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 the next12months. their confident orveryabout 85% executives polled forthatreport, Of the722private-companychief next 12months. company’s confident orveryabouttheir executives saidtheyweresomewhat majority ofprivate-companychief 2018 CEOSurvey,whereasolid in theprivate-companycutofour These findingsechowhatwefound we growth overthesameperiodwhen compared to64%reportingrevenue before thesurveywasconducted, saw revenuegrowthinthe12months Sixty-nine percentofourrespondents (see Exhibit1). growth willbe‘quick’ of businesses(84%),with16%saying continue growingforthevastmajority 2007. Revenuesareexpectedto levels ofgrowthattheirhighestsince businesses inrobusthealth,with This year’ssurveyfindsfamily last didthesurveyin2016. company’s growthprospectsin said theyweresomewhat growth prospectsinthe and ‘aggressive’ Key Exhibit 1:Familybusinessgrowthambitions,byterritory Source: PwCGlobal FamilyBusinessSurvey2018 Base: allrespondentsineachmarket (2018:allansweringn=30–171ineachterritory) % of respondents 100 0 grow quickly/aggressively Percentage ofrespondentslookingto India | PwC Global FamilyN Businessigeria Survey 2018 Indonesia China Keny a Russia Bangladesh South Africa Turkey Australia Hong Kong Malaysia Greece Taiwan UK Singapore Denmark Canada Romania US Mexico Middle East Papua New Guinea Ireland Netherlands Finland Colombia Ecuador Brazil Sweden Japan France Italy Poland Global average16% Malta Spain Switzerland Belgium Austria Germany 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