70% Of Global Family Businesses Do Not Have A Formal Succession Plan

WELLESLEY, Mass., Nov. 5, 2019 /PRNewswire/ -- More than half of global family CEOs do not have a formal retirement plan and 70% of global family businesses do not have a formal succession plan, according to the 2019 STEP Global Family Business Survey, The impact of changing demographics on family business succession planning and governance. However, the report finds that Millennial CEOs are ready to take over.

"Demographics have changed significantly over the past century and unfortunately, our knowledge and understanding of business families has not adapted to those changes," said Babson Entrepreneurship Professor Matt Allen. "In particular, longer life expectancy combined with changing expectations regarding work and leisure are putting significant strain on business families as they adapt to situations that prior generations never dreamed of. Take for example a family where next-generation leaders are waiting (in their 60s!) for the current generation to step down so that they can move into primary leadership positions. This is just one of the issues that this ambitious data collection effort addresses. No research to date has studied these issues as this level of detail with this kind of global coverage. The potential to increase our understanding of business families in the 21st century is unprecedented."

Babson College is the convener and one of the founding members of STEP.

Key Findings and Recommendations

Generational outlook

• Millennial family business leaders (39%) have the highest level of education
• Belonging to a more recent demographic cohort is related to lower CEO tenure
• Millennial family CEOs plan to retire before their 50th birthday
• Family firms led by CEOs from Generation X and Millennials perform better

Recommendation: Millennial CEOs are ready to take over!

Millennial family business leaders are highly educated, with higher care for work/life balance, planning to retire before their 50th birthday and leading their firms more successfully. Current family business leaders who are thinking about changing at the top should not forget this.

"The shift from the 'boomer' generation to the 'millennials' is happening," said William B. Gartner, Bertarelli Foundation Distinguished Professor of Family Entrepreneurship at Babson College. "This report shows that some families are prepared for this change while many are not."

Retirement plan

• Global family CEOs plan to retire between the age of 61-70
• More than half of global family CEOs do not have a formal retirement plan
• More than one-third of global family CEOs after retirement don't plan to spend time in business activities

Recommendation: CEO Retirement plan wanted

There is a need for family businesses globally to implement CEO retirement plans. Family CEOs are still retiring too late. Despite this, after their retirement, they don't plan to be further involved in the business.

Succession planning

• 70% of global family businesses do not have a formal succession plan
• Successors' self-commitment and competence are the criteria for selecting the next CEO
• 47% of global family businesses have a succession plan in case of unexpected events
• 45% of global family business leaders state that ownership will stay in family hands
• Generation X and Millennial CEOs do not see that the next CEO should be from the family

Recommendation: Planning more is better

Selecting the next CEO based on criteria such as successor's commitment and successor's competence and having a plan in case of unexpected events is only a necessary but not sufficient condition to secure the long-term sustainability of family businesses. It is necessary that family businesses globally take into account that the next leaders will be Millennials and implement formal succession plans resulting from a process taking into account business, family needs, and the Millennials' perspective.

Family governance and corporate governance

• To increase the sense of family members' identification with the firm, it is important to use more than one family governance tool
• Family businesses that adopt more than one family governance tool compared to the ones that adopt only one show higher levels of entrepreneurial orientation and firm performance
• Family businesses that adopt three or four corporate governance tools in comparison to the ones that adopt only one tool show higher levels of entrepreneurial orientation and performance

Recommendation: Family governance does matter

Family businesses wanting to strengthen family members' identification with the firm need to implement more than one family governance tool. Moreover, adopting more than one family governance tool leads to higher degrees of entrepreneurial orientation and firm performance.

Effect of gender and societal change

• Female family business leaders plan to retire at a younger age than their male counterpart
• Decisions and succession take place earlier if the next senior family business leader is female
• Family businesses with female CEOs have less autocratic leadership than male CEOs

Recommendation: More female CEOs are needed and beneficial

Letting more female CEOs take the stage in family businesses is needed globally and will benefit family businesses since they will have less autocratic leadership styles than male CEOs, plan to retire earlier, increase the likelihood of having more female CEOs in the future, and better anticipate the time of succession.

Entrepreneurial orientation, performance and main concerns

• Availability of talent is the main concern of family business leaders globally
• Family businesses that are led by leaders belonging to Generation X and Millennials have higher level of firm performance than family businesses led by older demographic cohorts

Recommendation: Millennial CEOs perform better but more talent is needed

It is time to 'pass the baton' to Millennial CEOs to boost family business performance. Moreover, to sustain competitiveness it is also important to continuously look for talent, and family businesses globally should reflect on how to increase and strengthen their employer branding.

"With over 1,800+ family business leaders from all over the world sharing their views on increasing demographic and societal changes, the STEP 2019 Global Family Business Survey shows that family businesses in different parts of the world are exposed to new challenges that make traditional methods of succession and governance no longer appropriate. The main findings suggest that looking at the demographic cohorts of global family business leaders helps shed light on differences in generational outlook and on how family businesses are dealing with the challenges associated with succession and governance in the modern era. Overseeing, understanding and managing such challenges is critical to the sustainability of the global family business model", said STEP Global Academic Director, Andrea Calabrò.

"We've been studying entrepreneurship and succession trends across European family businesses for over the last eight years. Our research shows that family businesses are experts in long term survival -- and they know this depends on their ability to innovate and adapt to a rapidly changing business environment. When it comes to succession, we've also found that leaders appear to be staying involved in the business well into their 70s. While they may not always play the role as the direct decision maker - they may take on an ambassador role, contributing their skills to maintaining important relationships and protecting the value of the business. We are extremely pleased to be partnering with the STEP Project to help advance global research that takes a deep dive on the trends that are impacting succession and governance practices for business families around the world and contributing to insights on what a model for the future might look like. This is an area that we, at KPMG Enterprise are extremely passionate about", said Jonathan Lavender, Global Chairman, KPMG Enterprise and Global Co-leader, KPMG Enterprise, Family Business, KPMG International.

The 2019 STEP Global Family Business Survey Report is co-authored by Andrea Calabrò, (STEP Global Academic Director and IPAG Family Business Institute, IPAG Business School) and Alfredo Valentino (STEP Global Research Champion and ESCE International Business School).

About the Report

With people living longer, increasing demographics and societal changes, family businesses in different parts of the world are exposed to new challenges which make their traditional methods of succession and governance no longer appropriate.

This report based on the STEP (Successful Transgenerational Entrepreneurship Practices) 2019 Global Family Business Survey addresses the above mentioned challenge by answering the following questions: How do changed demographics impact family business succession and governance? Do CEOs belonging to younger demographic cohorts such as Millennials have different managerial and leadership style? How are family business leaders planning their personal retirement plans and the company succession plan? Which are the differences across cultures?

With over 1,800+ family business leaders from all around the world sharing their views on changing demographics and how they impact the family business governance, succession, entrepreneurial orientation, and performance, this report aims at fostering debate and reflections on family businesses in different parts of the world.

Family business leaders have responded in 18 languages, from 33 countries and across five world regions (Europe & Central Asia, North America, Latin America & Caribbean, Asia & Pacific, and Middle East & Africa).

Forty-eight affiliated universities from different parts of the world contributed to this study. Their dedication and collective effort has made this project report a reality thanks to their passion for family business.

The STEP Project is sponsored by the KPMG Enterprise Center of Excellence for Family Business

About Successful Transgenerational Entrepreneurship Practices (STEP) Project

Founded in 2005 by Babson College in collaboration with six academic affiliates in Europe, the STEP Project is a global applied research initiative that explores the entrepreneurial process within business families and generates solutions that have immediate application for family leaders.

Families are the dominant form of business organization worldwide--they play a leading role in the social and economic wealth creation of communities and countries. To achieve continued growth and continuity, they must pass on the entrepreneurial mindsets and capabilities that enable them to create new streams of wealth across many generations--not just pass a business from one generation to the next. We refer to this practice as transgenerational entrepreneurship.

Leading academics and business families from around the world have joined as partners of the STEP Project to explore Successful Transgenerational Entrepreneurship Practices and create a stream of powerful practices and research that empower families to build their entrepreneurial legacies.

About Babson College

Babson College is the educator, convener, and thought leader of Entrepreneurship of All Kinds^(r). The top-ranked college for entrepreneurship education, Babson is a dynamic living and learning laboratory where students, faculty, and staff work together to address the real-world problems of business and society. We prepare the entrepreneurial leaders our world needs most: those with strong functional knowledge and the skills and vision to navigate change, accommodate ambiguity, surmount complexity, and motivate teams in a common purpose to make a difference in the world, and have an impact on organizations of all sizes and types. As we have for nearly a half-century, Babson continues to advance Entrepreneurial Thought and Action^(r) as the most positive force on the planet for generating sustainable economic and social value.

About the KPMG Enterprise Center of Excellence for Family Business

As with your family, your business doesn't stand still--it evolves. Family businesses are unique. KPMG Enterprise Family Business advisers understand the dynamics of a successful family business and work with you to provide tailored advice and experienced guidance to help you succeed. To support the unique needs of family businesses, KPMG Enterprise coordinates with a global network of member firms dedicated to offering relevant information and advice to family?owned companies. Visit: www.kpmg.com/familybusiness

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SOURCE Babson College

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