Family firms have the agility and skills they need to succeed
Mairead Harbron, partner, PwC Private, says: “Greater focus on female participation is crucial for family businesses going forward.”
For the next generation of family business leaders, growth and sustainability ambitions go hand-in-hand — but there is still more action needed on sustainability.
In recent research from PwC, 65% of next generation (NextGen) family business members say achieving business growth is a top priority.
At the same time, nearly the same number, 64%, say their family business has the opportunity to lead the way in sustainable business practices. Seventy-one percent recognise their business has a responsibility to fight climate change and its related consequences, yet 45% do not believe their family business puts sustainability at the heart of everything they do.
While the consequences of the war in Ukraine, rising prices and supply chain disruption may find businesses more focused on short-term issues, the survey shows that sustainability will be key to long-term growth.
PwC’s 2022 Global NextGen Survey surveyed more than one thousand NextGen members in family businesses across 68 countries globally, including Ireland, to understand their key priorities and challenges.
John Dillon, leader, PwC Private, said: "It is difficult for a family business to survive multiple generations. The NextGen members we surveyed, like the current generation, understand the fundamental need for growth to create value and a legacy for future generations.
“The NextGens also recognise that it will take new approaches and skills to keep the business thriving. The survey confirms that addressing sustainability and climate change ambitions are high on their agenda, but more action is needed to fully embed sustainable practices right across their businesses."
While NextGens clearly see sustainable business practices as integral to long-term success, the survey shows they need to step up their engagement in the near term. Only 28% say they are currently engaged in increasing the focus on sustainability and impact, though 72% say they expect to be involved in it in the future.
Similarly, just a quarter of NextGens say they are presently engaged in reducing their business’ environmental impact, whereas 65% expect to be in the future. COVID-19 was a double-edged sword for NexGen involvement in the family business, with 56% believing that communication between family members about the business increased during the pandemic. However, less than half of respondents, 43%, say they feel more committed to the business than they did prior to the pandemic.
The uncertainty created by the pandemic also appears to have made the current generation less likely to relinquish control and more difficult for NextGens to establish themselves.
Reluctance of some of the current generation to provide a seat at the table poses a particular challenge for NextGens, according to 57% of those surveyed, with four out of ten saying there is resistance within the business to embrace change.
Mairead Harbron, partner, PwC Private, said: "Robust succession planning is essential for the family business, particularly as we head into a period of greater uncertainty. The challenge is to build confidence between the current and next generation. Our survey shows communication has increased. This is the time to flesh out succession plans and to define the leadership skills required to deliver growth in the future. That way the current generation can transition to a supporting role with greater confidence."
While the current generation of family business owners do see eye to eye with NextGens in a number of areas, there are some notable differences. Both generations are focused on growth, but only half of the current generation believe their business has a responsibility to fight climate change and its consequences, compared to the nearly three-quarters of NextGens.
The survey shows that many family businesses could gain from bringing greater attention to the relative roles of their male and female NextGen members. Far fewer female NextGens surveyed, 43%, are in leadership roles than are the male respondents, 59%.
In addition, 35% of female peers believe their male counterparts are more likely to be expected to run the business. Fewer females, 66%, have a clear idea about their personal ambitions for a future role in the family business compared to male NextGens, 79%.
Moreover, for the top-ranked priority area of achieving business growth, just half of females, 53%, say they are actively engaged, compared to 69% of males.
Mairead Harbron, partner, PwC Private, concluded: "There are some barriers to female leadership in family businesses that come from tradition, such as the first-born son inheriting the business, and while the tide is turning, it is still the case that female leadership participation is lower than male participation at present.
“PwC research shows time and time again that diverse businesses create better outcomes including business returns and innovation as well as for customers and attracting and retaining key talent. In this context, greater focus on female participation is crucial for family businesses going forward. Family businesses are a good barometer for the global economy and we are encouraged by the findings of our survey.
“The NextGens of family businesses see the vital link between growth and Environmental, Social and Governance (ESG). They are ready to learn, adapt and play a larger role in shaping the future for the business and the family. The commitment we see from the NextGen gives us optimism for a future built on sustainable growth,” she adds.
“From stimulating growth to protecting your legacy, we know private business leaders have a lot on their plate. At PwC Private, we’re growing our business to help our clients grow theirs. With our recent acquisition of boutique tax practice, Twomey Moran, clients now have access to 20 partners, 150+ specialists and more than 150 years of experience and heritage in the Private Business and Private Clients space.”
Business owners must focus on developing an appropriate succession plan, ensuring they have the right skills to manage succession, grow the business, look after all stakeholders and nurture the next generation, advises Michael Lynch, tax partner in KPMG’s Cork office.
“One of the most complex decisions in succession planning can be deciding who to appoint as your successor(s). It's even more challenging for family businesses. The persons who own the business may not and do not have to be the persons who run the business. Whatever the decision, it must be right for the company,” says Michael.
“When choosing the most suitable candidate(s), it is essential to be proactive. Create a plan covering what needs to be done by the business, the family, and the owners to ensure change happens in a manner that is optimal for all stakeholders. Identify every successor and document their exact roles and responsibilities. Prepare a timetable for the transition to help all the stakeholders stay on track and finally design a communication strategy to inform other key stakeholders about what is happening.”
Soft skills like vision, passion, mindset, and work ethic are critical, as well as the ability to lead the team and grow the business. “Identifying the necessary skills and capabilities, preparing a job description, assessing your candidates' objectively, and getting an external perspective are helpful,” he adds.
“Once you have selected your successor(s), start planning a gradual transition and involve them in all aspects of the company's operations. This will help them better understand the business, strategies, challenges, and priorities. Developing their leadership, communication, and commercial skills through professional and on-the-job training is necessary.”
Finally, he says, allow enough time to create a structured training, coaching and mentoring plan to help the next generation acquire the skills to grow the business and make it successful. Be open to the possibility that ownership and management of the business are not binary options.
If you decide to hire externally, be transparent with your succession planning process and share the details with all relevant stakeholders.
CONNECT WITH US TODAY
Be the first to know the latest news and updates
