15 minute read | December 15, 2023
Family businesses need to adopt new priorities to secure their legacy
Trust has been – and remains – a vital competitive advantage that sets family businesses apart from other companies. However, the concept of how to build trust is evolving rapidly and presents a transformative shift for the Indian market.
In the new landscape, where millennials and gen Z are a majority of the stakeholders, issues like, environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) have become the key indicators of trustworthiness. However, Indian family businesses, which for years have relied on a trust premium, built up over generations, have been slow to get this message. When it comes to these new measures for earning trust, Indian family businesses will need to do a much better job of both showing and telling, i.e., increasing the visibility of their efforts and communicating them consistently to stakeholders.
These are among the key findings of PwC’s Family Business Survey 2023.
The Edelman Trust Barometer confirms that family businesses are trusted more than other businesses: their trust score is 12 percentage points higher than that of businesses in general. Higher levels of trust can result in better performance, as demonstrated by a recent PwC research showing a strong correlation between trust and profitability.
India's growth trajectory soars, surpassing global average with remarkable momentum
The resilience and success of Indian family businesses during the previous fiscal year has been remarkable as an impressive 83% enterprises experienced substantial growth while a mere 5% experienced reduction in sales. The figures from 2021–22 of the PwC Global Family Business Survey, when the impact of the COVID-19 pandemic was keenly felt, painted a less optimistic picture with only 60% achieving growth and a notable 18% businesses grappling with sales reductions. The Indian business landscape outshines the global scenario where 71% of family businesses witnessed growth worldwide albeit with a higher 8% experiencing shrinkage.
Protecting the business as the most important family asset, growing it and passing on the legacy to the next generation are the key long term personal goals for the Indian family business owners. Moreover, Indian family businesses have set the ambitious growth targets for themselves. In the latest survey, a staggering 88% of family businesses are poised to embrace a future marked by sustained expansion over the next two years, surpassing the global projection of 77%.
Finding ways to protect and nurture the trust premium (given its strong correlation with profitability) and improving digital capabilities are essential for achieving the ambitious growth plans that the Indian family businesses are pursuing.
This year’s survey of 2,043 family business owners in 82 territories (59 family businesses from India) uses a model developed by Sandra J. Sucher, a Harvard Business School professor of management and the author, with Shalene Gupta, of 'The Power of Trust', to assess whether family businesses are doing the right things in today’s world to build trust.
The model identifies four pillars of trust: competence (is the company good at what it does?), motive (whose interests is the company serving?), means (is the company using fair means to achieve its goals?) and impact (what is the tangible impact the company has, as opposed to the impact it claims to have?). The way the respondents answered questions based on these pillars reveal a disconnect between traditional views about trust and their impact on how family businesses operate today. They also highlight where and how family businesses will need to transform to ensure their legacy.
Mind the trust gap
Many Indian family businesses say they are not trusted by two crucial stakeholder groups...
...and many businesses aren't taking the actions required to build that trust.
Do not communicate their purpose externally
Do not take a public stance on important issues
Do not have a purpose statement/commitment that advances DEI
Q: How important is it that your company is trusted by these stakeholder groups? (Showing 'essential' and 'very important.')
Q: Which of these statements do you believe best describes the level of trust the following stakeholder groups have in your company? (Showing 'fully trusted.')
Source: PwC's 2023 Family Business Survey/PwC analysis
When it comes to trust, Indian businesses recognise that customers are the reigning priority, closely followed by financial partners and employees. In Indian family businesses, the trust placed in financial partners/banks outweighs that of family members, signifying their importance in driving success, growth, and long-term stability. Building trust with these stakeholder groups – family, customers, public (which includes financial partners/banks) and employees – remains a cornerstone for thriving in the Indian family business landscape.
Family businesses know that the trust of customers and family members is essential, but those businesses need to be more proactive in building trust with their wider key stakeholder groups, especially employees and the general public.
The good news is that trust is tangible and can be systematically built. But if family businesses are to protect their trust advantage, it will require transformation—a reality that many business leaders are already acknowledging. Of the 4,410 executives participating in PwC’s 26th Annual Global CEO Survey, more than 40% believe their company will not be fit for purpose in ten years if it stays on its current course; a similar percentage of the cohort identifying as family business leaders say the same thing.
Transform to build trust with your family
Family business leaders understand the need for trust between their family members, and 74% global and 76% India respondents believe they have built that trust. They also say that conflict within the family has a spillover effect on building trust across the wider business. More than one in five global and India respondents say family disagreements are the biggest challenge when building trust with all stakeholders.
Dealing with conflict has never been easy for family businesses. It’s part of an ongoing struggle many have with establishing strong family governance structures. In this year’s survey, the conflict resolution mechanisms to deal with family disputes was at 13% globally and 19% in India. Only 65% of global and 63% Indian family business leaders say that they have formal governance structures in place. This includes shareholder agreements, family constitutions and protocols, and even wills.
85% of Indian family businesses have some form of governance policy in place within the business (vs. 81% globally).
This lack of formal governance has an effect on how the business is run and perceived: strong governance reflects a business’s purpose and values. One outward expression of the way family businesses are falling behind on demonstrating their values is the composition of their boards. Globally, only 9% of those surveyed reported having diverse boards, defined as ones that include two or more women, one board member under the age of 40, one nonfamily member and one from a different sector background.
In fact, 31% global respondents and 25% of India respondents have no women on the board at all, and 57% of global respondents and 47% India respondents have no one under 40. 36% global respondents and 26% India respondents have boards consisting solely of family members. This is a reflection of the finding that ESG and DEI are low priorities for family businesses. The board composition of many family businesses represents the past, rather than the present, and certainly not the future.
Transform to build trust with your customers
Research carried out as part of PwC’s Global CEO Survey shows that after industry conditions, levels of consumer trust are the next biggest determinant of performance variance. And under the new trust formula, strong ESG credentials are essential. In PwC’s 2023 Global Consumer Insights Pulse Survey of more than 9,000 consumers in 25 territories, 70% of respondents said they would be willing to pay more for food produced in an ethical way. In the 2022 edition of the survey, half of consumers said ESG considerations influenced their trust in a company and their decision to recommend it or its brands to others. Gen Z and millennials were substantially more likely to express this opinion.
Capitalising on that kind of trust requires a clear ESG narrative and two-way communication, including channels for customer feedback. Yet, the business owners participating in our 2023 Family Business Survey (India cut) do not identify ESG issues as a top priority, a circumstance reflected starkly in their responses to key ESG-related questions.
India respondents:
A strong ESG strategy should include measurement of performance through non-financial and financial targets. Diversity matters to the largest cohort of customers – millennials and gen Z – particularly in countries like India where family businesses routinely measure growth and customer satisfaction, but only one in ten set targets for DEI, and only one in four do so for social impact in India.
Although there are global differences on issues like ESG and DEI, in no region do family businesses make them top priorities. In Europe, only 20% of family businesses say they have an ESG statement that is communicated to stakeholders. In North America, a mere 8% do. On DEI, the numbers are only slightly better: in Europe, 27% have a clear purpose statement on DEI; in the US, 18% report having one; in India, a mere 10% do have a clear purpose statement.
The family businesses that are building trust in these new ways – addressing ESG, DEI and broader public concerns – express more optimism about their prospects. For example, 49% global and 59% of India survey respondents who have a strong focus on attracting and retaining talent (a characteristic suggestive of heightened awareness of DEI, among other factors) predict strong future growth, compared to 40% global and 41% of India respondents who were not prioritising these areas.
Transform to build trust with your employees
Trust is built from the inside out – a company won’t be trusted by its customers if it’s not trusted by its employees. According to a PwC research, companies that actively create opportunities for their employees to build skills have greater earnings resilience and demonstrate a superior ability to attract and retain talent.
Family businesses understand the importance of employee trust in India. Two-thirds say it is essential. But when looked at more closely, this conviction is not matched by action: 36% global and 41% India respondents say they have little focus on attracting and retaining talent. Ultimately, employee trust depends on three factors:
- Purpose and values: This is traditionally where family businesses have excelled – 79% global and 78% India respondents say they have a clear purpose, slightly higher from when we asked a similar question in the 2018 survey but the message has not been widely disseminated to stakeholders: only 41% global and 48% India respondents say it’s regularly communicated externally.
- Commitment to ESG: In PwC’s 2022 Global Workforce Hopes and Fears Survey of more than 52,000 workers worldwide, 53% of respondents said it’s important that their employer is transparent about the company’s impact on the environment, and 54% said it’s very important that their employer is transparent about its record on DEI. Yet only 37% global and a mere 26% Indian family businesses regularly communicate how they are performing against such non-financial indicators.
- Accountability: Creating a structure for accountability that allows employees to speak up about their concerns is a good way to help build trust. Of the family business owners surveyed, 57% global and 53% India respondents said that they allow employees to appeal or question management decisions. That means 43% global and 47% in India do not. Therefore, there is significant room for improvement in this area as well.
Enhancing digital readiness in Indian family businesses
Indian family businesses grapple with adopting digital solutions, as evidenced by a modest 36% who express confidence in their digital capabilities – a figure that stands below the global average of 42%. In this age of digital transformation, data assumes an even more pivotal role, serving as the cornerstone of a thriving digital economy. Beyond digital readiness, another concern emerges: a mere 49% of these businesses demonstrate the agility required to swiftly recalibrate their strategic trajectories, contingent upon their liquidity positions. This statistic contrasts with the more encouraging global metric of 58%, underscoring a need for heightened flexibility within the Indian family business landscape.
Amidst this evolving digital landscape, a palpable inclination toward resistance becomes discernible within these businesses, as only 32% concur, both on a global and Indian scale, with the imperative to embrace transformative change. This sentiment highlights a perceptible hesitation to wholeheartedly adopt the changes demanded by the dynamic digital era, potentially stemming from concerns about disruption and adaptation challenges.
The clear differences across digital readiness, adaptability, and openness to change highlight a pressing need for Indian family businesses to actively strengthen their digital skills. A key part of this involves nurturing their natural ability to stay financially strong, which helps them navigate a landscape full of uncertainties. By doing this, these businesses put themselves in a good position to skillfully use the many new opportunities arising in today's fast-changing business world. This big change isn't just about technology – it's a strategic adjustment that goes deep into their core, helping them take a leading role in the digital era.
New ways family businesses can transform to build trust
Today’s formula for building trust requires a transformative approach, one that may seem unfamiliar to many. The long-held commitment to ‘giving back’ to society through philanthropy will need to be refashioned into well-articulated, observable actions centered around the things that matter most to a broader stakeholder group. Some of the important actions for this approach are:
It’s not enough for family businesses to say they have strong ideals. They must model those ideals in their relationships with internal and external stakeholders, starting with a fair internal system for reporting misbehaviour and a clear feedback mechanism for customers. These are visible solutions that will help to build trust.
Family businesses have become used to keeping a low profile and are often reluctant to share details about their business publicly. But transparency is essential to trust. This means regular public reporting of the company’s ESG and DEI targets, and its performance against those targets. Chocolate maker Barry Callebaut, for example, is transforming its operating model in an industry that has faced intensive scrutiny over working practices in cocoa-harvesting countries. Its Forever Chocolate sustainability strategy lays out four specific targets for improving the company’s social and environmental impact in those countries.
Family businesses are expected to be more vocal, visible and active than before. Public trust matters, and that means showing that you care about what’s going on in the world. The materials manufacturer W.L. Gore & Associates, which employs more than 11,000 people, has been especially vocal about its commitment to diversity, touting its achievements on social media and in public announcements—like a 2022 press release announcing the company’s inclusion in the Corporate Equality Index, a ranking focusing on LGBTQ+ diversity and inclusion policies and practices.
Embracing the digital revolution, family businesses must proactively enhance their technological skills. By cultivating digital confidence and adaptability, they can position themselves to seize opportunities in this rapidly evolving landscape, not merely as tech adopters, but as industry innovators driving the digital age forward.
Family businesses not only need to make transformative changes to build trust, they also have to show and tell by making their efforts visible and communicating them clearly to their stakeholders. In today’s world, that means not just their customers, financial partners, employees and family members, but also the public at large.
About the Family Business Survey
PwC’s Global Family Business Survey 2023 is an international market survey of family businesses. The goal of the survey is to get an understanding of how family business leaders perceive their companies and the business environment. The survey was conducted online in collaboration with the Family Business Network International (FBN International). The survey conducted 2,043 interviews in 82 territories between 20 October 2022 and 22 January 2023. In India, a total of 59 interviews were conducted Respondents comprised businesses ranging from under USD 10 million in revenues (24% global and 29% in India) to multi-billion-dollar enterprises (6% global and 10% in India). Close to half (47% global and 44% in India) report annual revenues of more than USD 51 million. Manufacturing accounts for 40% in global and 49% in India of the businesses surveyed, and 24% global and 17% in India are in consumer goods, with the rest coming from financial services, technology and healthcare, among other industries.
Aligning Purpose, Goals, and Growth: Challenges and Priorities for Indian Family Businesses
Within the realm of Indian family businesses, a noteworthy 78% assert their possession of a clear company purpose, slightly trailing the global average of 79%. However, a disconcerting revelation emerges as more than half of these businesses fail to translate their proclamations into tangible action, disregarding essential steps like formalising and externalising their purpose. This conspicuous oversight hampers the potential transformative power that purpose can bestow. While these businesses demonstrate commendable commitment to setting goals for customer satisfaction and growth, there exists a palpable disparity regarding goals pertaining to diversity & inclusion and social impact, with only a minority recognizing their significance.
Looking ahead, Indian family businesses prioritise expanding into new markets and enhancing digital capabilities, far surpassing global averages.
Moreover, akin to the global scenario, Indian boards exhibit an underrepresentation of women and non-family members, emphasising the imperative for inclusive governance practices.
Which statements are true of your company purpose? (among those who have a purpose)
Actions taken to ensure your purpose and values are being acted on within the business on a day-to-day basis (among those who have a purpose)
Enhancing Digital Readiness and Financial Resilience in Indian Family Businesses
Indian family businesses struggle to harness robust digital capabilities, with a mere 36% expressing confidence in their digital prowess. This falls short when compared to the global average of 42%. Additionally, a mere 49% of these businesses possess the agility to swiftly alter their course, contingent upon their liquidity, in contrast to the more favorable global figure of 58%. These disparities highlight the urgent need for Indian family businesses to bolster their digital competencies and strengthen their financial resilience. By doing so, they can effectively navigate uncertainties and capitalise on emerging opportunities in today's rapidly evolving business landscape.
Fostering Transformation: Bridging Capability Gaps in Indian Family Businesses
Indian family businesses exhibit a lower propensity than their global counterparts to perceive themselves as highly advanced in critical areas, such as swift decision-making and fostering a culture of accountability. Concurrently, similar to family businesses worldwide, most Indian family businesses admit that ESG and diversity remain areas of limited focus. Additionally, only a mere 25% of Indian family businesses allocate significant focus, energy, investment, and resources to innovation and research & development (R&D). Furthermore, the presence of dedicated individuals or teams responsible for spearheading diversity & inclusion and ESG initiatives is reported by only 29% and 42% of Indian family businesses, respectively. To unlock their full potential, Indian family businesses must proactively bridge these capability gaps, enabling sustainable growth and seize future opportunities.
About the survey
PwC's Global Family Business Survey 2023 is a comprehensive international market study that delves into the perceptions of family business leaders regarding their organisations and the ever-evolving business landscape. In collaboration with the Family Business Network International (FBN International), this survey was conducted online across 82 territories, encompassing 2,043 insightful interviews. Spanning from under US$10 million in revenues (24%) to multi-billion-dollar enterprises (6%), the respondents represent a diverse spectrum. Notably, 47% of respondents report annual revenues exceeding US$51 million. Manufacturing (40%), consumer goods (24%), and thriving sectors such as financial services, technology, and healthcare make up the surveyed industries.
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Falguni Shah
Entrepreneurial and Private Business Leader and Partner, PwC India
Annu Gupta
Partner, PwC India
Rajesh Vig
Partner, PwC India
Yashasvi Sharma
Partner, PwC India
Prateek Chourasia
Entrepreneurial and Private Business Manager and Program Driver, PwC India
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Entrepreneurial and Private Business Manager and National Programme Driver, PwC India
