Majority of US Family Business Leaders Don't Have Robust Succession Plan in Place, PwC U.S. Family Business Survey Finds
Owners Hesitate to Fully Hand Reins Over to Next Generation
NEW YORK, Jan. 13, 2015 /PRNewswire/ -- Seventy-three percent of US family businesses admit to not having a documented and robust succession plan in place for senior roles, the latest PwC US Family Business Survey finds.
The survey, which captures the views of owners, leaders and top executives of mid-sized US family-owned businesses across a range of industries, also indicates that two-in-five respondents will find it difficult to hand over control fully to their successors, and 56 percent believe they will stay involved in their companies longer than is optimum to ensure a smooth transition. Moreover, 47 percent of next-generation family members working in the business view succession as becoming more difficult because of the growing age gap between the current leadership and those in line to take over.
"We are seeing an increase in what we call the 'sticky baton syndrome,' where the older generation hands over management of the firm in theory, but in practice remains in control of what really matters," says Alfred Peguero, PwC's US Family Business Survey Leader. "As the generational gap widens, the period between each transition gets longer. This means potential successors often are excluded from hands-on involvement and lack the experience needed to run a company," Peguero added.
"There needs to be a flexible long-term succession plan that includes rotations in senior management positions across the business, in addition to having work experience outside the family company. This will not only transfer valuable skills, but also help successors gain credibility and trust among key stakeholders. Our data shows that too many family businesses don't yet have this level of planning in place," he added.
Optimistic growth prospects but a need for change
Increasingly, US family businesses voice optimism about their growth prospects, with 79 percent of respondents expecting steady growth across the next five years. Seventy percent reported revenue growth in the past year.
Nevertheless, to achieve sustained growth in today's market, family businesses recognize the need to adapt, innovate, and become more professional in how they run their operations. For example, nearly three-in-four respondents acknowledge the need to adapt their organization to an increasingly digital world.
Similarly, close to a third of family businesses place recruitment of technology talent at the top of their digital transition agenda. Over half (53 percent) of respondents believe that family businesses reinvent themselves with each new generation – a form of innovation in itself.
"To achieve effective growth and thrive in today's market, family businesses must take action and make difficult decisions to adapt faster, innovate earlier, and become more professional in their day-to-day operations," said Rich Stovsky, US Private Company Services Leader for PwC.
"In an increasingly complex environment, CEOs of major companies are making strides to navigate the interplay of customer demand, talent, innovation and technology. Family businesses also need to embrace these challenges so that they are able to compete effectively and take advantage of future opportunities," said Bob Moritz, US Chairman and Senior Partner for PwC. "With family businesses accounting for nearly one-fifth of the Fortune Global 500, and a big driver of any country's economy, their ability to take advantage of these opportunities and expand their operations becomes even more important for their own organizations' sustainability, as well as that of the country."
Top three external challenges in 2015
In the short term, family business leaders identify three key external challenges likely to impact their company in the next 12 months:
- Market conditions - 60 percent (vs. 68 percent in 2012)
- Government policy - 49 percent (vs. 34 percent in 2012)
- Competition - 36 percent (vs. 21 percent in 2012)
"Despite a stabilizing economy, US family businesses still view market conditions as their top concern," says Peguero. "Regulation, legislation, and public spending are also key concerns for family businesses, with many still acclimating to the impact of significant tax law and healthcare changes. There also is a growing focus on competition, with companies wary of the larger players continuing to grow and increase their market share."
Additional survey findings
- 18 percent of respondents are planning to pass their company on to the next generation in the next 5 years
- 73 percent believe the cultures and values in family businesses are stronger than those in other types of companies.
- 64 percent of respondents say they add nonfamily members on their boards to bring an independent perspective to the operation.
- 67 percent find that shareholder agreements are, by far, the most widely used mechanisms to address conflict.
- 60 percent cited recruitment of skilled personnel as a challenge in the next year versus only 46 percent who voiced concerns two years ago.
About PwC's US's companion report to PwC's Global Family Business Survey
PwC's US's companion report to PwC's Global Family Business Survey captures the views of 154 owners, leaders and top executives of US family businesses across a variety of industries. They were interviewed from April through August 2014, via telephone.
For purposes of this survey, a family business is defined as one in which (1) the majority of votes are held by the person who established or acquired the company (or by their spouses, parents, child, or child's direct heirs) and (2) at least one representative of the family is involved in the management or administration of the business.
The US findings are one component of PwC's global survey of nearly 2,400 companies across over 40 countries and regions. The research was conducted by Jigsaw Research and Kudos Research, both independent agencies based in London.
To read the report, go to: www.pwc.com/us/FamilyBusinessSurvey
About PwC's Private Company Services Practice
Located in all major US markets, PwC's Private Company Services (PCS) is a national practice comprised of more than 170 partners who provide customized tax, audit and advisory services to private companies, their owners and high net worth individuals. More than 60 percent of America's largest private companies are PCS clients.* They span a broad scope of sectors and industries ranging from manufacturing to retail to industrial to professional services.
A hallmark of PCS is a robust thought leadership program that provides clients with timely, thought-provoking information to help manage and grow their businesses and wealth.
Visit us online at pwc.com/us/pcs.
* Forbes 2013 List of America's Largest Private Companies
About PwC US
PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms, which has firms in 157 countries with more than 195,000 people. We're committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com/US.
PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
© 2015 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
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SOURCE PwC US
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