The legacy of a family business is as unique as the family itself. It is born out of the entrepreneurial vision of the first-generation founder and builds as a young business grows into a multi-generational family enterprise.
Legacy has a profound impact: for some, it’s a way of honouring the company’s heritage, preserving its traditions, and protecting the reputation of the business that, in many instances, the family’s name. For others, legacy is one of the important building blocks for future success, with the resilience, spirit of entrepreneurship, and achievements of previous generations as a strong foundation.
In our latest KPMG Global Family Business Report, we examined four components of a family legacy: material, biological, identity and social. Our findings highlighted that these components, individually or in combination with others, impact businesses and families differently. Through our research, a fifth component emerged, the entrepreneurial legacy, which is interwoven throughout the family business journey as the focus between the other legacies shifts through the generations.
Transgenerational entrepreneurship as a legacy enabler
While family legacy is an underlying driver of success, it is a process rather than an outcome which may originate from many different factors. Legacies strengthen the emotional bond that defines the family’s identity and serve as a springboard for transgenerational entrepreneurship, providing fertile ground for younger generations to pursue their interests and learn from past adversities.
Transgenerational entrepreneurship represents families’ ability to sustain their businesses' entrepreneurial orientation through a continuous stream of family members’ entrepreneurial activities across multiple generations.
We see three dimensions as the primary contributors to the strength of a family’s transgenerational capability: family relationships, family entrepreneurship orientation, and a focus on future generations. Family relationships are an amplifier and enabler of every legacy component, with stories and achievements from past generations assisting future generations in building on past success and learning from their challengers.
Evolving legacies
Each of the legacy components has interdependencies and trade-offs. As the family business evolves across generations, the focus may shift from one legacy component to another. This evolution is a natural part of the family business journey, reflecting each generation's changing needs and aspirations.
With the increased focus on global environmental, social, and governance (ESG) priorities, younger generations will likely be more concerned with their family businesses' social and entrepreneurial legacies. In contrast, older generations may continue valuing material legacies and the family bloodline.
In our experience, these differing perspectives can potentially manifest themselves into generational conflicts about how the business should be conducted. They highlight the need to facilitate dialogue and build generational bridges between both generations to fulfil the various aspects of their legacy.
Understanding your legacy and where it could lead to is an important step toward building a successful multi-generational family business.
Striking the balance
The experiences and knowledge accumulated over generations serve as valuable resources for the next generation, emphasising resilience, adaptability, and reinvention. However, balancing honouring tradition and embracing new leadership is crucial to steering the business forward.
Balancing tradition and innovation is crucial for the sustained growth and prosperity of family legacies. While it's essential to honour tradition, it's equally important to embrace new leadership and ideas. Finding this balance isn't just a luxury; it's a necessity.
Ultimately, family businesses should embrace their legacy and share its essence with the next generation while giving them the freedom to create their own. This dynamic process can lead to lasting success. Considering these points in your next board meeting, you can foster a deeper understanding of the family legacy's impact on the business and create a forum to explore strategies for effectively navigating the complexities of legacy, tradition, and innovation within your family business.
The views in this article reflect insights from the KPMG Global Family Business report from KPMG Private Enterprise and the STEP Project Global Consortium: Unlocking Legacy—The path to superior growth in family businesses.
This article first appeared in the Institute of Directors Boardroom magazine June 2024.
Disclaimer
The views expressed in this content are those of the author, who is also responsible for any errors and omissions. Family Business Association provides this article for your information only. The content of the article should not be taken as advice. If you wish to explore this topic, please consult an advisor who you consider to have the expertise to provide specific advice in relation to your family business.
KPMG is a professional services firm with global reach, and deep expertise in audit and assurance, tax and advisory and in the family business sector.
