In the spotlight: sustainability in family businesses

Not just for show

Norbert Kühnis
Family Business and Middle Market Leader, member of the Executive Board, PwC Switzerland

Mercedes Grau
Business Development, Family Business and Middle Market, PwC Switzerland

Sustainability – and not just the environmental dimension of sustainability − is in the DNA of family businesses. After all, family enterprises need to deploy their resources efficiently and prudently over generations. This requires loyal customers, responsible employees, values, family governance, and social or even philanthropic engagement. At the same time, they have to work just as hard as non-family businesses when it comes to attracting skilled workers and promoting innovation. Provided they’re granted the necessary authority and responsibilities, the next generation of business owners can provide a great deal of impetus, stimulating a debate on strategy within the family and the company’s leadership.

Sustainability is the modern environmental buzzword, cropping up in just about any newspa-per article or corporate vision statement. But it’s an area where family businesses differ fun-damentally from manager-led companies. A family business plans, thinks and operates sus-tainably by its very nature. Companies without a generational outlook often set their horizons no further than the next quarterly earnings announcement, with sustainability something that’s primarily put on show in their communications. For family firms, by contrast, sustainability is inherent in the whole way they do business.

Foresight: an integral part of doing business

Switzerland subscribes to the concept of sustainability set out by the UN World Commission on Environment and Development: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Family businesses also aspire to this kind of development. They don’t think in terms of quarters; they plan for generations. Their focus is not merely on short-term profit maximisation, but on long-term viability and meaningful work.

Built on culture

Most family businesses have created a valuable foundation in the form of a clear corporate culture and a set of values. This is something they practise on a daily basis: instead of formalising culture in an employee handbook and declaring it compulsory, the owners of the company strive to lead by example, embodying on a daily basis the values that are important to them. A strong culture helps family businesses improve their environmental footprint, as well as encouraging new ways of thinking and enabling them to actively shape the future. Tangible values and a clear corporate purpose constitute a distinct competitive advantage for family businesses, and demonstrably boost profitability (see Schweizer Familienunternehmen: Werte pflegen. Wert schöpfen., PwC, 2019).

The magic formula: stakeholder management

Sustainably managing a family businesses revolves around sustainable relationships: loyal customers assure long-term demand, satisfied employees generate knowledge and innovative drive, and reliable business partners help the company continually revitalise its own performance. For this reason, family businesses often refrain from engaging in temporary hype, knowing that they can outlast it. It’s their risk, and their liability: knowing full well that that they’re personally responsible for business decisions, business-owning families act with prudence in environmental, social, ethical and economic terms.

In family businesses, relationship skills generally take the form of open, honest and direct communication. In short: people talk to each other instead of writing emails, and they shake hands instead of drawing up contracts. It’s not without reason that many family businesses choose to innovate in partnership with their customers, gaining loyalty and a full order pipeline in the process.

The power of responsibility

Recruiting and retaining skilled workers remains a challenge for many businesses. In the struggle to attract talent, family firms are in competition with prominent corporations. They’re often less well-known and hardly stand out in the CVs of ambitious candidates. Not only that, but many family businesses are based in the rural areas where they have their roots. So they’re unable to compete with a cool, urban working environment or meet salary expectations that in some cases may far exceed the personnel budget of a family business.

To secure and retain value-adding know-how in the long term, family businesses also take a sustainable approach to recruiting and retaining employees. With flatter hierarchies and low employee turnover, family businesses are perfectly adapted for what’s sometimes called the ‘new work’: work that places personal responsibility, meaningfulness and creativity above a pure profit orientation. For example, family firms are quicker to share responsibility with qualified specialists and give them a say. They create jobs with wide-ranging freedom to make decisions. The career ladder at large corporations is often much longer, and it’s harder for individual employees to see meaning or purpose in their work.

In excellent company

Family businesses are often the largest employer in their home region and thus a powerful role model and source of identification. They support the community by participating in it in their capacity as a family or as a company, for example through voluntary work or financial support. For instance, more than half of Swiss family businesses are active in philanthropic projects over and above merely making donations (see Figure 1).

Are you philanthropically active? (%)

Philanthropically active people

Figure 1: Family businesses are keen to support their social environment.
Source: Schweizer Familienunternehmen: Werte pflegen. Wert schöpfen., PwC, 2019

This strong sense of social responsibility stems from a sustainable approach to assuring and safeguarding the survival and livelihood of the business. Those who can rely on the loyalty of the community in which they operate are better equipped to deal with crisis. To this extent, family businesses are making sure they have the resources, expertise and continuity to keep their order books full.

Soft rules, hard reality

Family entrepreneurs have a dual mission in life: to ensure the survival and stability of their business, and to ensure the survival and stability of their family. With intelligent family governance, a family business can set itself soft rules; in other words, rules that are binding but not mandatory. These lay a strategic foundation for the company and foster unity within the family by providing mechanisms that assure the sustainable growth of the family business beyond trends, reconcile the divergent interests of family members, align different goals and aspirations, ensure the partners in the business have access to the relevant expertise, and enable the family to plan succession and manage internal conflict.

But there is still a lot to be done on the subject of family governance in Swiss family businesses. Many haven’t yet recognised or internalised the opportunities offered by family governance mechanisms. Some 45% of companies have no concrete succession plan in place and only 15% have a family charter (see Schweizer Familienunternehmen: Werte pflegen. Wert schöpfen. (German only) PwC, 2019). When it comes to shared planning for the future of the company and the family, closer dialogue with the next generation is an important step in the right direction.

Next steps thanks to NextGens

The NextGens – the daughters and sons of founders and senior bosses – are the junior and senior bosses of tomorrow. They bring new ideas into a company and drive change. In Switzerland, successors often earn their stripes in other companies. They head out in search of experience and knowledge that they can bring back. They are ambitious, professional, ready and willing, digitally savvy and strong leaders. These attributes make them highly desirable for their family businesses, enabling them to initiate discussions that tend to fade into the background in day-to-day business.

This extends to the climate debate. You won’t find tomorrow’s family business owners sitting around waiting for up-to-date environmental standards or a snazzy new climate agenda from the government. They actively encourage their colleagues and employees to help shape the process of change and come up with environmental and economic innovations. Many younger family entrepreneurs have understood the importance of the power of the street for their own business. By making sure the climate debate takes place in family businesses, NextGens aren’t just making a substantial contribution to society; they’re also working to ensure that their companies remain fit for the future (see box ‘URMA AG successfully drills for loyalty’).

URMA AG successfully drills for loyalty

The family-run URMA AG in Rupperswil, Aargau, develops and manufactures innovative precision tooling systems for the machining of precise holes worldwide. It has 130 employees, 100 of whom work in Switzerland. Yannick Berner is a member of the third generation and has been working in the family business since end of 2018, currently as Head of Digital & Marketing. His older sister Jessica Berner also joined the Management Board as CFO at the end of 2019. Sustainability has always been a priority at URMA, as its products offer a ‘lifetime guarantee’. This is a sustainable approach in itself and sends an important signal to customers. Even as children, Yannick Berner and his siblings were given the opportunity to contribute ideas at the family table. The NextGen influence can be seen in various areas. Currently, for example, the SME is developing and promoting a new recycling programme. Used reaming inserts are not to be replaced, but reground or recycled. Since 2018, URMA has also been operating the largest oil treatment plant in Europe, which recycles 99.1% of the grinding oil used in manufacturing. URMA is currently testing the implementation of more flexible working hours. Yannick Berner believes that the home office model is sustainable. Employees spend less time in the car commuting to work and they can better balance work and family life. The latter point has become a major plus in terms of recruitment. The URMA AG NextGen has also made an important contribution to the introduction of a culture of ideas across all levels. Urs W. Berner, CEO of URMA AG, greatly appreciates these inputs from his children. 

Young entrepreneurs are keen to fulfil their trailblazing role, demonstrating to their families and companies that ecological transformation is economically feasible, and that digital transformation can also work in an analogue reality. To meet such challenges, NextGens must be allowed to take responsibility and make a difference (see box ‘Ambitious young leader at the helm of SISTAG’). More than half (51%) of Swiss NextGens are already leading a change project or business unit. However, only 30% bear operational responsibility.

The younger generation is ideally qualified to handle change. Young leaders approach their responsibilities differently, reflect on themselves and build teams with the necessary skills. Today’s business owners and bosses should take advantage of this generational effect and plan their development early on – together with the next generation.

Ambitious young leader at the helm of SISTAG

Long-term thinking and continuity have always been the hallmarks of SISTAG AG, a specialist in valve technology that is one of the most important employers in Eschenbach, Lucerne. It has maintained its independence thanks to many years of stable ownership and its production facility in Switzerland. At the beginning of 2019, Samuel Sidler, a member of the third generation, took over leadership of the long-established company from his father, Hans-Jörg Sidler. The business administration graduate gained his first professional experience in the US, where he served as president and CEO of the subsidiary Wey Valve Inc. Over the years he refined his knowledge of the customer portfolio, the wide range of products and the global markets. After a radical restructuring and the construction of a new, state-of-the-art production facility, Samuel Sidler took over the export business of the parent company. In his first year as business development manager he expanded business activities in the Latin American market. In the following year, further market areas such as Switzerland, Europe and Asia were added. Today, the 33-year-old manages an internationally successful SME with 150 employees worldwide.

Find out more in Disclose's first podcast

Listen to the interview about sustainability in family businesses with Samuel Sidler, CEO of SISTAG AG and representative of NextGen, and gain insights into his visions, goals and strategies.
(only in German)
 

Podcast "Wie die NextGens unsere Zukunft durch Nachhaltigkeit sichern"

 

Summary

Family businesses naturally plan, think and act sustainably. Their focus is not on short-term profit maximisation, but on long-term viability and meaningful work. Sustainability is inherent in a family business.

They focus on long-term relationships. Loyal customers ensure demand, while satisfied employees are sources of knowledge and innovative drive and reliable business partners underpin the company’s performance. Family businesses are often involved in their local community. After all, they’re better armed against crises if they have a loyal backing within society.

Family businesses also act sustainably when it comes to recruiting and retaining employees. With flat hierarchies and low employee turnover, family businesses are attractive for people who place personal responsibility, meaningful work and creativity above profit alone.

The NextGen – the daughters and sons of founders and senior managers – are the managers of tomorrow. They want to embrace their role as modern pioneers and show that ecological transformation is economically feasible and digital transformation can also succeed in an analogue reality. Today’s business owners should take advantage of this generational effect.


Contact us

Norbert Kühnis

Norbert Kühnis

Leiter Familienunternehmen und KMU, Mitglied der Geschäftsleitung, PwC Switzerland

Tel: +41 58 792 63 63

Mercedes Grau

Mercedes Grau

Unternehmensentwicklung Familienunternehmen & KMU, PwC Switzerland

Tel: +41 58 792 48 83