Most family businesses are less than $100M in revenue, and so their governance processes are not as well developed as larger private—and likely all—public companies.
As the businesses get larger, new pressures force them to develop governance mechanisms which address increasingly complex issues and competing interests.
While these statements are obvious generalizations, where is the data to indicate how this might vary by size, country, culture and generation? How might you use that data to determine what governance is best for your situation?
A recent study by KPMG and STEP addresses these questions. The 2019 Global Family Business Survey looks at “the impact of changing demographics on family business succession planning governance.”
The STEP Project was founded by Babson College in 2005 in collaboration with six European universities and has since grown. The work was performed in coordination with KPMG’s Enterprise Global Center of Excellence for Family Business.
The survey is based on over 1,800 responses in 18 languages from 33 countries across the globe. This effort was promoted and coordinated through 48 universities across six continents. The findings, conclusions and recommendations are organized into six categories.
Millennial-led businesses tend to perform better. Their young leaders tend to be better educated, and unlike their elders, they are running their businesses with a plan to retire before age 50. Older leaders need to be mindful of this when they think about transitions.
Most global family CEOs plan to retire between the ages of 61 and 70, but they don’t have formal retirement plans. They tend to want to not have business activity during retirement. This is consistent with past observations that family businesses struggle with succession and retirement issues.
While about half of the global family businesses surveyed have a succession plan for unexpected events—and state their desire to keep the business in the family—about 70% do not have a formal succession plan. Gen X and Millennials are less likely to think the next CEO has to be a family member. In all cases, commitment and competence are the key selection criteria.
Family governance, in addition to business governance, is critical for success. It often requires more than one family governance tool to achieve higher levels of performance and entrepreneurial orientation.
The family governance tools cited include:
Using multiple tools tends to increase identification with the family business and entrepreneurial orientation.
Notably, North America is the only region of the world where families tend to use more corporate governance tools than family governance tools.
Family businesses with female CEOs tend to have less autocratic leadership styles than their male counterparts. The STEP study also reports that autocratic leadership reduces the family and business governance tools employed. It also reduce performance and entrepreneurial orientation.
As seen in board rooms around the world, the push for diversity is based on these and similar findings from other studies, in addition to social policies.
It has long been said that the two biggest challenges of family businesses are a lack of access to capital and talent. This study confirms that finding good talent is a key concern of family business leaders around the world. In improving employer branding, what was once called “being the employer of choice” is a way to expand the talent pool.
While these are the highlights of the report, there were a few other themes spread through it. Regional culture does make a difference in the results, some of which might be expected. Below are some ways that regional culture affects family business trends in governance:
But what keeps these CEOs awake at night? Across the world, the answers were fairly uniform:
Lower on the list were cybersecurity, climate change and diversity.
The data in this report confirms thirty years of my observations of family business issues. Region, culture and industry are secondary issues with regards to family business matters. Family is family.
The one quote which is still the best advice I have heard about family business comes from a 1997 book titled “Generation to Generation”, written by Gersick et. al.:
Treat the Business like a Business, the Family like a Family, and Ownership with Respect.
©All Rights Reserved. April, 2021. DailyDACTM, LLC d/b/a/ Financial PoiseTM
Bruce Werner is the Managing Director of Kona Advisors LLC, which provides advisory services to owners and investors of private and family-owned companies. With exceptional experience in finance, strategy, M&A, governance, and succession planning, Kona Advisors creates practical solutions to the most challenging corporate problems. Mr. Werner is an experienced Corporate Director, leading businesses through…