This article is the second in a series of deep dives into the findings from PwC’s Nigeria Family Business Survey 2023, each focusing on one of three key stakeholder groups: employees, customers and family members.
Trust has always been a vital competitive advantage that sets family businesses apart from other companies. According to the Edelman Trust Barometer, family businesses have a trust score of 6 percentage points higher than that of businesses in general.
More than half (52 percent) of family businesses surveyed in Nigeria revealed that they are highly trusted by their consumers however they still need to work on earning full trust. PwC’s recent research highlights a strong correlation between trust and profitability and discusses the importance of protecting and nurturing trust for family businesses to achieve their long-term goals.
In today’s rapidly evolving business landscape, building trust is undergoing a transformation. PwC outlines a new trust formula for businesses that encompasses having a defined purpose, transparent & open communication, commitment to environmental, social & governance (ESG) factors, and diversity, equity, and inclusion (DEI) factors. These new trust factors are becoming crucial considerations for determining trustworthiness of family businesses among its consumers.
The new formula for family businesses to build trust in customers
Establish two-way communication with customers
A recent PwC survey shows that despite 85 percent of Nigerian family businesses having a clear purpose, only 57 percent communicate this to external stakeholders, particularly customers. To truly manifest their purpose, family businesses should demonstrate them, especially in interactions with customers.
A critical first step in this process is establishing a clear and responsive customer feedback mechanism. Not taking action on your values renders them meaningless. When a family business delivers what it says it will, it earns the trust of customers and other stakeholders.
Build trust through transparency
Nigerian family-owned enterprises have historically maintained a degree of discretion concerning their business affairs, occasionally displaying hesitancy towards sharing extensive information with the public. Cultivating transparency is a critical success factor in securing and sustaining consumer trust.
This entails regular disclosure and reporting of the businesses’ Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) targets, and an honest account of the firm’s progress towards these objectives.
In Nigeria, ESG is generally regarded as a nice to have, with only a few taking active steps to change. There is a general awareness, but businesses now need to start embedding this in their strategy. In light of commitment to net-zero emissions and the launch of Energy Transition Plan (ETP) in Nigeria, more businesses are exploring the use of alternative sources of power such as solar energy.
Firms in Nigeria are now required to follow global sustainability disclosure standards with the country’s adoption of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards (IFRS S1 and IFRS S2 Standards) in June 2023.1 These Standards will become effective on 1 January 2024 and will apply to the 2024 financial year and beyond. Family businesses that adopt these new standards early will have a leg up on the competition.
A recent PwC Global Next Gen Survey found that 59% of Next Gen family members felt their family company is progressing too slowly towards sustainability. The good news is that 72% planned to aid their family company in making long-term investments.
Given the global economic crisis, family companies frequently prioritise corporate development above ESG. Despite the fact that family businesses need to invest in development in order to survive, there is a clear link between market viability and ESG objectives. In today’s corporate climate, growth needs a strong ESG focus.
Only 9 percent of Nigeria family businesses reveal they have dedicated significant effort and resources to ESG, and a mere 6 percent consider their impact on the environment as the highest priority. Embracing and adopting ESG early can have a myriad of benefits for businesses such as:
Enhanced brand reputation: Businesses that consistently follow Environmental, Social, and Governance (ESG) principles are often seen as more ethical and trustworthy. This notion increases consumer loyalty and market favorability.
Increased profitability: Organisations with an ESG strategy have higher operational efficiency and cost-effectiveness and this increases long-term profitability. According to a PwC survey, customers will pay more for sustainable products.
Attracting investors: In today’s business world, investors are equally interested in companies with good ESG practises as well as profitability. Thus, ESG activities must be prioritised by companies.
Employee Retention: ESG-compliant companies tend to recruit and retain top talents. They also see lower turnover rates.
To leverage these shifts in consumer sentiment, family businesses can consider implementing various strategies to foster transparency and establish trust concerning ESG matters:
a. Transparent communication
Regular updates on ESG-related initiatives and achievements can be disseminated through multiple channels, including social media, reports, newsletters, or dedicated sections on the company website. This openness about ESG objectives, progress, and hurdles, serves to enhance credibility.
b. Public accountability
Family businesses should commit to clearly defined ESG targets and ensure that leadership is publicly accountable for their attainment. Demonstrating such accountability conveys a firm’s genuine commitment to these areas, contributing to the establishment of trust.
According to PwC’s global survey, millennials and members of the approaching Generation Z prefer family firms with a strong commitment to DEI. In terms of DEI, Nigerian family firms are ahead of the curve when compared to their global counterparts. While just 21 percent of enterprises globally have a defined DEI plan, 36 percent of Nigerian family-owned businesses do.
Only 13 percent of these Nigerian organisations intend to make increasing their diversity profile a key priority over the next two years, and only 27 percent have a dedicated diversity, equality, and inclusion (DEI) workforce. It is critical for family companies to create quantifiable values and regularly review their success. These measures must be made public in order to foster consumer confidence.
Speak out on social issues
Only 12 percent of family businesses in Nigeria reveal that increasing social responsibilities is one of their top 5 priorities in the next two years. Speaking out on social issues is a social responsibility and family businesses are expected to be more vocal, visible, and active. It allows family businesses to showcase their values and authenticity which fosters consumers’ trust.
Read also: Professionalising family business governance
In addition, it establishes an emotional connection with customers, demonstrates their commitment to societal concerns, and engages the community which builds trust and aids customer loyalty. Family businesses should leverage digital platforms, their websites, create thought leadership, etc. to actively speak out on social issues.
For example, one of the largest food & beverage companies was acknowledged by the Bloomberg Gender-Equality Index (GEI) for its transparency in gender reporting and enhancing women’s equality. This highlights the company’s efforts in empowering women across its value chain and continuously creating equal opportunities for all its employees.
Superior goods and services have historically been associated with family-owned businesses. Historically, they have utilised charity to give back to the community and garner local support. In the future, a company’s reputation will be judged less by how much money it provides to charity and more by how it handles the issues that are most important to the public. Thus, companies need to be more proactive in their responses to the threat of climate change, the amount to which they control pollution, how they address social concerns, and their efforts towards diversity and inclusion.
1 IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.
Esiri Agbeyi, Partner, Private and Family Business Leader, PwC Nigeria
Ejike Okonkwo, Associate, People & Organisations – Tax PwC Nigeria