Host Steve Legler speaks with Daniel Trimarchi from KPMG about the STEP Project Global Consortium and their recent report, The Regenerative Power of Family Businesses, which highlights the staying power of family enterprises and reveals the factors behind their lasting competitive advantage.

Introduction Welcome to Let’s Talk Family Enterprise, a podcast that explores the ideas, concepts, and models that best serve Family Enterprise Advisors in supporting their clients.
All views, information, and opinions expressed during this podcast are solely those of the individuals involved and do not necessarily represent those of Family Enterprise Canada.
Description Host Steve Legler speaks with Daniel Trimarchi from KPMG about the STEP Project Global Consortium and their recent report, The Regenerative Power of Family Businesses, which highlights the staying power of family enterprises and reveals the factors behind their lasting competitive advantage.
Guest bio Daniel Trimarchi is the Director, Family Business Advisory Services as well as the Director of KPMG Enterprise Global Centre of Excellence for Family in Canada. He specialises in family governance and succession planning with business families of various sizes and complexities. Daniel has over 10 years of experience working in Canada, the UK, and Australia, providing consulting services, business strategy, and compliance services to the family business and family office market.

Let’s talk family enterprise explores global ideas, concepts and models that help family enterprise advisors better serve their family clients brought to you by family enterprise Canada. All views Information and opinions expressed during this podcast are solely those of the individuals involved and do not necessarily represent those of family enterprise Canada.

Hello, and welcome to another episode of The let’s talk family enterprise podcast. My name is Steve Legler. And it’s great being your host once again. Today we’re going to be talking about entrepreneurship as a key component of ensuring that family enterprises increase their chances of surviving over multiple generations. Our guest is Daniel Tremonti, Director of family enterprise advisory at KPMG enterprise in Canada. I’ve known Daniel for a few years now mostly through FFI from back in the days when he was working in KPMG is London office in the UK, and I’m thrilled that he’s now based in Canada, and here as our guest, Daniel has been appointed person for KPMG working closely with a step project for family enterprising, where step stands for successful transgenerational entrepreneurship practices. That’s quite a mouthful. The step project recently shared the results of their latest in depth global study, and we’re going to be discussing that today and what we can learn about the results for Canadian family enterprises and how we as advisors can support them. We’ve got lots to cover today, as usual. So let’s say hi to our guests and kick things off Daniel trimarchi. Thanks for joining us today. Welcome to the let’s talk family and price podcast.

Thanks, Steve. It’s a pleasure to be here looking forward to it.

Great. So let’s start with just some context about this step project. And there may be confusing because I know step is a different organization that’s that’s not related to this at all this is about transgenerational entrepreneurship. And I believe that it started a long time ago with a bunch of universities. Can you give us a bit of background on on the step project?

Definitely. So the step project global consortium was founded back in 2005. And it’s a collection of global leaders from leading academic institutions and business families. And so their focus is really, as you mentioned, on exploring entrepreneurship practices within family businesses. So there’s a focus on research, teaching, and importantly, practice orientated activities because the goal here is really supporting these families across generations and providing them with this cutting edge research and offering these best practice solutions were available to learn from and to build from. So as a group of of academic luminaries and experts in the field, it’s a great organization to be associated with.

I remember looking at the list of some there’s a lot of these based in Europe, but there’s some also in North America and and other continents.

Yes, they have over 35 affiliated universities and practitioners. So here in Canada, and then there’s many more across Asia Pacific, Europe, as you mentioned, the Middle East and South Central and North America. Okay, and KPMG

How long has KPMG been associated with this project, as I’m guessing kind of like their practitioner partner on this?

Yes. So we entered into a collaboration with the steppe project back in 2019. And so, for the past four years, we’ve been spending a lot of time looking at some of these key issues and topics similar to what you mentioned in the introduction today about the long standing regenerative nature of family businesses. But our collaboration has really focused around bringing together this leading academic insight and the rigor that they bring to their research in their studies, and then the power of the KPMG network when it comes to our experience working alongside business families across the globe, in terms of providing them support and services. And so that collaboration between academic and practitioner has really seen I think, an elevation in the content and the output. And that that was really our focus is how do we bring these together, alongside working directly with a lot of business families to bring new insights and bring new ways of thinking into the field?

That sounds like a really interesting recipe for combining the forces of all these universities that were working already. For, I guess it was close to 15 years on their own in disparate places, and then KPMG with this global network and being able to cross the boundaries between the research stuff, and the practitioner stuff. And so I guess that all led into this most recent study, and the results were released in the last few months. And so can you first tell us a little bit about how big the study was and what they were looking at?

Definitely. So the focus here was looking at this long term staying power of family businesses. I know you and I have had many conversations when we talk to the competitive advantages of the family business mindset, and especially both during the pandemic and as families and countries have come out of the pandemic, looking at how family businesses stay ahead of their competitors. Looking at how they support the building back of many communities and economies. We really wanted to dig deeper into understanding what were the inputs that were driving these outputs. And so this survey in particular involved over 2439 respondents across 70 countries and in 18 different languages, and it was a multitude of both the survey responses that we captured, but also a lot of roundtable discussions with family business leaders to not only dig into the research and the findings from the survey, but to also bring, again, that application element of it so it was a large survey a large undertaking but very rewarding and very insightful.

So you start with a group of dozens of universities you throw KPMG in there, you figure out a bunch of questions that you’re going to survey people, you survey them in 77 countries in a bunch of different languages. Now you got a whole bunch of results. And now what do you do with that, but instead of just taking those results, there was like a second phase where you had roundtables to sort of make sure that you were digesting the results that were coming back. Exactly.

And it comes back to your earlier point about the combination of the two main the two entities here. And so the academic rigor and experience that these professors have in in analyzing data, it just provides a deeper level of richness, and then building on that, connecting in with these families to talk about them and to understand, well, this is what the data set, but what does it mean to you, and this is what we heard, but how have you seen that applied, and leveraging as well. Our network of experienced professionals across the KPMG network being able to reach into different regions or countries and dig deeper on that. That was really that secondary stage, which then led us to

the final report. And so this is a lot more than just a survey with results. That you’ve actually taken a number of steps to then interview the people who gave you many of those results, and then add some deep thought and analysis from both the practitioner and the researcher point of view.

Exactly. And I think it’s those multiple perspectives which is, is one is is probably newer in the field. When we look at some of the historical research. It’s usually from a specific perspective, whereas our goal here was to try and bring those multiple perspectives to the same topic and from that bring out a new insight or new inputs.

I know that anyone who is a practitioner in this field and let’s again, repeat that the the the main audience for these podcasts are the family enterprise advisors who have gone through the FDA program here in Canada. So we’re mostly practitioners. And when we are told hey, there’s some great research out there, we sometimes get shown these academic studies that are written by PhDs for PhDs, and they’re very, they’re very thick and hard to get the deep the nuggets out of sometimes. And so what you guys have done is combined the practitioners and the researchers together to put something together that’s a lot more user friendly, readable and understandable by people who want to actually use this who include people from our audience.

I think that’s a great way of putting it because it’s bringing some of those worlds together. And as you said, from an advisor perspective, or a practitioner perspective, we’re looking for those practical tools, frameworks, formulas, ways in which we can actually bring a new way of engaging with our clients and with our family businesses. And so all of those elements play apart and the team at step do go on to produce a lot of additional academic research and reports and papers that come off this, but as you said, it’s kind of providing it for different audiences and also introducing it to different audiences that have previously not had access to this in a format that’s been suitable for them.

Okay, so let’s get into it. So, first of all, the key word or one of the key words in the step acronym is entrepreneurship. And I know that I had been hearing for years that the key to having family enterprises survive over a number of generations is entrepreneurship in every generation. I think that’s even the title of a book entrepreneurs in every generation by probably the Sharma and somebody off so the idea of having families not just stick to the one tried and true thing that made their business successful at the beginning, but to reinvent themselves and have new entrepreneurs or even intrapreneurs come along and different generations. So I guess we shouldn’t be surprised that a lot of what came back is related to entrepreneurship. Can you shed a little light on on how the entrepreneurship components came in? And maybe share? I think you said I think there’s something about a formula that that came out of all this research.

Yes, yeah. So there’s one big formula that probably underpins the rest of the report, we could spend the rest of the podcasts kind of digging into the elements of it. But ultimately, what we found was this idea of of entrepreneurial capabilities added to family control and positive influence led to performance and so it was those three elements entrepreneurial capability, plus family control, and influence and influence equals performance. And what we then spend the rest of the time doing is digging into each of those three categories. So taking on the entrepreneurial piece, we looked at the sub factors of that and the three big ones that came through were innovation proactiveness and risk taking. So we’re we’re business families in terms of their level of innovation, their desire to invest in r&d, from a proactiveness point of view, are they anticipating future market trends? Are they entering new markets? Are they challenging the status quo? And then from a risk perspective, how are they defining their risk appetite and are they taking risks? And I think to your point, that multi generational aspect was key to that. We seen both generations playing a role in that alignment on those factors, the introduction of even digital capabilities, looking at how the next generation in particular can bring that to the innovation aspect of it. So those subsets of entrepreneurship came through. And that was the way in which we were able to measure the kind of across the different countries and the regions that we looked at.

Okay, so you’re able to sort of take the overall subject or heading of and break it down. To three components to give you a better handle on being able to evaluate where different family enterprises were, some are doing better in one but if they’re missing another, they might not be getting the full results. Are they checking all three of the boxes, those will do better. And then you also then were able to better compare and contrast in different geographies, our family businesses we’re doing because I think we’re, we’re gonna get to the parts about Canadian data a little bit later. But so you took the entrepreneurship part and broke it into three to give you like three subcategories Is that am I understanding that right?

Yes, exactly. So that that ability again, and this came from the way in which the academic side of it could look into this data to build kind of these elements and these sub elements, and we did the same thing on the second part of the formula. So the second part obviously talks to this idea of family control and influence. And so within that, we looked at the concept of socio emotional wealth, which I know we’ve talked about, at length and over the last few years as has to be done kind of tea to the lexicon of family business. We then looked at at that emotional attachment and identification. how closely do these family members see themselves to the business? What level of emotional attachment or sense of identification do they have? And then that family control piece what level of decision making at the family retaining? Have they maintained a level of agility and even a level of connectivity? So within both aspects of that formula be at the entrepreneurial capability side, or the family control side? We were able to dig into some of those subsets and again, this is what led to the performance times which we’ll touch on later.

Okay, so it’s a relatively simple formula with entrepreneurship, and family control and influence. Those two equals performance types and entrepreneurship and family control and influence are each broken down into three components that get evaluated within the four performance types. I believe that it turns out as kind of like a standard two by two matrix. So if you’re high on the family and high on the entrepreneurship, it’s one thing if you’re low on both, it’s the other and if you’re high on one or low on the other it’s the other. Am I getting that right?

Yes, that was the the output of those performance types, but I probably take one step back and as we did with the to kind of elements of the formula. When we looked at performance, I think one of the biggest takeaways especially for us in the advisor, space was the definition of performance. And we have always seen this obviously, where we talk about financial performance usually being the indicator of success and in many public companies or private equity backed companies. The driving force is often that financial performance. And what we found missing family businesses was that there was actually these four types of performance. And so financial obviously remains a key component of that making sure that you are performing in that traditional financial model is accurate, but that non financial piece, that idea of valuing family reputation as a measure of success, that is also an element of performance, and then when we look at the social side of it, we broke that down into both internal social and that can be the diversity and inclusion aspect of management teams or wider teams, and the external social component, which can be the traditional environmental aspect of it. Are we doing what’s right from a social responsibility perspective? So the same way that we broke down entrepreneurial capability and the family control and influence, we’re able to redefine the elements of what makes performance what it is, and I think, again, coming back to us as advisors, that’s really important. If we understand what success looks like to our family businesses. Were able to provide much better and more aligned support. Whereas if we work on a base assumption that financial performance equals success. Often some of the discussions or the ways in which we operate might not actually be aligned to what the family and the shareholders measure. So I think that was a really big takeaway for me in terms of what is performance and why does it matter?

That’s very interesting, because as you know, the MBAs that come to the program, many of us are coming from different professions. And I would say that in a large portion of those professionals, that financial performance is seen as the number one and the be all and end all often. And I guess one of the things we walk away from the program with is a better appreciation for the fact that that’s not the only thing. And so I think this drives home the point that families really are, yeah, they want to be making money, but there’s a lot of other important things that they value, and how they measure their success. And if a company if a family thinks that, you know, feels like they’re doing well because they’re having the kind of results that tick the boxes that are important for them that might not be necessarily all financial, if we come in there to advise them. And all we do is try to tell them how they need to change all this stuff so that they can make more money. That probably isn’t gonna resonate with them so well because they understandably have different priorities. So I’m not surprised and very pleased to see that that’s something that came out of this, and I think we’ll make this report. Important for our audience. to sort of get their hands on, understand and take away some of these great nuggets that are hidden.

And those those definitions of performance, what led into what you mentioned just prior to that, which is then the performance types that came out of it that two by two matrix of looking at those two inputs, again, entrepreneurial orientation, or family control and influence and say, where you’re high in both. This has the impact on overall performance, where you’re high on your entrepreneurial orientation, but potentially lower on the family control. That’s where we see more of the business first side of it. So again, high financial performance, but potentially impacts in some of those other components. The third element being the inverse of that low entrepreneurial orientation, but high socio emotional wealth. Again, you’re going to see more higher scores in the performance of the social and the non financial. And then obviously, those where they’re low on both those are the family businesses that are looking to drive and develop change, to make amends to that. And that was really the final element of the report was to look at to say, well, these these two by two matrix are these four performance types. There are actually good and bad. And I think traditionally in some of our other reports, we used matrices or different ways of defining families that were not good or bad, but they were subjective to kind of specific criteria. Do you have a family CEO or not? Do you have a large shareholder base or a small shareholder base? They were not kind of factors that you can influence or factors that can be good or bad, whereas in this report, this was one of the first times that we’re able to actually look at families on this scale. And that was really thanks to a lot of the work that the step project team had done through the analysis to say, well, there are ways to stay at the top and there are ways to get there. And that was one of our focus points being that we wanted this to be practical and applicable.

And when you say practical and applicable, I’m guessing you mean that some people like us and other FTAs can walk into a family and now have ways to sort of talk to them about their reality and where they are and identify it and define it and help people understand it better. And then hopefully be able to say okay, well, if there are things you want to change, here are some things that you might want to try to get better so that we can just have different levers that we can sort of assess and talk to the family about about things they can do. Or maybe they’ll just look at it. We’ll we’ll we’ll help them see what they look like and they’ll say yes, that’s what we are and we’re good that way. We don’t necessarily want to change but if we can help them understand how they fit on this kind of a scorecard. It’ll help them understand themselves and might help us to guide them into improvements.

That was exactly the the intention and we did that through two ways. One was through being able to pose some of those questions. So within the report, you’ll see elements where it talks about well, what impact can your next gen have? How are your current digital capabilities, how well connected are the family to the business? What focus has been on put on developing leadership capabilities in the next gen. And so there’s the questions element to like, as you said, hold up a mirror to allow families to self assess, and then there’s ways of taking action, whether it is ensuring that both financial and non financial success factors are given equal weighting when you’re measuring performance, embracing a more motivational style of leadership. One of the other elements we looked at was the different leadership styles within families and we looked at authoritarian leadership, charismatic leadership, and transformational leadership.

Daniel, you said something that I found interesting that I hadn’t thought of is the way different family members from different generations might actually look at some of these items. And it might, you know, provide interesting fodder for intergenerational conversations, where some of the rising Gen might see some things in this work. And it might bring up interesting things for them to talk about, and where advisors could play an interesting role in mediating those conversations. But I’m curious to what extent practitioners who have had this report have started to use this framework in discussing things with families. And can you share a little bit about about how people have been using this? Well,

I think those two points actually go hand in hand. When you think to who normally engages advisors or who’s reaching out to us you could probably bucket that into three categories. It’s either the senior generation, the current or the next generation, or some of the nonfamily management team, potentially within the business. And each of those three, three groups are usually coming to us with some element of desire to affect change, or in some cases, a desire to to focus on the status quo. And I think that’s where this report has been useful is depending on the perspective of the family, individually, but also collectively, we’re able to bring some of those different perspectives and allow people to see see the light through through different lenses. And so, I know personally when I’ve taken this to families and to the clients that I’ve been working with, it’s really about not just their perspective on it, but helping educate or helping see the perspective that other family members may have. So to your point generationally, whether it’s a conversation around digital transformation, or if it’s a conversation around ownership, succession or management succession, looking at where there’s a lot of strength and value if I come back to a report we did in a previous year with the step project, we found that family businesses that had multiple generations engaged in the business were much more likely to have strong entrepreneurial orientation and higher levels of desire. For business transformation. So this element of how do we take these as advisors to families to guide these conversations? A lot of it for me is around bringing these different perspectives, challenging some of the status quo and allowing them to interpret it as they see fit.

That’s good. You know, I was thinking of this as results of a survey, but it’s a heck of a lot more than that. It’s a whole new framework to present to a family to discuss things. So I think it’s going to be really worth people’s time to go and look at this report and try to find ways to incorporate it. I mentioned I think off the top that we’re going to talk about some the Canada specific analysis that was done and can you just shed a little bit of light on on did Canada look different, better or worse than other countries or what can we learn about the Canadian perspective?

So we saw with Canadian family businesses that they ran tie overall in terms of their entrepreneurial orientation, and this was compared to some of the other regions and countries that you mentioned. So in Canada, the predominant entrepreneurial leadership style steered towards that proactive risk taking mindset, although the innovation or innovativeness, ranked relatively lower compared to those two. So that idea of an entrepreneurial kind of mindset. I mean, it ties to when you look at the age and stage of Canada, I often get this question having spent time in both obviously Australia and the UK and Canada, to say, well, how does the age of the country impact the mindset of the family business and yes, in Canada, we’re not seeing the 14th and 15th generation families that you may see, in Europe, you’re seeing a lot of second third generation family businesses, usually with varying cultural backgrounds and experiences having migrated to Canada. And I think that lends itself to what we’re seeing statistically on the entrepreneurial side. So I think that was a really positive outcome that we saw within that within the within specifically within the Canadian data.

Existing and well, well, we are a nation of immigrants. And so I did notice that an Australian accent Donita so welcome. Daniel, this has been great and unfortunately, we’re getting to the end of our time together. So as usual, we’re going to go out with a couple of standard questions and one of them is for a book recommendation, something you’ve read that you’d like others to know about. And then the last one will be one piece of advice from an advisor to families, to other advisors who would also advise family enterprise. So can we start with a book recommendation?

Well, I think outside of interdependent wealth by by yours truly, Steve Legler. I think the one that’s probably more recent for me was one that actually a fellow advisor put me on to us in neurone. It’s one by John Ward, and it’s called perpetuating the family business. And the thing I enjoyed about it I think that most is 50 lessons learned from long lasting successful families and the power of that it’s not just the the anecdotal kind of elements of the lessons and the stories, but it’s actually getting underneath that to looking again, similar to what we saw in this survey. If we understand the inputs to some of these stories and the inputs to some of these anecdotes. I think it puts us in a much better position to apply that in different cases because we know that no two families are the same but being able to actually look at some of the driving factors around these. I’ve really enjoyed that one and used it quite a bit just have recent, which is why it’s top of mind.

Interesting because that’s a book from left over 15 years ago, I think and but John Warren is you know, he’s written a lot of the classics and is one of the founders of this industry. So we will put a link to that in the show notes. And so one last thing now is one piece of advice from an advisor to family enterprises to others who also advise family enterprise.

Think for me, it’s the it’s the bringing together if the diversity of views and I’ve seen this in families recently in particular, whether it’s between generations, whether it’s between family and non family, whether it’s between outsiders based on skill set, I think bringing together that diversity of view is really tied to that sustaining of a an entrepreneurial culture. So how do we build on the values of the past with the foresight that the future can bring? That would be my biggest one is when we’re, when we’re looking at any of these problems. We often talk about leaving our biases or leaving those at the door. But I think for me, bringing in as much diversity of opinion and view, I think is lending itself to much richer conversations. Much more engaged families, and much more holistic advice that allows us then to see the buy in from the family as a collective. So I think that’s my

one. You know, we talk about in the MBA program learning to collaborate with the other advisors but you’re bringing up the point that the different viewpoints within the family and even not just the family, but other people in business, who are part of the family, different people from the different sectors of the three circles and the seven sectors that that gives and helping people come together and share more around these important things to give more clarity to what’s going on to be able to co create from there. I think that’s great. And often they will need outside advisors like us to help them to have those congresses. So thank you so much, Daniel, for joining us and sharing your expertise with our audience.

Tonight. It’s been my pleasure, Steve have one thing here and always enjoy the conversation. So thank you very much for the time.

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