ultimately our values,” says Rao. involving growing and trading rice, sugar, timber and The family called in consulting professionals to cotton; building power plants; and even banking and conduct a review to get to the core of what the mutual funds. Established: 1978 business was all about. It was a detailed, top- GMR grew particularly fast after a wave of economic down exercise, which resulted in the identification reforms unleashed by India’s government in the of seven values, of which the most important was Annual turnover About US$1.3bn early 1990s, giving the private sector a key role humility. A big part of humility involves proactively (2017-2018): in building infrastructure in one of Asia’s largest seeking feedback from stakeholders, listening, Number of economies. Large family-owned companies learning and implementing improvements with a 11,200 employees: like GMR started to play a role in building key focus on excellence. infrastructure, where the government was unable to “Any leader who says ‘I don’t know’ and carries step in on its own. Airports, energy, that attitude, will listen, learn and implement,” Sector/s: roads, security and sports But something was missing, explains GMR founder explains Rao. and chairman GM Rao. “We realised that we could It was this attitude of humility that, he says, helped not do business with an opportunistic mind-set. GMR complete a major infrastructure project: the Each business was different, and there were no building of a new airport for the city of Hyderabad, in synergies between them. It was very difficult to south-central India. It was the first time that an Indian synchronise all the businesses we had entered into,” company had built a world-class airport from the 50 | PwC Global Family Business Survey 2018

The virtue of humility as a value (cont.) ground up, on a greenfield site. “We India; it also operates in the sector to align the family,” Rao says. “We spent a lot of time executed it with humility in our hearts in the Philippines. It is one of the GMR’s vision is to create what Rao and an ‘I don’t know’ attitude in our largest operators of power plants in developing a family calls an “institution in perpetuity.” minds,” says Rao. in the South Asian country, with a “We want to build an entrepreneurial governance model. Just growing renewables portfolio. GMR GMR has completed many organisation which creates value for to identify the best also operates highways and special infrastructure projects since the society. This vision is very difficult to economic zones. The group is listed on people to help us with Hyderabad airport. Many of them achieve, especially at this juncture the National Stock Exchange of India reflect a nation-building ethos that when there is a lot of disruption. We family constitution took and on the Bombay Stock Exchange. has driven GMR since it undertook have also realised that unless we us two to three years. a rationalisation of its businesses, Charitable activities are important, have a family governance model, Prior to writing a formal around the same time as it identified and are principally channeled corporate governance won’t happen, its values. through a foundation called the GMR and unless corporate governance family constitution, we Varalakshmi Foundation (GMRVF) is in place, we cannot create an “We found that the need of the took almost two years to Trust, which is supported with 2–3% institution in perpetuity. Family country was infrastructure. The power align the family.” of group earnings annually. The Trust governance is a prerequisite for all sector was opening up; we entered runs 13 vocational centres, which family businesses. I believe that with into power sector. Roads opened experience, should be a criterion. train 6,000 people every year. good family governance, one can up, and we went into roads. Airports “What is more important is whether create any type of business.” opened up, and we went into airports. As the group has grown, the family our value systems match or not,” In all these projects, we were either has ensured that it attracts the right GMR is helped by a ‘group he says. “A person could be an the first or second to enter – and we people to manage a family business, performance advisor council,’ an outstanding performer, but we always had pretty much a first-mover Rao says. This has meant bringing independent panel separate from examine if his or her value systems advantage,” explains Rao. in people with a global perspective the board that monitors GMR’s are good.” on how family businesses and performance from the outside. In 2006, GMR won a contract Rao believes there is a need, allied to governance are handled in other parts “They discuss our performance with to rebuild the old Indira Gandhi values, for today’s generation – and of the world. CEOs, CFOs [chief financial officers], International Airport in Delhi. The leaders in particular – to embrace business leaders, customers, task was completed in four years “We spent a lot of time in developing spirituality. Not the religious kind, but suppliers and important stakeholders – a relatively short time frame for a family governance model. Just to a spirituality encompassing physical, every quarter and provide us with the industry. identify the best people to help us with emotional and mental harmony. thorough feedback,” Rao says. family constitution took us two to three Today, GMR is the largest private “Spirituality is critical in order to control years. Prior to writing a formal family When it comes to hiring, Rao believes airport developer and operator in one’s emotions and still be able to constitution, we took almost two years that values, not just competence and execute at a high level,” says Rao. 51 | PwC Global Family Business Survey 2018

A final word Values and purpose have been constant features of life at family businesses for a long time. But times are changing – and they are changing rapidly. Leaders of family businesses have an opportunity to reboot their approach to their values and purpose to ensure they are best-placed to thrive in an increasingly complex business and social environment. By doing so, they will secure a lasting legacy that’s fit for the 21st century and beyond. 52 | PwC Global Family Business Survey 2018

We believe the time has come for We have identified a few key principles and communicate them effectively. are prompting the need for family family businesses to view values, that may guide you on your Doing so will not only bridge the businesses to reconsider their purpose and legacy through a lens individual journey: family interests and business resilience and effectiveness. that may be quite different from the needs, but also provide guidance • Ensure the next generation is At PwC, we are committed to working one through which they may have on better decision making for the deeply involved. Their views are with family businesses to help revisit been viewed historically. That’s long-term. likely to help bring greater alignment how values, purpose and legacy because the world is evolving at between family values and business • Think about the composition of should be viewed and effectively a faster rate than ever, and the values because the members of the your board in relation to how you deployed in the current environment assumptions that may have served next generation deeply understand apply values and purpose. Boards of unprecedented challenge and a family business well over the past some pivotal concepts: the pace play a critical role in determining rapid change. generation or two may not stand the of disruption, the impact of digital how to practically measure test of today’s challenges. technology and the meaning of progress in the application of values In addition, an enormous transfer purpose. Their own way of “horizon and purpose, as well as ensuring of wealth is poised to take place in scanning” – seeing what’s around that appropriate behaviours the next three to five years as family the corner – should be properly are recognised and rewarded. businesses around the world deal recognised and incorporated into Having the correct balance of with a generational transition on an your strategic planning. One quick family and non-family board “The message is clear: unprecedented scale. For many family win to consider: invite younger members is essential in achieving businesses this change will introduce family members to observe board the appropriate level of board adopting an active a multi-year period in which there will meetings or establish a “next-gen objectivity to do this successfully. stance towards company be a compelling requirement to revisit committee” to consult with. An effective board with the right values generates and reboot their approach to values, skills and experience will also reap • Regard your values and purpose purpose and legacy, and to position benefits in how the business deals practices that pay as your unique assets, and as themselves competitively for the with disruption in areas such as your own social capital. If used off in real terms. A 21st century. digitalisation, as well as in shining properly, these can make a real a spotlight on the importance of commitment to a clearly There is a wealth of collective difference in distinguishing your having a proper strategic plan. defined set of values can experience in the family business family business. They can also community that demonstrates how enhance customer and employee What is clear is that family act as an ‘inner compass’ a new approach can pay dividends, loyalty, as well as increase businesses that take a more formal for a family business as and we believe that our 10 global shareholder commitment and and collaborative approach to the case studies bring this to life and will financial returns. To bring your determination and application of their it navigates challenges stimulate new ideas. unique competitive advantage to values and purpose tend to post more of technological and life, you should codify your values impressive growth and performance competitive disruption.” in writing, embrace them, include statistics over the mid- to long-term. them in your strategic planning, It is also clear that new imperatives - Peter Englisch, Global and EMEA Family Business Leader, PwC Germany 53 | PwC Global Family Business Survey 2018

Research methodology

Between 20 April 2018 and 10 August 2018, 2,953 semi-structured telephone, online and face-to-face interviews took place with senior executives from family businesses in 53 territories worldwide. The interviews were conducted by Kudos Research, in the local language by native speakers, and averaged between 30 and 40 minutes. The turnover of participating companies ranged from US$5m to more than US$1bn. All results were analysed by Jigsaw Research. 54 | PwC Global Family Business Survey 2018

Thanks and acknowledgements

Firstly, we would like to thank the 2,953 family business owners and managers who generously gave their time to participate in the survey.

We would also like to We’re indebted to the We would also like to thank We’d like to thank those This survey would not thank the following insights and contributions the following individuals for within the PwC global have been possible without family businesses that told of the following PwC sharing their expertise for network who provided the commitment and us their stories, which have experts: this report: invaluable support and dedication of our external added colour, insights and contribution: writers, research and David Wills, Australia Dr. Justin Craig, Kellogg a personal touch to our design agencies: School of Management Brittany Etherington, survey findings: Ganesh Raju, India Global Marketing & Insights David Bain, case study writer Jonathan Falder, HMG Paints Jonathan Flack, US André Hoffmann, Roche Charlotte Lee, Global Jigsaw Research (Ann Joseph Foo, Jason Marine Andrea Illy, illycaffè Ng Siew Quan, Singapore Entrepreneurial & Private Morgan, James Flack and Prof. Dr. Martin Viessmann, Business Sarah McKee) Oriana Pound, UK Eddy Lee, Lee Kum Kee Viessmann Werke Dr. Christina Müller, Family Kudos Research (Efisio Mele Paul Hennessy, Ireland Fernando Simões, The JSL Michael Warrington, AX Business, Germany and his team of international Group Peter Englisch, Germany Holdings interviewers) David Bowden, Global GM Rao, GMR Group Sian Steele, UK Paul Andrews, Family Communications Stephanie Gruner Buckley, Business United report writer Johan H. Andresen, Ferd Francesca Ambrosini, Global Dr. Reinhard Zinkann, Miele Prof. Dr. Peter May, Family Entrepreneurial & Private WLT Design (Clancy Business Consultant & Business Manahan, Lauren Lopatko, Dr. Simone Bagel-Trah, Strategic Adviser Trystan Rees and Wei Chong) Henkel Jenni Chance, Global Rikki Maizey, Maizey Plastics Entrepreneurial & Private Sumeet Valrani, Al Shirawi Business Group Steve Ragaller, Cretex Jeremy Grant, International Tommie van Zyl, ZZ2 Victoria Mars, Mars Editor, strategy+business Laura Gillespie, Global Entrepreneurial & Private Business Niall Anderson, Global Digital Rowena Mearley, Global Communications 55 | PwC Global Family Business Survey 2018

PwC network contacts

David Wills Peter Englisch Ganesh Raju Global Leader - Entrepreneurial & Private Global and EMEA Family Business Leader, Family Business Leader, Business, PwC Australia PwC Germany PwC India +61 (3) 8603 3183 +49 201 438 1812 +91 (80) 4079 6008 [email protected] [email protected] [email protected]

Ng Siew Quan Jonathan Flack Sian Steele Asia Pacific Leader - Entrepreneurial & Family Business Services Leader, Global Family Office Leader, Private Business, PwC Singapore PwC US PwC UK +65 6236 3818 +1 (615) 503 2866 +44 (0) 1223 552 226 [email protected] [email protected] [email protected] pwc.com/fambizsurvey2018

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