70% Of Global Family Businesses Do Not Have A Formal Succession Plan
Tuesday, November 12th, 2019
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
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."
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.
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).