Australian family businesses are optimistic about their future growth prospects and are becoming increasingly adept at managing and facilitating change.
“It is no surprise that family businesses with an entrepreneurial culture are outperforming others. Innovativeness, the willingness to take risks, delegate authority and proactively seek new ideas and opportunities are all important attributes for developing a sustainable competitive advantage, that technology can help to harness,” said Bill Noye, Family Business Services Leader of KPMG’s Private Enterprise division.
Since 2005, KPMG has sought to better understand the unique nature, opportunities and challenges of family owned businesses, and in this year’s survey we have gone deeper, to identify the characteristics of high performing family businesses.
Produced in collaboration with Family Business Australia and the University of Adelaide's Family Business Education and Research Group (FBERG), the 2015 Family Business Survey reveals the five key trends that are shaping the future of Australian family business.
1. Objectives and performance
One of the greatest challenges in 2015 is balancing business objectives with those of the family. Results from this year’s survey also suggest that this is one of the top reasons for conflict in family business.
Top business objectives include product and service quality, cash flow, and net profit. Top family objectives include financial security for the family, personal challenge, satisfaction and rewards; and quality of life outside work.
Below are the characteristics of family businesses that are able to achieve a business/family objective balance:
• Age matters: performance peaks with a CEO aged 51 – 60 years of age
• Diversity in leadership: more likely to have a female CEO, and have a formal board of directors with a non-family or non-exec director
• Agreement and communication: utilise governance mechanisms that emphasise communication of the expectations of the family, the business, and shareholders
• Outward focus: adoption of management practises that focus on what is happening outside the business
• Entrepreneurial culture: support of the pursuit of innovation to develop the business and the people in it
• Access to resources: the financial resources to realise their strategies and vision.
2. Managing and resolving conflict
We found that too much emphasis on business can cause conflict and resentment within the family. Conversely, an over-emphasis on family objectives can undermine business performance.
Over 80% of the family businesses surveyed indicated they had experienced some conflict or tension between family members over the last 12 months. The most common reasons for conflict were issues around the following:
• vision, goals and strategy;
• balancing the needs of the business and vs. the family; and
• a lack of family communication.
Analysis of the 2015 survey data reveals that family businesses with a Family Council (i.e. formal family gatherings) are significantly less likely to have encountered conflict within the family within the last 12 months.
3. Technological change and future outlook
Nearly 80% of businesses surveyed say they are optimistic about their future growth prospects, but we also wanted to know the effect of technological change on family businesses.
Businesses agreed that technological change is creating disruptions in the way business is done, with more than half of reporting that this change is creating a positive impact on their business, including:
• The way they manage their business;
• Internal business processes;
• Customer interaction and relationships;
• Viability of current business model; and
• Supplier interaction and relationships.
However, over 20% indicated that technological change is increasing the costs of doing business, as well as increasing competition.
4. Evolving governance mechanisms
There is an increasing trend for family businesses to adopt formal governance mechanisms. These are critical for aligning the needs of both the family and the business, developing goals and increasing business performance. Significant increases in the 2015 survey included:
• 52% of businesses have a formal board of directors (39% in 2011);
• 43% have a shareholders’ agreement in place (36% in 2013); and
• 31% have a family constitution or code of conduct (20% in 2011).
There is also a noticeable trend for family businesses to appoint non-executive directors from within the family. 72% of non-executive directors are family members, which is more than 50% higher than 2013.
5. Preparing for leadership and ownership transitions
For all family CEOs, there will come a time to pass on the leadership baton. 76% of businesses surveyed expect to appoint a new CEO in the next five years, and 60% of those businesses intend to pass on leadership to a family member.
It is essential that a suitable successor is appropriately prepared and that the CEO hands over the reins in a timely manner. However, 55% of those passing on leadership in the next 2-3 years do not believe their successor is ready. CEOs believe their potential successor needs to work on:
• Financial management;
• Strategic planning; and
• Leading and managing people.
In regards to ownership, the survey overwhelming suggests that most family businesses will undergo some form of ownership change in the next 5 years:
• 72% expect to have some transfer of ownership in the next 5 years; and
• 64% intend to pass ownership solely to family members.
Consistent with prior research, family businesses overall appear to be ill-prepared for exit/succession with regard to their documented plans, however, encouragingly are more prepared than in 2013.
