One of the key findings from PwC’s 27th Annual Global CEO Survey is that CEOs are not optimistic about the long-term growth of their business. However, private company CEOs in the mix are consistently more optimistic than their listed counterparts about their ability to withstand the enduring risks of macroeconomic volatility, inflation, and political turbulence. In fact, 50 percent think their business will still be viable in ten years’ time, against 35 percent of listed companies. This optimism mirrors the long-term perspective and positive outlook of private business leaders as they build their legacy.
When we turn to more immediate, shorter-term disruptions like cybersecurity and generative AI (GenAI), private companies are more optimistic on these as well. For example, only 60 percent of CEOs of privately owned businesses think GenAI will increase their cybersecurity risks in the coming year, compared to 78 percent of listed corporations. Yet when it comes to concrete actions like adopting GenAI, private businesses are lagging way behind, with only 27 percent saying they’ve done this in the past year, compared to 43 percent of listed companies.
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Taken together, these findings raise some searching questions. Are private businesses’ optimism over short-term (as well as long-term) challenges justified? Or does it reflect a blind spot that they lack the resources and skills to tackle?
Family businesses play a vital role in the global economy, generating approximately 70 percent of global GDP and employing 60 percent of the world’s workforce. Therefore, having a clear understanding of the business landscape is crucial not only for individual businesses to remain competitive but also for shaping the global economy as a whole. As future leaders and inheritors of significant wealth, next generation (NextGen) family members bear a significant responsibility to their businesses, employees, families, society, and the environment. This includes a heightened interest in ensuring their businesses navigate disruptions responsibly, to secure a sustainable future.
Against this background, we’ve mapped out seven key considerations for private business:
1. Acknowledge the economic reality
2. Take advantage of technological disruptors like GenAI
3. Establish strong governance structures
4. Build trust by accelerating climate action
5. Build a future-fit workforce
6. Consider new, external sources of funding
7. Strengthen trust with philanthropy
Acknowledge the economic reality
Though PwC’s Nigerian economic outlook for the second half of 2024 presents a slightly optimistic picture, factors like inflation, high interest rates, and high import costs continue to erode the purchasing power of consumers and the profit margin of businesses. While the government is making efforts to diversify the economy, invest in infrastructure, and promote non-oil exports, pressure points continue to weigh on the expected outcomes. In this uncertain environment, the optimism of family businesses must be balanced with strategic planning that stems from a deep understanding of the local context.
This includes monitoring economic indicators, assessing market trends, leveraging technology accelerators, revisiting cost structure, doubling down on differentiating capabilities, and adjusting business strategies accordingly. By staying informed and proactive, private businesses can capitalise on emerging opportunities, mitigate risks, and chart a course towards sustainable growth and wealth creation.
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Take advantage of technological disruptors like GenAI
Family offices have always been investors in technology. PwC’s analysis of family business investment revealed that 32.5 percent of all capital invested in startups in 2022 was contributed by family offices. But when it comes to integrating these technologies into their business processes, the story is a little different. PwC’s Global NextGen Survey 2024 finds that many NextGens see GenAI as a career opportunity in their family business, and that 74 percent agree it’s a powerful source of transformation. However, almost half of family businesses (49 percent) have either prohibited or not yet started to explore AI, and only 7 percent have implemented it anywhere in the business.
“Yet when it comes to concrete actions like adopting GenAI, private businesses are lagging way behind, with only 27 percent saying they’ve done this in the past year, compared to 43 percent of listed companies.”
With usage of GenAI tools rising dramatically, now is the time for private companies to come to terms with GenAI, work out what it can deliver for them, and progress to adoption. The first step is to allocate leadership responsibility for developing an “early days” GenAI strategy as part of the overall tech strategy. Naturally, this role would fall to the NextGen.
When adopting GenAI, NextGens need to mind the risk. Their more optimistic view of the long-term threats facing them can be a strategic asset since it makes them more willing to take risks to diversify, adapt, and try new things. But they must also be realistic around short-term risks like cybersecurity and GenAI, where listed companies voice much greater concern. To address these concerns, family businesses must prioritise AI as a strategic issue, focus on strong governance and communication, and implement AI with careful planning, oversight, and controls to ensure responsible use.
Establish strong governance structures.
PwC’s 2023 survey of Nigerian family businesses reveals over two-fifths of family businesses admit that trust is low between certain types of family members. The trust level between Next Generation family members and the current generation is 21 percent, compared to 43 percent globally. The next generation family members may have fresh ideas, initiatives, and technology to take the business ahead (like adopting GenAI), while the elder generation may be sceptical, causing distrust.
Most difficulties that afflict family companies are the consequence of a lack of efficient communication. It is critical that family businesses practise open and honest communication among themselves. To ensure continuity, family enterprises must have strong governance rules that encompass all parts of the business and the family.
Family governance refers to the set of rules, practices, and processes that guide relationships and decision-making within a family-owned business. It involves managing the family business’ dynamics and boundaries and making decisions that balance both individual and collective interests. This governance promotes family harmony and improves trust by creating a shared purpose, encouraging open discourse, and addressing potential misalignment. It also allows for individual pursuits and strategies, accommodating evolving generational needs and preferences, reducing the chances of mistrust within family members.
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Consider new, external sources of funding.
Given the local economic context of naira devaluation, supply chain and security constraints, etc., capital constraints for private businesses are unlikely to ease off. As the need for capital increases, one increasingly attractive external source can be private equity (PE). Historically, family businesses have been hesitant to even consider PE funding. However, this is changing with PE investors’ showing much greater flexibility over the timing of exits and higher readiness to take minority stakes.
This growing shift in sentiment is driven by the realisation that PE investors can bring more than just capital to the table. They can also provide valuable expertise, networks, and governance structures that can help family businesses navigate the complex economic landscape and achieve sustainable growth. Additionally, PE investors are increasingly willing to adopt a more collaborative approach, recognising the importance of preserving family legacy and values. As a result, family businesses are now more open to exploring PE funding as a viable option to access the capital they need to thrive while also benefiting from the strategic support and guidance that PE investors can provide.
Build trust by accelerating climate action.
PwC’s 11th Global Family Business Survey reveals that private companies are losing trust due to slow action on ESG and climate change. In the global context, this is hardly surprising given that consumers are willing to pay a 9.7 percent extra premium for sustainable products. But in markets like Nigeria, where purchasing power is limited, affordability may take priority over sustainability.
Family businesses must acknowledge this reality and adapt their decarbonisation strategies accordingly. While West African CEOs in PwC’s 2024 CEO Survey recognise the challenges and are slow on decarbonisation due to lack of stakeholder buy-in, sustainability remains crucial, e.g., consider exports into the European Union and the Carbon Border Adjustment Mechanism (CBAM) rules. By optimising processes, improving energy efficiency, and reducing emissions, businesses can reap benefits both for themselves and for the environment.
To build trust, family businesses must not only act but also communicate their efforts transparently and consistently to stakeholders, demonstrating their commitment to sustainability. As the world moves towards a more sustainable future, private businesses that put ESG at the heart of their business strategy will be the game changers in the new sustainable economy.
Build a future-fit workforce
In an analysis of over half a billion jobs in 15 countries, PwC’s AI Jobs Barometer reveals compelling data that AI is driving a productivity revolution. Additionally, 70 percent of Nigerian workers in the PwC Global Workforce Hopes & Fears Survey 2024 expect GenAI to make their time at work more efficient in the next 12 months. To realise GenAI’s potential, private businesses must put the right skills and capabilities in place while safeguarding their people.
This involves assessing the current workforce to determine the skills needed for future success, identifying gaps in those skills, and exploring opportunities to retrain or redeploy staff to fill those gaps. To further highlight the importance of upskilling and reskilling, results from Nigerian employees in the Workforce Hopes and Fears Survey show that employees looking to switch employers are over 50% more likely to stay if they are offered upskilling opportunities. Through good workforce planning and interventions, private businesses will achieve advances like harnessing GenAI to boost efficiency and upskilling workers to support climate-driven business model changes.
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Use philanthropy to build trust
Private businesses’ long-held commitment to “giving back” to society through philanthropy will need to be refashioned into well-articulated, observable actions centred around the things that matter most to a broader stakeholder group. In this refashioning, impact investing is the natural evolution.
At its roots is impact investing, which is about making investments with the intention of generating a positive social and environmental impact alongside a financial return. This is growing in popularity. It’s a market that’s now worth US$715 billion—and rising. For wealth owners, the opportunities that investing presents are perhaps greater than for any other type of investor. Yet they’re still largely untapped. Despite investing for a positive impact being the core of family offices’ culture and mission, family offices account for just 4 percent of the impact investing universe.
Wealth owners have two broad considerations as they strive to thrive and ensure long-term success in today’s world. First, they must actively work towards building trust among all stakeholders—both internal (like family members) and external stakeholders (like consumers and the societies they operate). The second part involves taking advantage of disruptions like GenAI and sustainability to reinvent their business model and enable continuity for the next generation. This is particularly crucial for Nigerian family businesses, where multigenerational success stories are rare and exceptional.
The good news is that trust is tangible and can be systematically built. But if family businesses are to protect their trust advantage, it will require transformation—a reality that many business leaders are already acknowledging.
This article first appeared in the Cordros Wealth report, 2024.
Esiri Agbeyi; Partner & Africa Family Business Leader, PwC.
