Deloitte Survey: Gaps in Governance of Family-Owned Businesses Pose a Risk to Long-Term Performance

More than a quarter of family-owned businesses do not have a board of directors; Nearly half do not have leadership contingency plans

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Deloitte

Jun 05, 2013, 08:30 ET

NEW YORK, June 5, 2013 /PRNewswire/ -- According to the findings of a recent Deloitte survey, Perspectives on family-owned businesses; Governance and succession planning, family-owned business executives may be impacting their companies' long-term success and competitiveness due to gaps in the areas of governance, board operations and succession planning.

More than a quarter (28 percent) of respondents from family-owned businesses indicated that they do not have a board of directors. Additionally, a significant majority say their boards have no term (82 percent) or age (89 percent) limits on membership, and one-third do not evaluate or provide any compensation to board members.

"Family-owned businesses are a huge component of the U.S. economy, and their attention to good governance practices can have an impact on success and failure," says Tom McGee, national managing partner of Deloitte Growth Enterprise Services, Deloitte LLP. "Tapping into the insights and experiences of an engaged, diverse, and independent board can yield significant operational advantages in the long run. Given that these companies are considered engines of job creation, a sharper focus on governance is important to their longevity, and to the success of our economy as a whole."

Board Composition
In terms of board composition, of the family businesses that have a formal board, only 39 percent are controlled by a majority of non-family, non-executive members. Moreover, two-thirds of boards have fewer than 30 percent female membership and 28 percent have no female board members; among companies with revenues of $200 million to $500 million, that figure rises to 48 percent.

"It is not enough to simply have a board," continues McGee. "Members of the board must reflect the changing demographics of the world we live in. They should be expected to bring rich and varied expertise and backgrounds to the role, and also be held accountable for their success in guiding the company's growth and future."

Succession Planning
Succession planning is one of the main areas of inactivity when it comes to governance of family businesses: Close to half (49 percent) of respondents say they only review succession plans when a change in management requires it. Similarly, 41 percent do not have leadership contingency plans. Moreover, 42 percent of non-executive family members are unfamiliar with succession plans.

"Many family-owned businesses struggle to maintain their family-owned status past the second generation," adds McGee. "And while succession planning can be an uncomfortable topic for owners, especially founders, it is critical to the success of an enterprise. By creating a stronger governance and succession strategy, a family-owned business is much more likely to preserve the founder's long-term vision for generations to come."

Research Methodology
Deloitte's Perspectives on family-owned businesses; Governance and succession planning survey captured the governance and succession characteristics of mostly mid-sized, family-owned businesses among 222 owners and executives. Approximately 70 percent of respondents belonged to companies with revenues of $100 million or more, and 25 percent to companies with revenues of $500 million or more.

About Deloitte Growth Enterprise Services
Deloitte Growth Enterprise Services' team delivers a distinctive client experience through service offerings tailored to address the unique needs of mid-market and privately held companies.

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SOURCE Deloitte