Family businesses prep for internal transitions and societal change

COVID-19 and economic concerns continue into the second half of 2020. On top of that, cries for racial justice and societal priorities echo around the world. Change is on the horizon that will impact family businesses for generations to come.

These enterprises also face internal changes. Longtime CEOs are aging, leading to a transition wave that heightens the need for succession and wealth transition plans.

These factors are part of the next two megatrends that family business leaders need to keep top of mind: a heightened emphasis on environmental, social and governance (ESG) criteria, and intensified pressure on transition wave companies.

We’re continuing the conversation around business issues that may affect your growth agenda. For several weeks, I’ve been sharing key finds from the research that Ernst & Young LLP (EY US) Managing Director James Bly and members of the EY Family Enterprise team continue to amass and convert into insights for private and family business leaders.

Our first post covered the 10 overall major trends that may shape the future economic landscape. The second focused on the popularity of smaller cities and the focus on bio and food safety. Preventative health care and capital markets were the subjects of the third.

It’s been great hearing your feedback and the ways these issues are influencing your business decisions. Let’s consider how these other trends could shape the way forward as we move from now and next, to beyond.

Heightened emphasis on ESG criteria

The wave of liquidity and solvency challenges across multiple industries have triggered record unemployment and unparalleled fiscal stimulus and quantitative easing. As companies continue to seek credit and capital, be mindful that ESG may become a future requirement for access.

Society as a whole is paying attention to how companies respond to lingering inequities, particularly systemic racism and the widening wealth gap. EY US is making tangible contributions to support efforts to right these wrongs.

The stimulus measures have altered fundamental credit and market rules, which many believe will distort future valuations and further amplify the wealth gap.

Intensified pressure on transition wave companies

EY statistics show that in the US, a high percentage — roughly 35% — of family businesses have CEOs who are 72 or older, prompting a transition wave. As the pandemic continues, owners with a legacy mindset may want to revisit their exit, generational transition, shareholder liquidity, governance and succession plans.

It’s not just the CEO. In many instances, other members of the executive team and the board will soon face retirement. For a successful transition, family businesses need to plan how they will manage through the next 5 to 10 years. A sound governing agreement outlining how these teams should function could minimize risks.

Family-owned businesses play a key role in the broader community as employers and philanthropists. That’s why succession planning and wealth transition are so important. As many seek ways to advance inclusion, justice and equality, you have an opportunity to create access for current and future generations across demographics. That’s legacy building.   

At EY US, we’re using our platform and our resources to address these systemic issues, from health disparities to economic inequalities in the Black community. I would welcome the opportunity to share more about we’re doing.

In our next and final post, we’ll look at the impact of oil demand and an expanded view of unexpected risks. I look forward to hearing from you and your thoughts about what’s ahead. Don’t forget to send me a note.   

The views expressed in this post are mine and are not necessarily those of Ernst & Young LLP or other members of the global EY organization.