Family business risk on the rise

Family business risk on the rise

The risks of family businesses getting it wrong are growing each each passing of the baton, with more than two thirds of incumbent generation owners finding it difficult to relinquish control, new PwC research shows.

Bridging the Gap: Handing over the family business to the next generation is based on PwC conversatinos with more than 200 family business members in New Zealand and abroad.

Partner and private business market leader Robbie Gimblett says the transition to the next generation in a family business can be likened to a tug of war. “The next generation can be ambitious and full of ideas for change and growth, yet many expect to remain in a state of limbo and frustration.

"We came across businesses where the next generation are in their sixties and their father is still running the show in his eighties."

The older generation also tended to overestimate their success in running the business, the research found.

“Many New Zealand family firms face big challenges to their business models given the pace of change regarding global forces like technological advances, demographic changes and economic power shifts. With the pace of change accelerating, it may be time to give the next generation more credit and control,” says Gimblett.

The younger generation in the business also had its challenges, with the survey showing establishing credibility with colleagues and customers were among the biggest.

The survey found one of the biggest challenges for the next generation is establishing credibility with colleagues, employees and customers, noted as a concern by 59 per cent.

“The significant majority [said] they have to work harder than others to gain respect and prove they’re more than the boss’s son or daughter," Gimblett says. "And even with that hard work, promotion to CEO is also no longer automatic for the next generation, with only 35 per cent confident they would one day have this role."

PwC canvassed 207 next generation family business members likely to take over the family business in 21 countries – including 11 from New Zealand – with a focus on those with a sales turnover of more than US$5 million.

The survey also found:

• Only 12 percent of family firms make it to a third generation, and only 1% beyond the fifth

• The next generation is ambitious, with 86% wanting to do something significant and special

• Eighty percent have big ideas for change and growth

• Eighty eight percent say they have to work harder than others to ‘prove themselves’

• Fifty nine percent say gaining the respect of their co-workers is their biggest challenge

• Only seven percent went into the family firm straight from work, with 31% going to university first and 46% working for another company before joining the family business.

• Eighty seven percent think their parents have confidence in them and 91% would value their continued input. But as many as 64% think the current generation will find it tough to let go.