3 Minutes Read By Dr. Stefan Sambol

German Family Businesses Neglect Digital Competence in Supervisory Boards

#Announcement

The last two years of crisis and the tense economic situation are increasing the pressure on companies to reposition themselves digitally. To this end, it is necessary to change traditional structures in family businesses and bring digital experts onto supervisory boards.

Advisory boards must become more actively involved with the topic of digital transformation to better steer companies and ensure the future viability of the business model and long-term value creation. This is only possible with the appropriate digital expertise.

A recent study of OMMAX, conducted in cooperation with Prof. Dr. Marc-Michael Bergfeld and featured in WirtschaftsWoche and Financial Yearbook, reveals that in 2022, 83% of supervisory board members in German family businesses do not have the necessary knowledge and experience. 919 profiles of German supervisory board members of the 150 largest family-owned companies with the highest turnover were analyzed and examined for digital competence, transformation experience in similar companies or the change from a leading technology company.

With an average age of 60, the supervisory board members of the companies examined for the study are not digital natives. This is also reflected in their digital presence, as a full 37% of supervisory board members have none at all. Without being active on platforms such as LinkedIn or Xing, many lack insight into the digital world and exchange on current topics and trends. This puts the long-term viability of companies at risk, and advisory boards are not fulfilling their role and responsibility.

 

Change is happening too slowly

Change, therefore, occurs primarily through the election of new supervisory board members. Since 2020, 13.5% new members have been elected to the supervisory boards of the family businesses analyzed. However, only 24% of them bring digital expertise or transformation experience in similar companies or have previously gained experience in a leading technology company. As a result, the total number of members with the necessary expertise is 17% in 2022 - just 1 % more than in 2020.

 

The United Kingdom is one step ahead

In British family businesses, the picture looks better. Here, only 73% of supervisory board members have no digital expertise. That's a full 10 percentage points more than in Germany. In the comparison study, 380 profiles of the 55 largest family businesses were examined. The British do much better than their German counterparts when it comes to their presence in social networks. Only 17% are not to be found here. In one area, however, the British do not differ from the German companies: Among the pioneers of digitization, it is mostly the young generation of owners that is driving the change.

 

Pioneers score with advanced generational change

However, the change is not progressing so slowly in all family businesses. OTTO, Haniel, Bertelsmann, Vorwerk, Axel Springer, Giesecke & Devrient, VOITH, SCHWARZ, Bechtle, and BMW made it into the top 10 rankings. Here, an average of four members on the supervisory boards have extensive digital expertise. Thus, the proportion of members with digital expertise is above average at more than 20%. In addition, the next generation of owners is strongly involved in these companies and many of the supervisory board members have experience as entrepreneurs.


External expertise enables digital initiatives in the portfolio

Good examples of how family businesses are tackling digitization can be found in the private equity sector. Companies such as KKR or Advent International have hired individuals from Google, Amazon, or Microsoft with more than five years of experience on the ownership side. In so-called digital value creation teams, they drive digital initiatives in the portfolio with external partners to sustainably increase the value of the companies. Owner families can take an example from this and should restructure their family office and bring in external digital expertise to professionalize funds in the area of digitization and better manage the portfolio companies.

Family businesses often set up "digital expert board" meetings to pursue this approach. In monthly expert meetings, members ensure that digital projects are on track, digital KPIs are being met, and that they are the right moves for the business. Importantly, such a Digital Expert Board has one or two executives who sit on the company's extended board or at least consult with the company's board. This allows them to bring key digital expertise to the boards, which is often lacking there, to help execute business plans with solid, integrated digital tactics. Given the rapid pace of innovation and scale in the digital world, executives rarely have the time or capacity to adequately learn about digital innovations and trends.

Owners would now have to engage the next generation to close the knowledge gaps between the generations. This generation must drive the issue, otherwise, they risk the survivability of the business models.

Good examples of how family businesses are tackling digitization can be found in the private equitysector. Companies such as KKR or Advent International have hired individuals from Google, Amazon, or Microsoft with more than five years of experience on the ownership side. In so-called digital value creation teams, they drive digital initiatives in the portfolio with external partners to sustainably increase the value of the companies. Owner families can take an example from this and should restructure their family office and bring in external digital expertise to professionalize funds in the area of digitization and better manage the portfolio companies.

Owner families should restructure their family office and bring in external digital expertise to professionalize funds in the area of digitization and better manage the portfolio companies.

Family businesses often set up "digital expert board" meetings to pursue this approach. In monthly expert meetings, members ensure that digital projects are on track, digital KPIs are being met, and that they are the right moves for the business. Importantly, such a Digital Expert Board has one or two executives who sit on the company's extended board or at least consult with the company's board. This allows them to bring key digital expertise to the boards, which is often lacking there, to help execute business plans with solid, integrated digital tactics. Given the rapid pace of innovation and scale in the digital world, executives rarely have the time or capacity to adequately learn about digital innovations and trends.

Owners would now have to engage the next generation to close the knowledge gaps between the generations. This generation must drive the issue, otherwise, they risk the survivability of the business models.

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