KPMG director of enterprise Michelle De Lucia said that while “family businesses are the optimal business model”, an all-too-common constraint is the lack of formal planning around business and leadership succession to the next generation, which can have adverse impacts on the business and its stakeholders.
“Our experience is that family businesses are the optimal business model, because they are in control of their own destiny, they are nimble, they are flexible, they take a long-term view,” Ms De Lucia told My Business.
But according to a research report from May this year that KPMG conducted in conjunction with Family Business Australia and the University of Adelaide – Family Business: The balance for success – around one in four family businesses will not transition to the next generation.
A major reason for this, Ms De Lucia said, comes down to the lack of an agreed plan.
“It might be that the family is not aligned, and they can’t agree how to take it forward; they’ve left their planning and willingness to get around the table too late… inevitably that will mean they don’t want to move the business forward,” she said.
“A well-thought out plan should start at least five plus years out.”
Hard discussion to have
According to the Family Business report, just 14 per cent of businesses that want to transition the leadership within five years have a proper strategy for doing so. Slightly more (27 per cent) have a formal retirement plan for the managing director/CEO.
Ms De Lucia admitted it can be a very difficult discussion to have, particularly where there are multiple children or family members as potential successors.
“It’s really hard. Generally, most families want to pass to one of their children, but you have to work out which of your children will take leadership of the business, and that’s a really hard thing for people to have to deal with and manage,” she said.
“And for that reason, they put it off. They get busy working in the business, not so good at spending time to work on the business; overlay that with they have to work out whether Johnny or Mary is going to take over from me, and that’s a really hard conversation and a hard job to turn their mind to.”
Difficult as it may be, though, Ms De Lucia said it was crucial that these discussions are held for the business, and the family, to continue to enjoy prosperity.
The worst case scenario of not formalising succession plans, she said, is that the incumbent business leader dies, leaving the surviving family members coping not just with the death of a family member, but the very sudden lurch into running the business.
“It means the business and the family is distracted for a number of years.”
“[The successor needs] the alignment and support of the family to take over… back them up with a plan and support and a really solid management team.”