Up close and professional: the family factor Global Family Business Survey
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Up close and
professional:
the family
factor
Global Family
Business Survey
2,378
interviews conducted w ith family businesses
with a sales turnover o
f over $5m
See page 4
40%
agreed that professionalising the business is a
key challenge over the next five years
See page 14
16%
Only 16% of family business have a discussed
and documented succession plan in place
See page 23
www.pwc.com/familybusinesssurvey
Definitions Survey methodology
For the purposes of this survey, a ‘family 2,484 semi-structured telephone and
business’ is defined as a business where online interviews were conducted via
Kudos Research in London with key
1. The majority of votes are held by the decision makers in family businesses in
person who established or acquired over 40 countries worldwide between
the firm (or their spouses, parents, 29th April 2014 and 29th August 2014.
child, or child’s direct heirs); This report takes into account the
2. At least one representative of the responses of 2,378 respondents. The
family is involved in the management turnover of participating companies was
or administration of the firm; from USD$5m to USD$1bn. The
interviews were conducted in the local
3. In the case of a listed company, the language by native speakers and tended
person who established or acquired to average between 20 and 35 minutes.
the firm (or their families) possess The results were then analysed by
25% of the right to vote through their Jigsaw Research.
share capital and there is at least
one family member on the board of
the company.
Contents
4 A view from the global leader
6 The new economy: more competitive, more volatile
7 Different pressures, different priorities: ‘head’ is winning over ‘heart’
9 New products, new sectors, new markets: diversify to survive?
11 Keeping pace with change: the innovation imperative
14 Professionalising the business: moving to the next level
15 Professionalism in practice: processes, governance, skills
21 The heart of the matter: professionalising the family
25 Bridging the gap: making a success of succession
28 From managers to owners: the new model for the family firm?
32 Conclusion
34 Contacts
Family Business Survey 2014 3
A view from the global leader
This is our seventh survey of family Without question, family firms remain
businesses globally and covers more a dynamic and resilient sector, even
companies, and more markets, than ever though the post-recession economic
before. We spoke to almost 2,400 family environment is proving tough, and
firms, from entrepreneurial start-ups to there are continuing pressures in
companies that have survived for five relation to skills shortages, innovation,
generations or more. We spoke to family and governance. This is the big picture,
members who manage their firms, and but when you look more closely at the
CEOs who had been brought in from detail it’s clear that there are
outside. And we spoke to those who plan significant shifts underway in the
to pass the running of the firm to the family business sector. There are also
next generation, and to those who see new challenges that these firms will
their family’s future as owners but not need to seize and address if they are to
managers of the business they have built. remain as successful in the future as
they have been in the past.
Across over 40 countries/regions
Australia India Nigeria
Austria Indonesia Peru
Belgium Ireland Romania
Brazil Italy Russia
Canada Kenya Singapore
CEE Malaysia South Africa
Bulgaria Malta Spain
Hungary Mexico Sweden
Latvia Middle East Switzerland
2,378
Poland Jordan Taiwan
Slovakia Saudi Arabia Turkey
interviews conducted with family China Oman UK
Denmark UAE US
businesses with a sales turnover from
Germany Netherlands
USD$5m to over $1bn Hong Kong New Zealand
4 Up close and professional: the family factor
Competition is more intense, price pressure is growing,
and the speed of change continues to accelerate.
So what are these new challenges, and people have children later, and in
what can family businesses do to many cases there is a significant
address them? As these results show, the communications gap between those
economy is a colder and harder place for running the business now and those
the family firm now. Competition is who expect – or are expected – to take
more intense, price pressure is over. Too many firms are either not
growing, and the speed of change planning for succession at all, or are
continues to accelerate. This is tough managing it as a personal issue
for all businesses, and especially for a between two individuals, rather than
sector which is sometimes seen as being as a process which requires the same
more risk averse than conventional rigour and objectivity as any other
public companies. It’s a model some aspect of business decision-making.
observers have called ‘patient capital’, The result, all too often, is escalating
and it has some significant advantages, tensions and a family conflict that can
including its ability to take a long view, precipitate the demise of the whole
and strong client relationships founded company. As one of our interviewees
on trust. But in today’s economic climate said, “Family businesses generally
family businesses acknowledge they fail for family reasons”.
will have to adapt faster, innovate
earlier, and become far more Many of these issues were already
professional in the way they run their raised in the 2012 survey; what’s
operations. This covers everything emerging this year is that succession is
from basic systems and processes in only the most obvious manifestation of
areas like finance and HR, to risk a much more deep-seated issue: family
management and corporate governance. businesses need to professionalise
the family, as well as the firm.
This is the message from family This is about accountabilities and
businesses in this year’s survey, responsibilities, about communications
and it is noticeable how much more and constitutions; it’s about learning to
important these issues have become be good owners and shareholders as
since our last survey in 2012, well as – or even instead of – good
especially in comparison to softer managers. It’s about securing the
concerns like the firm’s contribution to future, and breaking the emotional ties
the community. But what is implied in to the past, even if that means, in some
these results is, perhaps, even more cases, selling businesses the firm was
significant than what is overtly stated: founded on. That’s hard to do, and will
there is a powerful ‘family factor’ in require a willingness to make bold
play which many of these firms have moves and take some new risks. This
still not addressed, and some are may take some families outside their
reluctant even to acknowledge. comfort zone, but the sector as a whole
was built on entrepreneurial energy
The red flag here – as in 2012 – is the and determination, and they wouldn’t
issue of succession. Only 16% of family have survived in such a tough business
firms have a succession plan that has environment if they did not have the
been discussed and documented. The qualities they will need to succeed now.
moment of transition has always had
the potential to sink the family firm,
and a number of factors are now
coming together to make the
succession process more hazardous Henrik Steinbrecher
than it has ever been before. There is PwC Sweden
a longer gap between generations, as Network Middle Market Leader
Family Business Survey 2014 5
The new economy
More competitive, more volatile
65%
In general, the family business sector recession are now unlikely to return.
is in good shape. 65% report growth This is partly a reflection of the new
in the last 12 months, and 70% expect economic reality, but it’s also
to grow steadily over the next five of family businesses report growth symptomatic of the more profound
years. These numbers are very similar in the last 12 months shifts that are underway as a result
to the 2012 survey. 15% are aiming to of global megatrends like demographic
15%
grow aggressively over the next five change, globalisation, urbanisation,
years compared with 12% in 2012, and the digital revolution. The
and growth ambitions are particularly business landscape is becoming more
strong in China (57%), the Middle fluid and more disruptive than ever
are aiming to grow aggressively
East (40%), India (40%), and – before. The winners will be those
over the next five years
unsurprisingly – among those looking companies with the agility and
58%
for a quick sale or flotation (22%). flexibility to adapt, and which are
able to make the often significant
However, the number of respondents investments required to keep pace with
apprehensive about their ability to new technology. Companies, in fact,
recruit skilled staff in the next 12 cite price competition as a which are able to anticipate change
months has gone up from 43% to chief concern and are willing to be disrupters
almost half since the 2012 survey, themselves, either in their approach to
and the proportion citing the general market, in their products and services,
economic situation as their prime or in their willingness to change
external challenge for the next year strategy and even sector, if that is
has also risen slightly from 60% in the where the opportunities lie.
2012 survey to 63% in 2014. Market
conditions clearly remain a real anxiety, This is hard enough for public
and when you extend the time horizon companies, but harder still for family
from one year to five, price competition businesses. They typically don’t have
becomes a chief concern (58%). the same access to bank or capital
market funding, it’s often more
So even if the worst of the downturn difficult to attract the top talent, and
has passed in most economies, price family issues can absorb time and
pressures remain intense, customers attention, or lead to the appointment
are becoming more demanding, and of family members in senior positions
margins are tight; in short, family who may not always be the best people
businesses are having to accept that for the job.
the conditions they enjoyed before the
6 Family firm
The emerging picture shows very clearly that the
family business has become much more hard-headed
since our last survey.
Different pressures,
different priorities
‘Head’ is winning over ‘heart’
This year’s survey suggests that the new
economic pressures are forcing many Relative importance of respondents ranking of priorities (out of 100)
family businesses to re-think their
strategies and take some tough
Ensure company's long term future 16.2%
decisions. This is sharpening the
Improve profitability 13.7%
tension already inherent in the family
business model between family
concerns on the one hand, and business Attract high quality skills 10.1%
objectives on the other: what you might Ensure staff are rewarded fairly 9.4%
call ‘heart’ and ‘head’. More innovative 9.3%
Run business more professionally 8.8%
Diversify into new products/sectors 5.6%
Enjoy work and stay interested 5.4%
Ensure business stays in the family 4.4%
Different export markets 4.3%
Contribute to the community / positive legacy 4.3%
Grow as quickly as possible 4.0%
Move into new regional domestic market 3.8%
Create employment for other family members 0.7%
Growth and success Professionalise Diversification/ Family and the
expansion community
Family Business Survey 2014 7
In 2012, 70% of those
questioned said they
felt a strong sense of
responsibility to support
community initiatives,
but that number is down
to 59% this year.
Family businesses have become much
more hard-headed since our last
Key challenges in five years' time
survey: the most important priorities
are to remain in business and improve 2012
profitability. After this are the factors Internal
Need to continually
that will help make this happen, and 64% 62%
innovate
the ‘heart’ issues of family and
community come out very much lower. Attracting the right 58%
61%
skills/talents
In 2012, 70% of those questioned said
they felt a strong sense of responsibility Retaining key staff 48% 46%
to support community initiatives, but
that number is down to 59% this year. Containing costs 44% n/a
When we looked at the interviews in
detail to explore the causes of this Need for new technology 41% 37%
change, it was clear that many family
businesses feel they have ‘done their bit’ Need to professionalise
40% n/a
business
to support the community during the
recession by protecting jobs and feel it Company succession
36% 32%
planning
is now time to focus on profitability.
Conflict between 9%
11%
family members
Innovation/technology Staff related Other
External
Price competiton 58% 59%
General economic situation 56% 66%
Number of businesses 40%
42%
competing
Complying with regulations 42% 39%
Operating in an increasingly n/a
33%
international environment
Suppliers / supply chain 26% 27%
Competition Other
8 Up close and professional: the family factor
New products, new sectors,
new markets
Diversify to survive?
68%
This year’s survey shows that 68% However, some aspects of the detail
of family businesses are exporting, behind the data are more ambivalent.
with overseas sales accounting for Even if exports are likely to account
about a quarter of the turnover of all of family businesses are exporting for a larger proportion of sales, few
respondents. Around three quarters of businesses expect to be exporting
those surveyed expect to be exporting to a significantly larger number of
by the end of the next five years, and
predict this will account for over a
third of all sales. Those businesses
which are particularly keen to grow
75%
expect to be exporting within
countries than they do now, and most
tend to stick to neighbouring territories
or those with the same language and a
similar culture. This suggests that they
internationally are those pushing five years lack either the skills or the confidence
for aggressive growth, those with to break into entirely new regions –
a turnover of more than $100m, many would probably need to hire in
and those in the manufacturing outside talent to bridge that gap, and
and agriculture sectors. From a they may well be missing out on new
geographical perspective, the most sources of growth as a result. It can
ambitious are those in Eastern Europe, also be far more expensive to export to
the BRIC countries and the ‘MINT’ more distant markets, and in the case
quartet – Mexico, Indonesia, Nigeria of the US in particular, the domestic
and Turkey. economy is already extremely
geographically diverse, and the
same is true for China.
Family Business Survey 2014 9
A taste for growth
Konfael
Name Irina Eldarkhanova, Chairman
Sector Confectionery
Market Russia
Founded 1999
Konfael is a Russian confectionery
business operating at the premium
end of the market. There is proven
demand for its products overseas, overseas to trade shows
she could only persuade
but there are significant practical
people to go by sending
challenges to overcome. her own son along with
them. “It wouldn’t be
Only a few years ago, the Russian possible to create a team
confectionery market was still dominated who are prepared to
by western multinationals, but in the last emigrate for work
decade businesses like Konfael have purposes. And besides,
established their own brand names. The they wouldn’t know the
company is now a leading player at the traditions and business
premium end of the market, with four practices that prevail in
chocolate ‘boutiques’ in Moscow and one in overseas markets. You
St. Petersburg, which account for about need that knowledge to be
10% of its $35m annual sales. Their product successful, and we simply
range changes from season to season, with don’t have that.”
special chocolates developed for holidays
and times of the year, as well as for But even if setting up
individual client and corporate orders. As overseas offices is a challenge, what about Aside from the international aspect, what
this suggests, it’s highly labour-intensive, exporting – is that a viable alternative? “We other challenges does Irina see as her
and its founder, Irina Eldarkhanova, is still know that there are opportunities for our business grows? “We want to be a modern
involved in the detail of the manufacturing products overseas business, and we are constantly on the
operation day to day. Her husband and but it's just not a realistic possibility for our lookout for new things appearing on the
three children are also involved in various business to export. For one thing, our market that would help us optimise our
aspects of the business, though they all individual orders are quite small, so you work and improve efficiency. Many of our
have other commercial interests of their would be exporting small quantities rather processes are already formalised and dealt
own. “My husband looks after property than in bulk. That means each shipment with via various software applications, but
and facilities, and my oldest son runs one going through customs separately, but as you professionalise you need to ensure
of the businesses and takes charge of Russian customs are so complex in terms you preserve your traditions and values as
our equipment. Thanks to the experience of time and expense that it’s virtually new people come in. And when a company
he’s gained doing that he’s now built his impossible to deliver the product on the day has been operating for a while you tend to
own specialist business repairing and that you promise. With a fresh food product find there is a risk of stagnation or
reconditioning confectionery machinery and like ours any delay is a real problem. But we complacency. Recovering the original drive
supplying parts.” Another son looks after have tried – we had some research done and ambition is one of the owner's tasks.
Konfael’s online marketing and e-commerce and won a tender as part of an EU Personally, I believe an active owner will
operations, and the youngest is based in programme to foster trade with smaller generate higher performance, and faster
China, and oversees Konfael’s interests Russian companies. At the beginning, the and better development than an external
there. But as Irina says, overseas expansion researchers were convinced that it was CEO. But if you split decision-making
is a major challenge, not just for Konfael but possible to grow our business that way, but among a lot of different family members
for all Russian businesses. by the end of six months trying to tackle our you end up with different views, which
customs system, they concluded that the makes it harder to resolve issues and make
The international dimension: only option to develop our business abroad decisions. And that can result in conflict.
Overcoming the obstacles would be to build our own production and And if it’s a case of priorities, I think a family
There are two issues facing Russian family retail units in the relevant countries. And we business should attach primary importance
firms like Konfael as they look to expand did experiment with that, with an office in to their family rather than their business.”
abroad. The first is finding people with not Germany, but it just didn’t work out.”
just the skills but the willingness to do it.
When Irina first tried to send employees
10 Up close and professional: the family factorKeeping pace with change
The innovation imperative
In our 17th Annual Global CEO survey, alternatives. Many African nations, for
72% of respondents 81% of those questioned cited example, now have enormous mobile
technological advances as one of the phone penetration but very little
recognise that they will top three global trends most likely to fixed-line telephony. Likewise social
have to adapt externally transform their business over the next media can enable start-ups to cast a
and internally to exploit the five years. Family businesses likewise much wider marketing net at limited
recognise the growing impact of digital cost, which allows them to compete
full opportunities of digital technologies, with 79% putting this in effectively and cost-effectively with
and avoid being overtaken the top three. much bigger players.
by competitors. 72% of family business respondents Innovation in its widest sense remains
recognise that they will have to adapt a key concern for family firms in 2014,
the way they operate externally, and as it was in 2012, with 64% citing this,
organise themselves internally, to compared with 62% in 2012. Those
exploit the full opportunities of digital pressing for aggressive growth are
and avoid being overtaken by more more likely to see this as a key ongoing
advanced competitors. 43% accept that challenge. And yet even though
they will need to attract the right talent innovation is listed as a high priority,
to do this, which raises a question anecdotal evidence, and the experience
about whether the remainder are fully of our own teams around the world,
aware of the extent of this challenge. suggests that family firms are still
reluctant to change. Even though
The regional differences are family businesses continually claim
interesting here: the countries that one of their strengths is their
registering the highest scores on ability to reinvent themselves – 56% of
understanding the commercial respondents said so this year, up from
potential of digital were emerging 47% in 2012 – there are not very many
markets like Romania (80%), China examples of firms that have actually
(77%) and India (69%), with the done so. As one of our interviewees
lowest scores for Ireland (45%), the UK said, “Family firms either don’t want
(45%), and Canada (38%). This may be to reinvent themselves, or can’t. In
a further example of how businesses practice they find it hard to divest
and consumers in emerging markets legacy businesses, and only expand
are ‘leapfrogging’ old technology and or diversify within a narrow range.”
moving immediately to new digital
Family Business Survey 2014 11There is also evidence that both
“Family firms either don’t growth and innovation are a lower
priority for businesses in their third
want to reinvent themselves, or later generations, who place more
or can’t. In practice they emphasis on ensuring that the business
find it hard to divest legacy remains in the family. This could
suggest that these firms risk becoming
businesses, and only complacent and uncompetitive.
expand or diversify within However, it’s easy to see how the
a narrow range.” psychological factors that come into
play as the business matures could
make those running them more
risk-averse and less entrepreneurial:
later generations don’t want to be
the ones who ‘lose the farm’, and the
number of family members dependent
on dividends can be very large for a
business that has been in existence for
50 or 60 years.
Sector spotlight Firms in the retail sector are consistently Appliances Online is now Australia’s
Retail more aware of the issues around digital largest online appliance retailer, has won
than the overall average – 79% say they multiple awards for its customer service
will need to adapt their way of working to and use of technology, and can boast
address this issue. This is perhaps not over 340,000 likes on Facebook. It’s a
surprising, given that the retail sector classic ‘digital disruptor’, and has made
was one of the first and fastest to feel the a spectacular success of the tricky
impact of electronic commerce, and these transition from bricks to clicks. So how
findings are borne out by much of our own does Winning keep winning?
work in the sector.
“It’s about culture, and it’s about the
customer,” says John Winning. “In fact
the two go hand in hand. The customer
How to win on the web: Appliances always comes first in everything that we
Online Australia do, and our people know they are
The Winning Group was set up in 1906, absolutely being empowered to make
selling parts and accessories for decisions to the benefit of the customer.
horse-drawn carriages. In the century We spend a huge amount of time listening
since then the company has kept pace to our customers and adapting our
with technological change and it’s now a business to their needs - that’s how we
major retailer of home appliances. There got the idea of the ‘Handy Crew’ teams
are 12 stores across Australia and a we have today, who can connect
booming e-commerce business, appliances in customers’ homes, if they
Appliances Online, which was founded by want that. We call our strategy ‘where,
John Winning, the founder’s grandson, what, wow’. That means being where our
nine years ago. customers want to shop with us, whether
that's in-store, online or mobile; it’s about
offering what our customers want to buy
from us, and it’s about wowing them with
the quality of our service.”
As for technology, Appliances Online
may sell leading-edge products, but it
has no interest in being at the leading
edge of the digital revolution: “We tend to
let the early adopter businesses get into
a technology first – a lot of the time they
do it for its own sake, just to have a
mobile site or just have a particular app.
What we'll then do is analyse what those
businesses are doing and how it’s
working, and see how we can adapt that
and make it into something that really
works for our customers. I call it a leap
frog approach: we let them make the first
move, and then we try to overtake them
with something much better.”
12 Up close and professional: the family factorFit for the future
Les Mills International
Name Phillip Mills, CEO
Sector Gyms and fitness
Market New Zealand
Founded 1968
Going digital: From DVDs to downloads
The company is an adept user of social
media, and Phillip is actively exploiting
the opportunities to digitise the business,
moving from hard-copy instructor DVDs
to digital downloads, which eliminate
warehousing and distribution costs, as well
as being greener: “That part of the business
is all going digital. We are about 40%,
Les Mills is an internationally successful ‘Sustainability’ is a key idea, in fact, maybe even approaching 50%, digital
gym and fitness business. It was started in because Phillip is motivated not just by already.” He also understands that in the
New Zealand in 1968 by Olympic athlete Les professional ambition but a powerful social new digital age, the winners will be those
Mills and his wife Colleen (also a national conscience: “We have a company that is businesses who understand that it’s no
sports champion). Their son Phillip is now now worth something approaching $100m, longer just about selling people products
the CEO, and has inherited his parents’ and we think we can make it a $1bn and services, it’s about helping them
entrepreneurial flair, as well as their sporting company. I want us to be in 25,000 gyms achieve something important to them,
talent (he was twice a Commonwealth by 2020, and I want to move from the B2B whether an experience, a goal or a personal
Games hurdles finalist in the 70s). Les and model we mostly operate now, to more of change. Nike is doing that with its Nike+
Colleen may have grown the business into a a B2C focus, selling workouts direct to the fitness apps, and Les Mills is doing that in
chain of gyms across New Zealand, but it consumer to do at home. That’s a huge group classes: as Phillip says, “what we are
was Phillip who developed the trademark opportunity for us, and a great challenge selling here is motivation.”
Les Mills brand of group exercise class, and source of excitement for me. But it’s not
which is now taught by over 100,000 just about building a big international brand Innovation has been the bedrock of the Les
licensed instructors, in over 15,500 gyms - it’s about making the world a better place. Mills success from the start, and Phillip’s
and studios across 80 countries. That’s the important part.” That personal children Diana and Les are actively involved
motivation started young, when Phillip in the new product development side of the
studied philosophy as well as economics at company. Indeed Les was a leader of the
Les Mills International is a good university: “I have always been concerned new ‘Immersive’ approach which makes
example of a family business that about social issues. In 2007 I wrote a book full use of video technology.
has innovation in its DNA, and a about tackling global obesity with my wife
Jackie, the company’s Chief Creative As this suggests, Les Mills is very much a
Chief Creative Officer to drive that family business, but hardly a conventional
Officer. I lobby for taxes on sugar just as we
agenda throughout the firm. have taxes on tobacco, and I’ve set up a one. For a start, Phillip is the only family
not-for-profit called Pure Advantage, which member among the six directors on the
That part of the business is now a consumer aims to encourage a greener and cleaner Board, and he is quite comfortable that
brand which makes over $100m a year. approach to business and industry, and help the role of CEO may skip a generation,
Though as Phillip admits, it could be making New Zealand exploit the opportunities that or possibly never revert to the family at
more if they had structured the business are opening up to do that.” all: “I am personally determined to run
model differently at the outset: “When we this business as a meritocracy, so my kids
launch a new product we take all the risk So, for Les Mills and for Phillip, sustainability won’t automatically become either CEO or
and the independent distributors just take is definitely not just economic but the Chief Creative Officer. They will have a
profit, which is one reason why we’ve environmental and social. In fact, the two role here if they want one, but it won’t
started buying back distributors in recent cannot be disentangled: as the company necessarily be running the company.
years. We’re also looking at other strategic grows, so does Phillip’s public profile, and We’ll give them every chance to achieve
ways to share the risk more equitably. But in this in turn helps him campaign more that, and we already give them much more
the meantime we have to take an initial dent effectively for positive change. “If you want personal coaching than any other members
in our profits whenever we launch a new to make the world a better place, then yes, of the team. But after I’m gone there will be
product, but that’s OK because we’re in this it helps to have 100 million customers and a another CEO because neither of them will
for the long term – we’re not just looking for huge presence on social media. That gives be ready by then, and who knows what will
a quick return, we want to make this you political influence.” happen after that.”
business sustainably great.”
Family Business Survey 2014 13Professionalising the business
Moving to the next level
40%
As we have already seen, the need to Looking geographically, it’s businesses
professionalise the business is gaining in emerging markets which are keenest
ground as a key concern for family to professionalise, with over 50%
firms, driven by an almost perfect agreed that formalising and scores in China, Taiwan, Peru, Turkey,
storm of competitive pressure, rising modernising the business is a key Russia and Eastern Europe. Only two
costs, and global megatrends. As a challenge over the next five years Western European markets scored over
theme, it scarcely registered in 2012, 50% (Belgium and Italy), with lower
younger
but emerged very strongly in PwC’s than average scores for mature
Next Gen survey1 earlier this year, markets like the UK (30%), Germany
when a number of the upcoming (28%), Spain (27%), and the US and
generation told us they want to and more ambitious businesses are Canada scoring lowest at 20% and
formalise and modernise the business more likely to cite professionalising 19%. It may be that family firms in
when they take over. In the 2014 as a business goal these countries have indeed made
Family Business Survey, 40% of more progress in this area; it could also
respondents agreed that this is a key be that the responses conceal (or
challenge over the next five years, and reveal) either a degree of denial, or a
a fascinating picture emerges when resistance to any change that might
that figure is broken down. appear to threaten family control.
It’s the younger and more ambitious So what does ‘professionalising the
businesses which are more likely to business’ mean for the family firm?
cite professionalising the business What areas does it cover, and what are
as a goal, and are more aware of the family businesses doing to address it?
risks and opportunities of the move to The first thing to say is that it’s not
digital technology. They are also more about process for its own sake, or about
likely to think of the family business weighing down the entrepreneurial
model as slow to accept new ideas. flair that launched the family firm in
They are more likely to be looking at the first place. It’s about giving
a possible Private Equity exit strategy, structure and discipline to that vision
and will know that these investors and energy, so that family firms will be
will look for a well-managed and able to innovate better, diversify more
disciplined operation. This applies effectively, export more, and grow
equally to those looking to undertake faster. In short, achieve their twin goals
an IPO. of ensuring the company’s long-term
future and improving profitability.
1 Bridging the Gap: Handing over the Family
Business to the Next Generation, PwC, April 2014
14 Up close and professional: the family factorProfessionalism in practice
Processes, governance, skills
Processes
“The business was founded by my father
There are three distinct Though there are some family firms
and it was set up by just one man. He is
that manage without formal business
areas where family firms processes – especially first-generation now retiring and there is a whole level
are feeling the need to entrepreneurial start-ups – most larger of bureaucracy and formalisation of
processes that we have to put in place
professionalise their firms now have documented procedures
to formalise what he has done with
and policies, if only to comply with
operations. Some of this is external regulation in areas like the business”
fairly basic work around Health & Safety and employment law. UK, 2nd generation
systems and processes, but There are still family businesses with
thousands of employees and no HR
progress is also being made manager, but these are now the
“We are improving the company's
structure, processes and internal
on corporate governance, exception, not the rule. Likewise many control management”
and on people management. are automating their operations and
China, 2nd generation
increasing their use of IT as a way to
improve productivity and efficiency,
and to counter the cost pressures we “It can be incredibly difficult to make any
have already discussed. They are also changes within the company or control
being more systematic and structured expenditure. With multi-national
in their approach to sourcing, again as corporations they have a set approach
a result of rising costs. which we need to adopt – our profits
will increase with better governance”
“There is always much more you want to Kenya, 2nd generation
do on IT, and it is expensive and
time-consuming” “We need to rationalise the business. It
Malta, 4th generation is easy to get stuck in old patterns. It is
important that we streamline how we work”
“We need to upgrade and formalise our Sweden, 2nd generation
processes. As the business grows we need to
be sure that the right structures are in place” “The challenge is professionalisation”
South Africa, 2nd generation Peru, 2nd generation
“We need to improve processes, systems “If we professionalise the business in
and controls to achieve seamless growth” terms of financial performance the
India, 2nd generation rest will follow”
UK, 1st generation
Family Business Survey 2014 15Governance Skills
The family The corporate governance of the Attracting and retaining skills and
factor: family firm has improved since 2012, talent continues to be both a concern
Leaving and our own experience of working and a challenge, as family firms can
a legacy with family businesses also suggests struggle to compete with the share
that this is the case. More family options and structured career paths
businesses are seeing the value of offered by major multinationals. As
The case studies in this report all
appointing experienced non-executive one interviewee put it, “recruiting
illustrate, in different ways, how directors, though it can be hard to find senior staff is difficult because they
important it is for those running and recruit people with the right don’t see a career with a family
family businesses to leave something expertise, as family boards are often business.” As we saw in the earlier
worthwhile behind, or as several
interviewees put it, “to be
perceived to be more problematic than chart (p. 7), skills ranks third in family
remembered.” those of conventional companies. firms’ list of priorities, and 61% list it as
a key issue over the next five years (up
This is borne out in the survey results:
family firms may be putting business from 58% in 2012).
“We have to make the transition from
issues first this year, but the pull of the
a family organisational structure to The issue of skills is also fundamental
personal legacy remains very strong.
Many talk about ‘longevity’, ‘integrity’, a professional corporate management to other key areas of concern: if family
and ‘making a difference’, and say structure” firms are to expand internationally,
they want to pass on a business that
Taiwan, 3rd generation diversify into new markets, manage
is stable, sustainable, and profitable.
They also talk about creating risk better, or innovate more
employment, sustaining the family’s
“We need to implement corporate effectively, many of them will need to
values, and supporting the community buy in the people to do it. And there’s
– all issues that have slipped down governance structures”
their overall list of priorities but come
no point in hiring those people unless
Brazil, 2nd generation
sharply into focus when the emphasis you have professionalised the systems
shifts from the professional to the and processes that will make it possible
personal. This is clearly a highly “We need to convert the organisation for them to do their job.
emotive issue and is no doubt related
to the fact that most family and communications structure from
businesses bear the family name. informal to formal”
“We are having a hard time keeping staff
Austria, 1st generation in one of our divisions. Particularly
advertising and sales people”
“The board at different levels has to find US, 3rd generation
a balance between autonomy while
keeping its responsibilities: finding the
“We need to get in the right leadership
right balance between running the
talent, and we need to have a well-
business more formally and sustaining
trained workforce”
entrepreneurship”
Singapore, 2nd generation
Belgium, 3rd generation
The quote from Belgium captures a key “Retaining people is a challenge.
theme that emerges in different ways We have to restructure our reward
throughout this year’s survey: how does packages to keep employees interested
a family firm keep the entrepreneurial in our next phase of growth”
energy and flair of its early years with Ireland, 1st generation
each succeeding generation?
“When I was younger the family was the
company's strength; when the second
and third generations come in they are
being fed with a silver spoon”
UK, 3rd generation
“One concern I have more than anything
else is complacency”
US, 2nd generation
16 Up close and professional: the family factorProfessionalise to optimise
Nakumatt Holdings
Limited
Name Atul Shah, Managing
Director
Sector Retail
Market Kenya
Founded 1987
but as we expand regionally, we need regional
heads and management at regional offices.
It’s a challenge to get the right candidates.”
Nakumatt also uses international metrics
to monitor and manage performance, with
Nakumatt is a leading retail business in East now, to support our third phase of growth, KPIs such as turnover per square foot and
Africa, with over 7,000 employees and a which should see us achieve a billion dollars basket values, and they assess their results
turnover of more than $600m. It aspires to in turnover by 2018. Our plans are ambitious against global retail benchmarks.
offer the same quality, convenience and and to achieve them we need the same
choice as Western supermarkets. As Atul management and systems you would Nakumatt is one of the largest
Shah says, “People don’t expect to find expect at any other company.” private companies in East Africa,
outlets like this in Kenya – in the past they
used to take empty suitcases to places like “We operate like any other corporate”: with ambitious growth plans that
London and Dubai to shop. Now they don’t Systems, metrics, governance include Private Equity investment
have to.” Kenya may be a developing economy, but and an IPO. The company sees the
Nakumatt’s use of systems and technology
Atul began working in the retail business is as well developed as that of any Western
professionalisation of its operations
with his father at the age of ten, and now his multinational. “Everything we do is systems as a key element of that plan.
own sons and one of his nephews are part based. We have already adopted Oracle and
of the team. “We are allowing the next we’re testing an electronic invoicing system There’s another factor driving the push to
generation to bring in their own ideas. They with our suppliers. Basically, whatever the professionalise: Atul has his sights set on
want to do things a little differently – some most advanced companies are doing in this Private Equity money and an IPO sometime
of it may succeed, some may fail. But that area, we’re doing it too. We operate like any in the next five years, and recognises that the
is the beauty of it.” Aside from the next other corporate. For example, we recently business must be in the right shape to attract
generation, Nakumatt now has a full team of brought in someone to help us improve our the right strategic investment. With this in
professional managers, some recruited from online operation who had previously done mind, the next challenge will be to improve
outside and many more promoted from the same thing for Tesco. We didn’t have this Nakumatt’s governance by establishing an
within: “For many years I made all the capacity in-house so we went out and independent Board. “My advice to any family
decisions, but in the last five years we have brought them in from outside. One of our firm is to maintain a professional focus on
changed the way we do things – now it’s the challenges going forward will be getting good their business. Systems and processes are a
whole team. We’re also more professional people like this. We are growing from within key part of that.”
Family Business Survey 2014 17Key differences between family and non-family leaders; indexed to the
overall average
To ensure the long term -1
future of the business 2
-4
To improve our profitability 7
-4
To grow as quickly as possible 9
To attrract high quality 2
skills into the business -5
To ensure staff are rewarded 5
fairly and share in the success -9
To run the business on a 0
more professional basis 2
-2
To be more innovative 2
7
To enjoy work and stay interested -15
To diversify into different business -6
sectors/products/services 10
To move into different -6
export markets 12
To move into new regional -3
markets in home country 7
To make a contribution / 5
leave a legacy -8
To ensure the business 6
stays in the family -10
Creating employment for 2
other family members -3
Non-family member Family member
When it comes to skills, ‘professionalising On the one hand, the long-term
the business’ frequently translates to “A key challenge is transitioning from perspective of the family firm should
‘bringing in outside talent to run it’. being a business with lots of family input be attractive to talented candidates,
This is often the right decision, to one appointing outside management giving them scope and time to prove
especially when the business reaches a in key positions and functions” themselves, especially given that the
certain critical scale, but it can still be a UK, 2nd generation average tenure of a CEO in a Fortune
challenging moment for the family firm. 500 company is now down to as little
When you bring in outside managers The survey results show that non-family as five years. But on the other hand, a
– especially at executive level – the respondents are much more likely to be study in the Harvard Business Review
dynamics of the family firm inevitably pushing for aggressive growth. in 2013 found that the optimum tenure
change. A different set of stakeholder Innovation, international expansion, for a CEO is actually not much
interests comes into play and the diversification, and professionalising the different from this, at 4.8 years, and
business becomes less like a private business are likewise higher priorities for after that performance begins to tail
entrepreneurial venture, and more like them than for family members, who tend off – something family firms might
a public company. The challenge for the to be more focused on family and want to bear in mind.2 In any case,
family is managing that transition, and community, and more concerned about a many potential applicants will be
recognising that they themselves have personal legacy (see the side bar, p.18). wary of taking a senior role in a family
to change if it is to be a success. They There are important questions here for business, given the difficult and
have to accept a loss of control and an family firms, because one interpretation sensitive issues involved, and the
increase of discipline, both of which of these figures is that family businesses potential for in-fighting among family
can be difficult, especially when there can either under-perform or lack members, both on the board and off it.
are strong personalities involved, as is ambition if they are run by family
so often the case. members, and that this wouldn’t be the Deterring the best talent is only one
case with an outsider in charge. A recent example – albeit an obvious and
PwC study on family businesses in critical one – of how family issues can
“Key positions in the organisation are hinder business success. As this year’s
Germany found that more of them are
held by professionals but top positions results make clear, professionalising
are held by family members. Family now hiring outsiders at a senior level, and
– crucially – those who have done so are the business is necessary, but not
members are giving up their roles to sufficient alone, for long-term survival.
professionals. This transition needs growing faster than those who have not.1
The most pressing priority is the need
to happen properly” But recruiting a top-quality CEO is no to professionalise not just the firm, but
India, 2nd generation easy task; as one of our interviewees the family.
put it: “if you bring in senior talent you
“We need to make the transition from have to be able to keep it.”
family management to a multinational” 1 Growth patterns and internationalisation of 2 Long CEO Tenure Can Hurt Performance, by
Romania, 2nd generation German family-owned businesses and family Xueming Luo, Vamsi K. Kanuri, and Michelle
business owners. PwC Deutschland, February 2014 Andrews, Harvard Business Review, March 2013
18 Up close and professional: the family factorFormalising the family firm
Al Majdouie Group
Name Abdullah Al Majdouie,
President
Sector Conglomerate
Market Saudi Arabia
Founded 1965
Succession planning is a key part of that.
As Abdullah acknowledges, it is usual
practice in the region for the eldest son to
take over (and he is also the eldest in his
family), “But that doesn’t always mean that
the eldest is the best candidate. A
conventional company can advertise and
hire the best, but when it comes to family
businesses, a lot of emotional issues come
But so far, the strategy has been very into play. That is why the transition should be
successful: “We are looking at the energy planned well, and that takes at least three,
industry, and our training and education four, five years, if you do it the right way. I
business is opening up a whole new sector have already told my brother Yousef that he
for us.” Abdullah believes that the only way should prepare himself to take over in the
to survive is to grow, and that includes next couple of years, and I am now involving
exploiting the full potential of digital: him in elements of my role that are not part
“That’s not an option any more, it’s of his current job, just as my father gave me
necessary to keep the business alive. We the chance to learn and make mistakes, but
have a dedicated communications unit for under his supervision and guidance. It’s
social media, interacting with customers all about cycles – the business has to go
and managing our online reputation.” through cycles, and the family has to go
through cycles. We’re all realistic about that.”
Focus on good governance
In the last ten years the company has been Al Majdouie is a successful Middle
through a significant restructuring, and
adopted a far more rigorous approach to Eastern conglomerate which has
both corporate and family governance. For recently strengthened its corporate
Al Majdouie is one of the biggest transport example, the third generation, who are now governance processes. It has two
and logistics firms in the Middle East, with taking up their own roles in the firm, have to
7,000 employees working not just in Saudi independent directors on the Board.
work outside the business for at least three
Arabia but all across the Gulf. The company years first. As Abdullah Al Majdouie says, “In
was founded in 1965 by Shaikh Ali Ibrahim Al the early days, we needed everybody in the Abdullah is also realistic about the potential
Majdouie, and all his five sons now work in family to be part of the company. But now for conflict, especially as the family grows:
the business, and sit on its board. And as the we think they have to earn it. They have to go “When you’re a family business it's not an
family has grown, so has the firm, expanding through the stages of career development.” employer and employee relationship. It is
into automotive, manufacturing, food, steel, partner to partner, regardless of the age
real estate, and training and education. The company also has two independent differences – regardless of whether you have
external directors on the Board, and very been in the business for 30 years and your
Such ‘horizontal’ expansion is a typical much not as ‘window-dressing’: “They are younger brother just came in yesterday.” But
business pattern in the region, with many there to support and advise us but not he is confident that a combination of robust
private companies growing by diversification necessarily to agree with us,” says Abdullah. governance, strong values and open dialogue
into successful conglomerates. Family firms “We have agreed with the family that we is the best way to prevent conflict before it
often find it particularly useful as a model, have to have a mix of family members and arises, and ensure the long-term survival of
as it opens up more opportunities for non-family members throughout the the business: “In some ways the soft part is
individual family members to run their business, because this will ensure we even more important than the hard part. The
own divisions. Though the conglomerate benefit from new ideas and don’t fall into hard part is governance, and the soft part is
approach can have challenges as well as one way of thinking. One thing we’ve learned the values – the values that are embedded in
advantages: as Abdullah Al Majdouie, the is that, whatever the cost, you have to bring the family members right from their
group’s president, says, “it’s good in that it in talent to grow. It’s our number one childhood, and which they all share.” Abdullah
spreads your risk when times are tough, but challenge – getting the right people.” believes this has been the foundation for Al
it brings its own risk in that you can lose
Majdouie’s success, and if you ask him what
focus if you try to be equally proficient
he is most proud of, the answer is immediate:
across a whole range of different sectors.”
“Our family cohesiveness.”
Family Business Survey 2014 19Coming to fruition
Driscoll Strawberry
Associates Inc
Name J Miles Reiter, CEO
Sector Food and agriculture
Market US
Founded 1890s
Driscoll’s is a fourth-generation
Californian berry producer that’s
growing its business through a
combination of savvy digital
marketing and overseas expansion.
Miles Reiter’s great-grandfather was part Miles believes that his own family benefits buy. That allows us to evaluate how well
of the 19th-century Gold Rush, emigrating from those same emotional bonds. He and each grower is doing, and track which
from Alsace and swapping a butchery his brother both work in the firm, and there varieties are more popular, or what tastes
business for strawberry growing. In the could soon be seven members of the next consumers have that we could supply.”
century since then the company has grown generation coming through, “I’d be
substantially, and is now one of the surprised if all seven went into the business. Driscoll’s also has global ambitions for its
country’s largest producers of berries. That would be exciting but maybe a little brand, and is professionalising its operations
In the US, as elsewhere in the world, family challenging.” With that in mind, Driscoll’s to help make those ambitions happen.
businesses are particularly prominent in the has recently set up its first family council, in
food production sector, with many firms which the next generation is already playing Going global: Professionalism
still in family hands, even the large-scale a central part. The next generation have also and proposition
operations like Driscoll’s. Driscoll’s also been entrusted with formulating the mission Driscoll’s has been exporting for over ten
buys much of its fruit from other family statements for both the family and the years, and is already a leading brand in
businesses, which means there’s a powerful business – two visions which are connected Australia, with a new operation in China and
network of relationships that go back more but different, which is a vital distinction for expanding in Europe, though the latter is a
than two generations in some cases. As the family business to make. complex and diverse market. For Miles, this
Miles says, “Most of the growers are proves that you need two things to be
multigenerational companies, so they have So with so few family firms surviving beyond successful overseas: a simple proposition,
some of the same aspirations that we do. a third generation, what’s the secret of the and a professional operation: “My advice to
There are bonds beyond financial that hold Driscoll’s success? One answer would seem any family business looking to export
you together.” to be the new thinking that each generation overseas is to keep it simple – have a
has brought to the venture. In the century proposition that’s clear and can work across
or so since the firm was founded, each cultures. Our company mission is to
generation has contributed something new, continually delight consumers and I think that
whether in terms of improved agricultural can apply anywhere in the world.”
techniques, greater commercialisation, or
brand development. For example, Miles led And on the business side? “To expand
the business in making the shift from globally you’ve got to invest in people and
primary grower to branded producer over 25 processes, especially digital and in areas
years ago, when the company developed like management development. In the past
innovative packaging to protect its fruit and we did some of this stuff by the seat of our
realised that these ‘clamshell’ baskets could pants, and sometimes when we went into
also be used to carry a brand name. And joint ventures, we didn’t bring enough
now, almost a generation later, Driscoll’s is discipline to the financial side, or set out our
using digital technology to build that brand expectations fully enough. We’ve made a lot
even further: “What digital has allowed us to of progress since then, though there are still
do is connectivity with consumers at a lower areas where we need to improve. There’s a
cost. We’re working with our retail partners big role for non family management here,
on that – it’s not so much about how much with a business of this size and complexity,
we spend but how we share the knowledge, and I’m a big believer in outside Board
the data. We can now track specific members. In general, it’s about making the
consignments at hundreds of points in the way we operate more professional because
supply chain, and use digital to get customer we’re a global company now. The challenge
feedback on the quality of each basket they is to keep alive the spirit of experimentation,
innovation, and adventure.”
Photographs courtesy of Driscoll's. Copyright 2014. All rights reserved.
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