Managing family businesses effectively

KPMG breakfast seminar to address inter-generational transition and other family business issues

Family businesses experience inordinate levels of failure in their attempts to transition their businesses from one generation to the next, according to Grant Walsh, director and founder of the KPMG Enterprise Centre for Family Businesses.  

Statistics released 30 years ago stating that 70 per cent of businesses will not make it to the second generation and 90 per cent will not make it to the third were recently reconfirmed and continue to plague family business owners, said Mr. Walsh, who will lead a session on family business issues during a free breakfast seminar hosted by KPMG on Tuesday, 19 March.  

Family businesses are the predominant form of business in both the developed and developing world, and the expression “rags to riches to rags in three generations” is a universal one to describe the struggle with the inter-generational transfer of family businesses. 

What makes family businesses unique is, of course, the family component. While it can be a competitive advantage if properly managed, it creates a variety of issues for management, Mr. Walsh said. 

“It is the only function/job in the world where you wear multiple hats as boss, coach, mentor as well as parent. It is no easy task to always do what is best for the business and what is best for the family,” he said.  

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While this is one of the greatest challenges facing family businesses, there are other issues that are unique to them and affect the way they are managed.  

Family businesses tend to be less formal and less structured, and adhere to a family-type environment rather than a corporate work setting.  

“This can be a double-edged sword,” Mr. Walsh said.  

Although the informal work environment can be positive, the lack of job descriptions and performance reviews, especially among family members, can cause stress, uncertainty and strained relationships among family members and non-family employees.  

Promotions, for example, are not always based on competencies, but blood lines. Family business owners may want what is best for their children but they can be blinded by their dual role as parents and employers and their desire to control the career of their children.  

Meanwhile, family businesses can be less transparent when it comes to finances and compensation and they tend to be particularly private about the financial compensation of family members.  

The tenure of chief executive officers differs also significantly depending on whether the CEO is family or not. According to the research, the average tenure of a non-family CEO is about 5 to 7 years, while that of a family business CEO is more in the region of 25 to 27 years. 

“This allows for long-term stability and consistency, but it also allows for complacency and stagnation,” Mr. Walsh said. However, overall he said he believes it to be a positive trait of family businesses. “It allows them to make long-term decisions for the betterment of the business and the family versus trying to constantly obtain short-term results, which tends to be the norm in the business world.”  

Family businesses also often treat their employees as “extended family” and as a result their employee retention rates are better. 

 

Family business constitution 

The family businesses that tend to successfully navigate the rough waters of inter-generational transition, are those who develop rules for the family members, for instance, in terms of who will be employed or own shares, based on a set of established criteria.  

“We call this their family business constitution/charter or simply their family business rules,” Mr. Walsh said. “Developing such family business rules and communicating them will go a long way in safeguarding family relationships. A family business needs to effectively manage the expectations of the current and future generations in order to enable them to make informed decisions about their individual and collective futures in the management, leadership and potential ownership of the business. 

“In my opinion, family business success is twofold: one, sustained economic success (growth and profits) and two, sustained family harmony. Unfortunately, far too often the first is achieved at the expense of the second,” he added. 

Explaining the topic of his presentation, “Family Business Succession: Managing the All Important Family Component”, Mr. Walsh said, “We now know why the dismal family business succession statistics exist and we also now know what needs to be done to avoid them. I want to share this new knowledge with family business owners and their families.”  

 

The breakfast seminar will take place at KPMG on Cricket Square on Tuesday, 19 March, from 8am. Mr. Walsh will also be available for private one hour meetings (at no cost) after the event and also the following day, Wednesday, 20 March. Please e-mail 
[email protected] for more information. 

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