Family Business Survey 2023—Canadian insights

• As Canadian business leaders deal with what seems like constant change, disruption and uncertainty, trust is emerging as an important lever for resilience and growth.

• Canada’s family businesses have long enjoyed an advantage as trusted organizations, but expectations for how to build trust and with whom are changing quickly.

• To secure their legacy and navigate key imperatives like succession planning, family business leaders need to embrace a new formula for trust that’s rooted in purpose and transparency and accelerates the ESG journey.

Our 11th Global Family Business Survey focused on one of the key strengths of Canada’s family enterprises: trust. But while Canadian family businesses have long relied on the trust premium they’ve built for ensuring strong relationships with key stakeholders like their customers, our survey showed many organizations have been slow to adapt to the changing nature of what it means to be trusted today.

What’s becoming clear is that a new formula for trust is emerging that requires Canadian family businesses to deepen relationships with a broader range of stakeholders—notably their employees and the general public. This new formula also means expanding the definition of what builds trust, especially when it comes to key environmental, social and governance (ESG) matters, as well as increasing transparency about the organization’s performance on the issues stakeholders care about most.

Key ingredients of the new formula for trust:

For Canadian family businesses questioning why they should put more focus and energy into their ESG performance, recent studies have made clear that key issues like environmental and sustainability matters are an important priority for Canadians. Our recent 2023 Canadian Consumer Insights survey, for example, found:

of Canadian consumers said they’d pay a premium for products made by a company with a reputation for ethical practices.

would pay more for products made from recycled, sustainable or environmentally friendly materials.

^{Source: 2023 Canadian Consumer Insights survey}

Our Family Business Survey further showed that family enterprises that prioritize ESG matters are benefiting from doing so. Those who reported being very advanced in having an agreed and communicated ESG strategy, for example, were more likely to report double-digit growth and be trusted by both customers and employees. We saw similar findings on key social matters, like diversity and inclusion. Those with a clear purpose statement that advances diversity, equity and inclusion were also more likely to enjoy faster growth.

But as a whole, family businesses have room to do more on ESG matters. Only 10% of survey respondents reported putting a very large amount of focus, energy, investment and resources into ESG matters, while just 9% have a diverse board.

Building on Canadian family businesses’ ESG advantages

While many aspects of the ESG journey, such as rapidly and significantly reducing greenhouse gas emissions, are a major undertaking for Canadian family businesses, it’s also true that they have many existing advantages that they can build on. Through their strong relationships with communities, long history of philanthropic generosity and focus on deeply rooted values, they’ve naturally shown significant leadership on some of the social aspects of ESG matters.

But with public companies facing increased scrutiny and increased regulation around ESG actions and reporting, they’re quickly catching up with family businesses. Even so, privately owned family businesses have other advantages, notably their ability to approach the ESG journey from the long-term viewpoint inherent in legacy-focused organizations as well as from the perspective of purpose and values rather than as a compliance exercise. This gives family businesses greater leeway to focus on the issues key stakeholders, such as their customers, employees and communities, care about most so they can identify and prioritize their top ESG risks and opportunities accordingly.

We believe these characteristics of Canadian family businesses mean the ESG imperative is, in fact, an opportunity for them and that now is the time to accelerate the journey by engaging in open dialogue with their stakeholders and assessing their baseline standing and performance on the key issues at play. By looking at what other companies, like those in their industry, are doing and how they compare, family enterprises can then set priorities and goals and determine how they’ll achieve them. This step-by-step approach can also help family businesses decide which standards they’ll use, navigate key questions around data, metrics and reporting and assess and plan for the investments—including in technology—that will be required to deliver on their ESG strategy and, importantly, integrate it throughout the business and operations.

Closely related to many of the key aspects of the ESG journey is the need to embrace greater transparency and openness. More than ever, stakeholders want to see clear commitments from organizations as well as concrete plans for how they’ll achieve their goals and high-quality disclosures about how they’re performing against them.

But our global Family Business Survey reveals family enterprises have more to do around key steps for increasing transparency. While 79% of respondents told us they have a clear company purpose, far fewer take additional steps of writing it down and disclosing it externally: just 46%, for example, have published it on a website. And of those who say they have a clear purpose, only 37% regularly communicate about how well they’re performing against defined non-financial goals and targets.

Many family businesses don’t set goals and targets in the first place. In fact, just 9% say they set goals and targets for diversity and inclusion even though this is a critical step in being transparent about this very important issue.

Closing the transparency gap

The importance of transparency—and the need for Canadian organizations to make it a bigger priority—has been apparent in recent studies of key stakeholders like employees. Our recent Hopes and Fears survey, for example, showed younger employees put a particularly strong emphasis on transparency around ESG matters like climate change and diversity and inclusion.

The survey, which took the pulse of more than 52,000 workers globally and included 2,086 participants from Canada, found:

of Canadian generation Z employees felt their employer’s transparency about its record on diversity and inclusion was very or extremely important, but just...

were highly confident that the organization they work for actually is transparent.

^{Source: 2022 Hopes and Fears survey}

said transparency on environmental issues like climate change was very or extremely important, but only...

were highly confident their employer really is transparent on this.

^{Source: 2022 Hopes and Fears survey}

These findings raise important issues for Canadian family businesses given that younger employees, like generation Z workers, represent the key talent organizations need to recruit and retain to be successful. And to meet employees’ rising expectations for trust and transparency, they also need to make sure their disclosures are credible and backed by rigorous controls around the data. This requires family businesses to not only say what they’re going to do, take the actions required and provide regular updates to staff and the public at large but also to be forthcoming where their progress falls short.

While customers, suppliers, employees and the broader public are key elements of this new formula for trust, there’s another important group whose support is critical to the success of Canada’s family enterprises: the family members themselves. And this, too, raises further considerations for family business leaders given the delicate balancing act they face. Not only must they successfully manage ownership of the enterprise and the business itself, but they must also ensure family members—whose interests and expectations may differ—understand and are onside with the direction they’re taking.

In our work with Canadian enterprising families, we see many challenges related to family trust and transparency that can cause conflict and disagreements that spill over into the business itself and the ownership structure. Family members may have unequal access to information, there can be a lack of communication between them and confusion can arise around roles and responsibilities and expectations people have about their level of input into key decisions. Challenges can be particularly acute between family members with different levels of involvement in the business and ownership sides, including when it comes to the roles and input of active and non-active shareholders.

Respondents to our Family Business Survey acknowledged the importance of building trust within the family, with 63% saying this is essential. But many have yet to adopt many of the key governance practices that build family trust and alignment. Half have a shareholders’ agreement in place (up from 47% in our last Family Business Survey conducted in 2021), while 30% (compared to 28% in our 2021 survey) have adopted a family constitution or protocol and just 20% say they have a shared family capital strategy.

Getting the foundations right

There are many solutions for building trust among family members, including not just putting in place key governance policies but also considering options like having a family council separate from the business’ board of directors to handle matters specific to the family. Family offices are another way to build consistency and clarity and more effectively manage the increasingly complex issues faced by enterprising families in Canada and around the world.

While these policies and mechanisms can improve family dynamics, they, too, come back to the core questions involved in building trust with other stakeholders like customers, employees and the general public: what are the core values, purpose and mission of the family and the business? This is a critical question that families need to answer to ensure alignment between family members before putting in place other policies aimed at building trust.

Our survey findings back up the importance of addressing these foundational issues: respondents that not only have a clear company purpose but also have it written down and actively communicate it to family members reported higher levels of trust within the family. But less than half of survey respondents have taken these steps: 43% agreed that the family’s values and mission for the company are articulated in written form, which was down slightly from 44% in 2021.

Alignment key as succession planning looms

The imperative to answer these core questions comes as many of Canada’s enterprising families prepare for some big decisions and face a potential turning point in the near future.

As large numbers of founders of Canadian family enterprises prepare to sell the business or pass it on in the coming years, succession planning will become increasingly urgent. And that requires strong governance practices and alignment within the family to make key decisions around passing company leadership to the next generation, exploring a potential sale of the business, diversifying family assets and navigating intergenerational transfer of wealth.

Speaking of the next generation of leaders planning to take the reins of family businesses, they, too, care about many of the issues around trust and transparency that other stakeholders, like customers and employees, want to see more action on. As we saw in our 2022 NextGen Survey, next-generation family business leaders were significantly more likely than current owners to emphasize key ESG issues like climate change. This suggests that the urgency to go further and act faster on ESG issues extends beyond building trust with customers and employees to be a matter of significant importance to the next generation of family business owners.