| The family firm is the dominant form of business structure worldwide and, collectively, family businesses play a crucial role in the global economy. They contribute up to 45 percent of GNP of North America, up to 65 percent of the GNP of EU member states, up to 70 percent of GNP in Latin America and up to 82 percent of the GNP of Asia.
However, few attempts have been made to gauge the opinions of family business leaders worldwide, which is why PwC felt that it needed to learn more about the opinions, intentions and expectations of the family business sector.
The companies interviewed
The survey canvassed top management at 1,454 family businesses in 28 countries; more than 90 percent of those interviewed had been trading for more than a decade, and 38 percent for at least 50 years. Seventy-two percent of the companies employed less than 250 people, and over half of them had an annual turnover exceeding €51 million. To qualify for the survey, at least 51 percent of the shares had to be in the hands of the family, or related families, and the majority of senior management positions held by family members.
Corporate challenges and priorities
Three-quarters of the businesses had expanded in the past year, although many were wary of growing too rapidly. Seventy percent were optimistic in their outlook for the next year, and most felt they were well placed to capitalise on new opportunities and that their companies were somewhat or very competitive. Of some concern is that 25 percent of the companies interviewed have no business plan—a weakness that could clearly constrain their ambitions. Although these companies are generally optimistic, few are complacent.
Ownership, succession planning and the remuneration of senior management
One of the greatest challenges for family businesses comes when passing ownership and/or control to the next generation. The decision of which family members should be allowed to work in the business and which roles they should play may be personally, as well as commercially, difficult. Too frequently, succession decisions—or even how to deal with illness, incapacity, retirement, and death—are not dealt with timely and properly.
Even though one quarter of the companies surveyed are due to change hands within the next five years, and half of these are expected to remain in family hands, almost half of them have no succession plan; and the percentage rises for smaller companies, or companies in business less than 20 years. Plus, a surprisingly high percentage of family business owners fail to gauge their succession-related tax exposure arising from succession, and are unaware of the domestic capital gains tax or inheritance tax liabilities they may have accrued.
Regarding remuneration, owners are fully aware of the importance of fairly remunerating senior management—an indication, perhaps, that family businesses are better at focussing on the immediate demands of the business than preparing for the future. Almost four fifths use some form of incentive scheme to reward their most senior personnel, the most popular option being the annual bonus.
Conflict resolution
Although more than one-third of the family businesses survey admitted to conflicts over future strategies—and a quarter have quarrelled about the competence, or involvement, of family members in the business—70 percent have not adopted any procedures for resolving conflicts, and nearly the same number have no criteria for deciding who should be allowed to take a role in the organisation.
The economic and regulatory changes family businesses would most like to see
Not surprisingly, almost two-thirds of respondents consider tax simplification and reduction to be a top priority for government over the next three to five years. They would also welcome help in creating closer links with academia for the purposes of product development, a stronger corporate compliance environment, and the provision of more state support for staff training.
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