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  1. Wealth
May 16, 2024

Legacy is a double-edged sword for HNW family businesses, report warns

Family legacy building can empower families when they have shared values, but a focus on the past can stymie innovation, a new KPMG report has warned

By Rory Sachs

Building and maintaining a shared legacy is a valuable tool for successful family businesses but can risk holding back progress when history becomes ‘too entrenched’, a new report has found. 

The KPMG Global Family Business report surveyed 2,683 family business CEOs from 80 countries to assess the challenges and successes facing multi-generational enterprises

The report found it was necessary for ‘family businesses to recognise when it’s right to lean on tradition or when they should dare to leap into the unknown — without the fear of losing what defines the family and the family enterprise.’ 

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Robyn Langsford, KPMG’s Global Leader, Private Enterprise Family Business and co-author of the report, told Spear’s: ‘The family business system of running a business is actually the oldest system in the world. We do find it fascinating to explore why that is, and what makes them so sustainable.’ 

‘It has actually been a really fascinating topic, in terms of exploring both the historical nature of legacy, but then how people who are currently running the business can leverage that to still make the business future-fit.’

[See also: The best family business advisers for HNWs in 2024]

Family legacy: what does it mean

The report found that family legacies are important for maintaining unity and promoting longevity of a business, with legacies reflecting ‘the shared purpose and values that are central to the family and the business.’

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However, the definition of exactly what a ‘family legacy’ means is less clear cut. The report authors note that legacies can either be ‘material’, underscored by tangible assets including family wealth and heirlooms; biological, relating to a family’s name or a particular bloodline; social, encompassing a family’s shared values and connection to their community; entrepreneurial; or identity-based, where storytelling is used to bind families together.

There were differences across regions when it came to the types of legacies that were valued, and among male and female entrepreneurs. 

In Europe, for instance, which has some of the world’s oldest family businesses, material legacies are often highly prominent. Whereas in the Middle East, social legacies are often important, ‘with a primary focus on identity legacies and stories of families’ history, values, traditions and culture.’ Meanwhile, female CEOs tended to value ‘biological’ legacy less than their male counterparts. 

These priorities can also change over time. ‘As the life of a family business changes across the generations, the focus may shift from one legacy component to another,’ the report continues. 

‘For example, in the early days of the family business life cycle, the focus may be on the material and biological legacy components. As the generations and the company continue to grow, social aspects and storytelling to reinforce the “familiness” of the business may increase in importance’.

[See also: Next-gen billionaires are breaking away from family businesses]

How to build a family legacy

Legacies can be built through a combination of approaches including uniting around philanthropic projects, articulating a shared family vision, and ‘promoting responsible stewardship’, which emphasises the important role each generation plays in maintaining the business. 

Once this base has been established, Langsford recommends HNW families plan get-togethers and retreats, where they can ‘facilitate discussion’ about how ‘they are going to make their businesses relevant in the future’.

Storytelling was also identified as a powerful way to unite families. ‘We’ve had families set up museums… and we’ve had families document their legacies in books that they then distribute to the family as keepsakes,’ Langsford said.

‘Quite often, we’ll hold a series of facilitated workshops with families to get them started on the process of exploring what their legacy might be, getting it documented, giving them ideas about how they could preserve that legacy, and keep it alive for generations to come.’

[See also: Schroders’ Clare Anderson on supporting UHNWs across the generations]

When family histories get in the way of innovation

However families must take care not to fall victim to sacrificing innovation for the sake of history. 

The report notes being too entrenched can lead to a ‘a mindset that “this is the way it has always been done”, the legacy that is being passed down may actually stand in the way of innovation, change and agility in future generations.’

Langsford added: ‘You can overly focus on legacy so much that you’re sort of trapped in the past, and what your forbearers achieved, and you’re too scared to deviate too much in case you screw it up, and you’re the generation that that caused the downfall of the business.’

Family businesses are most successful in the long term when they can combine a sense of heritage and history with innovation and entrepreneurship. 

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