Perils of keeping it in the family

Nov 23 2007 by Nic Paton Print This Article

The good news is that two thirds of UK businesses say demand for their products and services grew last year. The bad news is, with one in four family-run businesses expecting to change ownership in the next four years, a lack of forward planning could be putting future growth in jeopardy.

A study of nearly 1,500 small businesses in 28 countries by PricewaterhouseCoopers has found what UK businesses are not nearly as good at succession planning as their counterparts in other countries.

Just 30 per cent had chosen a successor, compared with nearly half globally. And, overall, just slightly over half of the firms polled said they had a succession plan in place.

And it may not all be down to blinkered short-sightedness, either. A study by the U.S research body The Conference Board in October concluded that many American chief executives were simply unhappy with the quality of the managers coming up beneath them.

Finding good-quality managerial talent and management succession were the two dominant people issues for American CEOs, replacing the cost of healthcare, it said.

The PwC research found that 44 per cent of those that expected to change ownership in the next five years were intending to pass the business on to the next generation in the family.

Yet, despite many experts suggesting five years is a minimum run-in period for effective succession planning, many had still to start the preparation work.

Paul George, partner and family business specialist at PwC, said: "Passing the family business onto the next generation can be difficult; often every bit as challenging as a third party sale.

"The survey results suggest that many are not facing up to the tough personal choices involved. There is sadly a long history of great family businesses which have failed as a result of sleepwalking into a succession process," he added.

However, British companies were at more open than their international peers to bringing in senior management from outside.

A third of those with succession plans expected successors for key senior roles to come from outside the family, as opposed to 17 per cent globally, the poll found.

A shortage of skilled staff Ė both at senior levels and throughout the organisation Ė was of widespread concern.

Just under two thirds of the 102 UK companies surveyed said it was one of the biggest challenges they faced, said PwC.

To compete effectively for the best talent, family businesses need to be more imaginative in long-term reward, the firm advised.

Few, for instance, went beyond conventional annual bonus schemes to reward senior management.

Three quarters of UK companies were still using this method, as opposed to two thirds globally.