Etude PwC sur les entreprises familiales (2012)

www.pwc.com/fambizsurvey

Family firm:
A resilient model
for the 21st century

PwC Family Business
Survey 2012

October 2012

Contents

Introduction 4
Taking the long view: The unique qualities of the family business 5
The family firm in 2012: So what has our survey told us? 7
Looking ahead: Emerging issues for 2017 8
Scale, skills and succession: Special challenges for the family firm 10
A unique social contract: Are governments supporting family firms? 18
Conclusion 22
Key Contacts 23

Family business survey 3

Introduction
The results of this year’s PwC Family In this short report, we’ll go through
PwC1 has worked extensively with Business Survey prove that there is a the results of this year’s survey, and take
family firms across the world for great deal the wider corporate sector the temperature of the family business
many years, so we appreciate how could learn from the family firm, just sector across the world. It will come as
distinctive these businesses are, as there is far more that governments no surprise that family firms are feeling
could do to support them. But it’s not the strain of the current economic
compared with today’s publicly-
all one-way. We believe there’s much environment, or that government
listed corporates. Decision-making
more the family business sector itself regulation and bureaucracy are barriers
is very different when it’s your own could do to take greater control of its to growth; but there are distinctive
money that’s at stake, and as a own destiny, not least by working challenges for this sector which are the
result family firms tend to have a together to press governments for a direct result of the unique strengths
long-term commitment to jobs and more constructive tax policy. – and potential weaknesses – of its
local communities, which gives a particular business model.
significant but often under-rated This sort of collaboration is
stability to national economies. In already happening in some markets, The results of PwC’s 2012 Family
the face of the current uncertain but family business networks rarely Business Survey show that family firms
economic environment, wield as much influence as the are robust, vigorous and successful –
governments around the world have conventional trade bodies and they’re ambitious, entrepreneurial, and
business networks. Ironically, delivering solid profits, even in the
been looking for ways to encourage
the family firm’s internal culture continued uncertain economic
– in broad terms – exactly the same
and ethos can be an obstacle in environment. These businesses are
‘patient’ and responsible approach this respect, because it can prevent making a substantial but under-valued
to business that the family firm has them from seeing the influence they contribution to stability and growth, and
been practising for centuries. could have if they acted collectively. we believe governments could do more
Indeed, a longer-term community- to offer the sort of targeted support that
focused approach to business can would make a significant difference. We
lead to an unwillingness to take also believe that family firms can do
risks for what might be perceived more to help themselves, firstly by
to be a short-term gain, or a failure adopting some of the professional
to seize immediate opportunities processes and practices of their publicly-
quickly enough, and these are areas listed corporate competitors, but also by
where the family firm can learn being more proactive in finding and
from other corporates. securing the assistance they need.

Norbert Winkeljohann Eric Andrew
Member of PwC’s Network Global Network Middle Market Leader
Leadership Team Canada
Germany

1 wC refers to the PwC network and/or one or more of its member firms, each of which is a separate
P
legal entity.
4 Family firm

An entrepreneurial mind-set

Taking the long view: 63% of our respondents think
that family businesses are more
entrepreneurial than other sectors of

The unique qualities of the economy, and the larger the family
business the stronger that conviction
is. Likewise 47% believe that family

the family business businesses have the ability to reinvent
themselves with each new generation.

A greater commitment to jobs
and the community
77% of those surveyed believe family
We can summarise these
firms feel a stronger sense of
This year’s PwC Family Business characteristics as:
responsibility to create jobs, and will
Survey covered almost 2,000 Longer-term thinking and make more strenuous efforts than
firms across the world, from both a broader perspective other companies to keep their staff,
developed and emerging markets, The family firm is in many ways the even during tough times. This
representing sectors as diverse as epitome of ‘patient capital’ – these translates into greater loyalty and
manufacturing, retail, automotive, businesses are willing to invest for the commitment from those they employ.
and construction. The respondents long term, and do not suffer from the 70% agree that community initiatives
could not have been more varied in constraints imposed on their listed are important to the family firm.
their size, location, and industry, competitors by the quarterly reporting
and yet there was a marked similarity cycle and the need for quick returns. A more personal approach to
72% of respondents believe that family business based on trust
in their approach to business,
businesses contribute to economic 78% of respondents consider that the
and in what they considered to
stability, and this belief is stronger in family firm is notable for the strength
be the distinctive characteristics longer-established businesses of three
of businesses like theirs. of culture and values, and this belief
generations or more, and in mature grows stronger with time, rising to 85%
markets like Europe and North America. for third generation firms. Many
53% consider that businesses in this believe that they win business because
sector are notable for taking a longer they are closer to their customers, and
term approach to decision-making. have a more personal relationship with
them – indeed that they are chosen
Quicker and more flexible precisely because they are not
decision-making multinationals.
Family businesses often believe
that they are more agile and flexible Family firms consider these
than their multinational competitors, distinctive qualities to be a source
which means they’re better able to of real competitive advantage and
exploit gaps in the market. Some integral to their business model.
businesses cited the current downturn This sentiment is just as strong among
as a business opportunity – they’ve those who have been brought in from
been able to move quickly to acquire outside to manage the firms as it is
businesses or competitors at among family members, as the Wates
historically low valuations. case study overleaf illustrates. But it
is also clear that other aspects of this
business model can be a hindrance
“In a family owned business you tend to think on a long term basis, not a to growth, whether by generating
short term basis. You tend to think about your business over generations internal conflict or rendering the
and not just only based on profits” (Austria) business too risk-averse. We will look
at some of these issues in more detail
“Each family business is different, but the ambition and dedication of the in due course, after a brief resumé of
family to grow the business is always there” (India) the current state of sentiment in the
family business sector.
“When you are a privately held company you have the ability to change
the direction rapidly and do not have a board of directors that dictates
what you have to do” (USA)

“Family businesses will have the chance to fill niches that the corporate
companies cannot cover because they are not as flexible as self-owned
companies who can realise new ideas” (Switzerland)

“We have a more autonomous decision-making capacity. And especially
more flexible management” (France)

Building on strong
foundations: Wates

Paul Drechsler James Wates Piers Wates
Name: Paul Drechsler, Chairman and CEO,
Wates
legacy to the local community, so we’re Name: James Wates, Deputy Chairman,
Paul Drechsler is the first Executive always involved in community projects, Wates
Chairman from outside the family to run the sometimes one-off, but very often
Wates business after four generations in James Wates has been deputy chairman of
we’re involved in creating employment the family firm for six years, and has never
family control. The Wates family is still opportunities for the long-term unemployed.
passionately involved in the day-to-day worked anywhere else. His son Piers will be
We’ve had nearly 600 candidates through the fifth generation to become involved in its
running of the business, with a fifth our Building Futures programme over the
generation keen to become involved. growth and expansion, but he plans to gain
past five years. The Wates family have experience outside the business, as well as a
Sector: Construction had a long tradition of charitable giving broad range of skills within it, to prepare him
and a few years ago they set up a family for the challenge of leadership in the future
Market: UK trust to give to causes that resonate with
the company’s strategy and priorities,
Founded: 1897 How has the business changed since
such as helping the long-term unemployed
you brought in an external CEO?
Turnover: £1bn or disadvantaged children.
When we made the decision to appoint a
And how many family members are non-family chief executive it was a brave
What are the main differences that move, but absolutely the right one, because
you’ve seen of working in a family business involved in the business now?
the dynamic definitely changed. Previously
versus working within a public company? There are five active shareholders, and people were empowered to make decisions,
First is that in a family business the three of the previous generation who are but they would often look to the family to
shareholders are unambiguous about the less active, but are still deeply interested, take the lead. Whereas now, people get on
fact that they want to be invested in the because I think that in a family business and make their own decisions, and take
enterprise. Secondly, they want to be your interest grows the older you get. ownership of the consequences. It’s
invested for the long term, and the great There are a lot of other family members – definitely a crisper, more agile business
family businesses see themselves as brothers, sisters, uncles, aunts, nephews, today than it was then.
being good stewards of the enterprise for nieces – but the family have focused
the next generation. So they take a very on maintaining a narrow shareholding
How did the decision come to be made?
long term perspective, and find the right base through the course of their history,
and each generation has reduced the The previous generation of owners
balance between long-term and short-term
number of shareholders to keep it highly was structured as five equal partners,
performance. In addition to all of that,
concentrated, which is a source of strength. and while there was no constitution per se,
they can offer customers a commitment
they had evolved a way of working during
and a continuity that public companies
What are the challenges of being a their term of stewardship. But when we
can’t offer because they are at the beck
non-family CEO? came to transition from one generation
and call of their shareholders, who can
to the next, it was clear that there would
change their minds on ownership tomorrow For a family business to appoint a non-family no longer be five equal partners, so we
morning. Our true USP is the fact we are chief executive is an extraordinarily big needed some guidelines and parameters
totally committed to the industry where decision. It shouldn’t be taken lightly, and within which we would work. That’s still
we operate, and to our relationships with while it will work for some families, it won’t evolving and being fine-tuned, now that we
customers and communities and the for others. I would strongly advocate that have non-family executives running things
people who work for us. family businesses have external non- on a day-to-day basis. I think it hasn’t been
executive or advisory directors, but that‘s really stress-tested yet, mainly because
Could you talk about the company’s still a huge decision for a family business to the business has been going very well.
values – their attitudes to the local take. Each family has to find the leadership The challenge will come when things
community, and to employees? and governance model that will work for don’t go quite so well, but I am confident
In Wates above all it’s about people. them in their context, for their stage in that the structure we’ve got in place now
It’s about creating a culture and work development, and for their stage of evolution will help us to manage that.
environment where people will be highly as a family. I think it’s a great privilege
engaged, and highly motivated to deliver for a non-family member to lead a family
our promise for customers. More than that, business, but it’s also a huge responsibility,
wherever we build and operate we want to which can be just as demanding as leading
leave a positive contribution and a positive a public company.

“Family-run businesses tend to have more loyalty toward their staff – people are
not just a number” (Malta)

“The things that are really powerful about family businesses are the values,
which are genuine corporate responsibility” (UK)

“A lot of our customers like doing business with us because we have good values.
We can adapt more readily to customers’ needs because we are flexible” (USA)

“Our commitment is that we’re going to be here for 20-30 years plus. So we will
be there for our customers. I can’t say that about many of our competitors” (UK)

6 Family firm

The family firm in 2012
So what has our survey told us?
Here are some of our key findings:
Family businesses are
thriving globally
65% of family businesses have grown
sales in the past year, compared with
less than half in 2010, and there was
particularly strong growth in Eastern
Europe, Latin America, and Middle
East. Only 19% of our respondents saw
a reduction in their sales in the last
year, as against 34% in 2010.

Family businesses are
ambitious and confident
about their prospects
Over 80% of the businesses we spoke
to anticipate steady or aggressive
growth in the next five years,
and 39% of those who aim to grow are
very confident about their company’s
prospects over that period. This
increases substantially for companies
in India, the Middle East, Singapore,
South Africa, and South Korea. Given
the low levels of confidence in other
sectors of the economy, we believe this Internally, the main issue is
is powerful proof of the significant role the recruitment and retention “We need to make sure the business
family businesses can play in creating of skilled staff model can cope with change in the
jobs and stimulating recovery. market” (Australia)
The recruitment of skilled staff and
shortages of labour have become more
The economic environment acute challenges than they were in
remains the key external 2010, increasing from 38% to 43%.
challenge By contrast, the need for company
Just like every other business, the reorganisations or restructuring is
family firm is facing major challenges no longer so pressing, though larger
in the current downturn, and in this companies with a turnover of more
respect there is little change from the than $100m were more likely to cite
last survey we ran in 2010. The three this as an issue. Cashflow and cost
issues identified by most respondents control has also reduced significantly
were market conditions (54%), as an issue from 30% in 2010 to 17%
competition (27%), and government in 2012, which suggests to us that
policy and regulation (27%). The latter many businesses have now taken the
category, however, showed a very wide action needed to streamline internal
variation on a market-by-market basis, processes, improve inventory control,
ranging from 64% in Greece and 46% and reduce debtors. A number of
in the Middle East, to as low as 6% for businesses also cited the importance
Austria and 3% for Sweden. of establishing or improving their
internal and IT systems, especially
in relation to regulatory compliance.

Looking ahead: Globalisation will be crucial
to success – or failure
The issue that emerges more strongly

Emerging issues for 2017 for 2017 and beyond is that of
globalisation. There is clear
apprehension about the impact of an
ever more international approach to
business, and the growing power of
global megabrands, though many
businesses remain confident that local
knowledge, agility, and the ability to
exploit profitable niches will keep the
The economy remains a family business buoyant:
Even though most family firms are cause for concern
confident about the prospects for 59% of our respondents cited price Innovation will be vital to
their business, there is still some pressures as a likely future issue, secure competitive advantage
uncertainty about what the future and this was particularly prevalent Turning to the internal management of
holds. in the construction and automotive the business, the key emerging issues
industries. 40% pointed to increased were innovation, skills, and succession
competition within the market, often planning. 62% of respondents cited the
driven by the entry of new players, need to continue to innovate, and 37%
and 66% cited the general economic anticipated the need to invest in new
situation – those companies technology. Companies in Italy, Turkey,
anticipating a business contraction and South Korea were particularly
tended to cite this as the cause. 39% concerned about innovation, and firms
believed regulation would continue planning to grow aggressively were
to be an issue, and 27% anticipated also more likely to focus on this.
growing challenges relating to their
supply chains.
The war for talent is still
waging – certainly for family
businesses
That the economic crisis we are experiencing will restrict liquidity in all
Attracting appropriately skilled staff
enterprises, including family ones.” (Mexico)
(58%) and then retaining them (46%)
“If globalisation and mergers keep taking place in every business, then were also high-profile concerns for the
that is a big challenge for family businesses” (Malta) future, and again, especially for those
planning high levels of growth. Many
“We need more international thinking – it’s a challenge not to limit the respondents said that it is particularly
company to the local market” (Belgium) difficult for family businesses to attract
talented employees with the right
“International competition is now much more structured, much more
qualifications, because the brightest
professional, but on the other hand, this leaves large market niches that
candidates tend to prefer working for
large companies are not attacking, precisely because of the agility of
listed multinationals, where the career
family businesses” (Mexico)
path is clearer, and there is the
“It is the era of the multinational” (Romania) possibility of equity at some stage.

“Our short product life cycle means that we need to constantly produce The transition between
new ideas and new products to stay in the market” (South Korea) generations can build the
“Potential employees think that within a family business they will not family firm – or break it
have a future. In order to attract and retain talent we must create an 32% of our respondents were already
enabling environment for the future” (Singapore) apprehensive about the transfer of
the business to the next generation,
“Some families may be ready to withstand the storms of the economic and 9% saw the possibility of family
crisis but more likely to collapse at the first dispute among family conflict as a result. Some family
members” (Middle East) businesses are planning to manage the
transition process – and reinforce the
business for the future – by bringing in
8 Family firm

Equipped to succeed: President and CEO role over 10 years
ago. Similarly, Leon is preparing for an
LL Bean eventual transition of family leadership.
He has established a 3-member family
Name: Chris McCormick, CEO Governance Committee made up of
Chris McCormick is the first non-family fourth-generation family members.
member to run the LL Bean business. The mentoring and development process
The company sells its distinctive outdoor is underway as family members remain
apparel and equipment to 160 countries active in board and committee matters,
across the world, and has retail outlets in and now the fifth-generation of family
the US, Japan, and China. are becoming involved with orientation
Sector: Clothing sessions around the business and
learning opportunities about their future
Market: US responsibilities. At the executive level,
Founded: 1912 we have a very structured leader
development process with each of our
Turnover: $1.6 billion current senior leaders being reviewed
and evaluated on their contributions to
Has being a family business helped preparing leaders to assume these senior
you through this economic climate or roles. This process has been moved
affected it differently from public down through the organization with
companies? leaders at all levels expected to
contribute to succession planning.
It has definitely helped – we don’t play
to the Street, or to the quarterly results
cycle. In fact, in 2010 we went to the Do you believe your family-run
Board and recommended that L.L.Bean business gives you an advantage
have an ‘investment year’ and allow over your competition?
profits to fall – we needed to make a big I think we do have an edge. We stick
investment in marketing and attracting to our core beliefs – customer service,
younger customers, and they agreed. quality, outdoor recreation and our family
ownership. We work as a team with
external management. Taken overall, Family members understand we want shared values. The people part of our
to be around for another 100 years and business is very important to us –
64% of family businesses have whether employees, customers or
investments in growth are critical to
non-family members on the board, the long-term financial health of the communities – and the ownership
a figure which increases to 75% for business. As a private company, we can structure encourages this focus.
Additionally, these shared values have
firms with turnover of more than maintain the balance between retained
earnings – for an adequate level of allowed the business to maintain a
$100m. However, this overall figure consistent point of view, a consistent
investment in the business – and the
masks considerable differences across earnings requirements of our family experience, a consistent message.
the world – for example, the numbers shareholders. That collaborative This is what differentiates our brand in
approach with shareholders to business the marketplace and keeps us relevant.
with non-family directors are very high
strategy is tough to accomplish in a We believe that to sustain our success
in Denmark (92%) and India (96%), over time, we have to add value to the
public company.
and also high in Asia Pacific as a interests of all our stakeholders –
whole (74%), partly because a very employees, the outdoor recreation
How does succession work at LL Bean?
community, our local communities,
high proportion of family businesses Leon Gorman chairs our family Board of vendors and of course, our customers.
in this region are listed, and are Directors following his 40-year leadership If we do these basics well, profitability
therefore required to have independent of the company as President and CEO. will follow, as it has now for over
He oversaw the seamless transition of the 100 years.
Board members. By contrast, the
numbers are as low as 49% for the
UK and North America.


Scale, skills, and succession:
Special challenges for the family firm
Long-term growth and profitability
As the survey results make clear, family firms are a vigorous group of depend on the successful negotiation
extremely ambitious entrepreneurs, many of whom are running high- of these tipping points, which is why
growth successful companies. However there are particular hurdles to we’ve issued a quick-reference guide
overcome, if the family business sector is to fulfil its full potential, and for family businesses in parallel with
this report, entitled Scale, skills, and
achieve its ambitious growth plans. Some of these are specific to their
succession: Tackling the tipping points
particular business model – such as succession planning – but others are
for family firms.
more general commercial challenges, which give rise to particular
difficulties for a family business. As the LL Bean case study illustrates,
Tipping point 1: Scale
these present themselves in the form of ‘tipping points’: moments in a
The first of the tipping points is scale:
firm’s evolution where key decisions have to be made, and the future
the moment when a business achieves
direction of the business is determined.
a certain size but can only progress
further by making a significant step
change. This may take the form of
a new opportunity in its domestic
market, prompted by the actions of
a competitor or the introduction of
a new product or innovation, but by
far the most common tipping point
relating to scale arises when the business
begins to export for the first time.

“We have an amazing culture in There are some big differences by country in terms of how much family
the business. And I think part of the business currently export
reason why that culture is so good International sales as a % of total sales (by market)
is because of that family feel. So it’s
Singapore 60% 9%
the trick now of keeping that feel
Hong Kong 58% 0%
and that culture but also evolving Taiwan 49% 7%
beyond the family business, because Austria 48% 4%
to me as a family business it was Italy 43% 9%
quite reactive and I think now we Belgium 43% 5%
Denmark 41% 7%
need to be a little bit more strategic”
Turkey 33% 6%
(Australia) Switzerland 32% 2%
Germany 31% 5%
“[The greatest challenge is] South Korea 28% 8%
consolidation through globalisation. Finland 28% 6%
Greece 27% 12%
Customers are getting bigger, which
India 27% 7%
will put greater pressure on size Sweden 27% 3%
of the family businesses as against Ireland 20% 6%
large multinational or publicly Malta 18% 9%
owned corporates. In other France 17% 2%
Romania 15% 12% Current exports
words, scale” (Australia)
Middle East 15% 4% Increase in 5 years
South Africa 14% 7%
Mexico 13% 6% Western Europe: 29% + 6%
UK 11% 4% Eastern Europe: 12% + 10%
Russia 11% 8% North America: 8% + 2%
Brazil 9% 6% Latin America: 10% + 6%
Canada 9% 2% Middle East/Africa: 14% + 6%
Asia Pacific: 36% + 6%
USA 7% 3%
BRIC: 23% + 6%
Australia 5% 5%

Source: PwC Family Business Survey 2012

10 Family firm

The challenge of Finding the finance This problem becomes even more
internationalisation Almost every business faces a version complex with each succeeding
While a quarter of our respondents of this particular tipping point at some generation since many long-established
plan to remain steadfastly domestic, stage in their growth, but for family family firms have large numbers of
anticipating no exports now or in the businesses the decision is often more family shareholders, many of whom will
future, a significant number of the complex. These businesses can feel be reliant on their dividends and very
businesses in our survey are looking disproportionately nervous about risk-averse, which means there are
to achieve their growth plans by taking such a step, and a firm run only unlikely to be many family members
starting to export overseas: the by family members will generally lack who are willing or able to invest new
current average proportion of foreign any experience of doing so. They may funds of their own. At the same time,
sales is 25%, but respondents also be reluctant to contemplate a the mainstream capital markets are not
predicted this to rise to 30% within significant re-structuring of their open to family businesses that are
five years, and this rises operations, partly because they could wholly privately-owned, which means
to 35% for those hoping for radical fear this could lead to a dilution of that often the only practical option is
growth. The variation by market is, their distinctive culture and values. bank debt, though in the current market
however, extremely wide, ranging this is both restricted and expensive.
from 60% for a small externally- Even more crucially, family businesses Mortgaging either physical assets or the
focused market like Singapore, to 7% often face difficulties accessing receivables book can help reduce the
for the USA and 5% for Australia significant levels of new capital to costs, but many family firms see this as
fund expansion. ‘selling the silver’, and are wary of the
Cutting the figures another way, message it sends to their customers.
67% of respondents had some level of Most family businesses have an
international sales in 2012, but 74% instinctive aversion to leveraging The difficulty in accessing finance
expect to be in this position by 2017. their balance sheet, and manage may be one reason why there is a
The countries most likely to see an their borrowings very tightly. marked tendency for family firms to
increase in exports are Romania Under these circumstances raising focus their export efforts only on
(77%), Greece (70%), Turkey (64%), substantial growth capital will neighbouring countries, or those with
and Italy (67%). always be a problem, and the firm’s historical ties to their home market,
options necessarily limited. A more such as India with the UK. Likewise,
When they were questioned about the conventional start-up will aim to family firms can struggle not only to
challenges of becoming an international grow fast in anticipation of a quick fund but to staff their overseas
business, our respondents cited sale, and will finance that growth operations, since family members may
understanding the business culture from high levels of debt or by offering be reluctant to relocate, but equally
overseas (20%), competition (19%), substantial equity stakes to venture reluctant to hire someone sufficiently
local regulations (19%), exchange rate capital investors or business partners. senior and experienced to do the job
fluctuations (16%), and local economic In theory, a family business could do for them. This can become a
conditions (16%) as the main ones. A the same, but family businesses will stumbling block to long-term growth.
number also referred to the difficulties usually be growing more slowly, with
of managing a far more complex low debt, and very few of them are
international supply chain. prepared to offer the equity stake
external partners would require.

“Operating in many places is hard work. We operate in 50 countries and they all
differ from each other. We have to learn local cultures and habits and financial
legislation and taxation vary from country to country” (Finland)

“Family businesses tend to finance their growth from their profits, so you need to
be more careful. Family businesses have to compete with global companies or
public companies where resources tend to be much bigger” (Middle East)

“Limitations in their skills base [is an issue]. They may be lacking some skills
amongst the family members. This could be particularly evident in the next 5
years when Dad moves on” (Ireland)


Exporting is clearly an area where Tipping point 2: Skills Mind the gap
family businesses can learn from other Some family businesses may be wary This lack of skills can lead to a lack of
multinationals, but they don’t always of exporting because they lack the confidence, and hence to a more general
have to bring in staff from those specific skills and experience they unwillingness to try new approaches,
companies to achieve this. Partnerships need to do this effectively, but their or experiment with new ideas.
and alliances are a powerful way reluctance may also spring from
of gaining insights from academic an understandable caution, or an According to our survey, the majority of
institutions or larger corporates, and inadequate understanding of the real family businesses recognise that skills
this can range from formal business nature of the risks that international shortages can be a problem, and address
agreements or agency arrangements expansion would entail. It’s clear it by bringing in external managers to
in new overseas markets to informal from our survey that the identification, either supplement or replace family
networking, to the sort of creative assessment, and management of members in key positions.
collaboration which is facilitated in risk – in its broadest sense – is one of
the UK by the National Endowment the wider skills that many family firms Hiring professional managers can solve
for Science, Technology and the Arts need to develop. Others cited by our many of the commercial issues a family
(NESTA). Through programmes like respondents range from specific areas business may face, and supplement any
Corporate Connections and the PG like innovation, Intellectual Property, lack of home-grown skills, but it can
Corporate Open Innovation Challenge, and IT, to the need for a more focused raise challenges of its own, which may
NESTA provides opportunities for and strategic approach in managing not always be immediately obvious.
small firms and entrepreneurs to the business. Anticipating and
work with – and learn from – large addressing regulatory requirements Our experience shows that there are
multinationals such as Procter and changes are a particular concern. many senior people in family firms
Gamble, BASF, GlaxoSmithKline whose actual role and responsibilities
and Virgin Atlantic. bear little relation to the title they
hold: we’ve come across COOs who are
in reality chairmen, and many CEOs
who hold that title by virtue of age and
Countries are polarised when it comes to whether they have the seniority. Some family businesses solve
right skilled people entering the job market. Attitudes on this issue the interpersonal issues that can arise
are more negative in Eastern Europe, the UK and South Africa. at succession by allocating specific job
Net agreement that young people entering the job market within your industry sector titles by way of ‘compensation’, but this
have the right skills and education*
can make it extremely difficult to
Taiwan 33%
Switzerland 28%
discern where the real skills gap lies,
Finland 22% which leads to a lack of clarity both
Hong Kong 22% within the management team, and
India 22% for the business as a whole. Without a
Ireland 17%
Greece 15%
comprehensive and objective assessment
Germany 13% of skills the decision to hire in from the
Singapore 12% outside can mean that the wrong
Denmark 8% person is recruited, which will make
Malta 5%
it all but impossible for that executive
Mexico 2%
USA 2% to do the job they were hired to do.
Australia 0%
Canada -5% Likewise it is a very different matter
Belgium -7%
to own a business than run it, and some
Sweden -10%
Turkey -10% first-generation entrepreneurs can find
NET agreement it particularly difficult to ‘let go’.
Austria -14%
Middle East -14%
Western Europe: -4%
South Korea -19%
Eastern Europe: -45%
France -26%
North America: -1%
Italy -30% Latin America: -20%
Brazil -31% Middle East/Africa: -42%
Romania -42% Asia Pacific: +8%
Russia -47% BRIC: -13%
UK -51%
South Africa -61%

*NET agreement = proportion of those agreeing and subtracting the proportion of those disagreeing

12 Family firm

Re-engineering the family Have you considered recruiting a
professional management team to run the
name: Wikov Wikov group?
I do not run the company day-to-day.
The company has a CEO and I no
longer wield the powers of an Executive
Director. I have not completely withdrawn
from an active role, but 90% of the
business happens without me. I get
involved of course when we are
negotiating important deals and the
Name: Martin Wichterle, Owner
customer wants to talk to me, and in key Does being a family firm with close ties
Martin Wichterle began his career by investments and finance, but the running to a particular local area give you an
studying geology, and founded his own of the company is in the hands of the extra sense of responsibility towards
business with a partner in 1990. The Wikov professional management team. that community and your employees?
family firm had started life as an
I do feel a sense of responsibility towards
agricultural machinery-maker in the 19th
Do you feel that a family firm has an two things: I don’t just feel it towards the
century and enjoyed international success
advantage compared with the multinationals, employees who work here, which is
before being nationalised in 1946, and
especially in terms of decision-making logical, but I also feel a sense of
later being acquired by another
and taking a longer-term view? responsibility about how the company
[conglomerate] which subsequently went
I would definitely agree with that. When you works with the local community. There is a
into liquidation. It was a stroke of luck that
deal with any family firm, it is relatively difference if you have a company in a big
Martin was then able to buy the
easy to reach a deal – the decision-making town, or somewhere where there are 500
trademark, and reorganise his own
is quicker and more flexible, and those people and the local community depends
growing group of engineering companies
firms are also far more likely to lay their on your factory. When I started work at
under the old family name.
cards on the table. That’s one advantage. firms which had previously been state-
Sector: Engineering Of course, it is relatively easy for an owned, I was absolutely flabbergasted by
owner to be flexible about changing how de-motivated the people were. All
Market: Czech Republic they were doing was going to work and
strategy, which means the firm can
Founded: 1880, then re-established respond immediately to a situation arising they weren’t able to feel any pride in what
in 2004 on the market. Logic dictates that any big they were doing. An important part of our
multinational will need longer to approve success for me is that we’ve managed to
Turnover: CZK 1,6 bn (EUR 64 milion) a change like that, and need a certain do something that the people who work
amount of courage to do so. The second for us are proud of – they get a sense of
thing you mentioned is the long-term view pride from their contacts with major
and that is definitely true as well. An owner customers all over the world, on every
who knows what he is about works less on continent. They share in our success.
the basis of market research and surveys, That counts as motivation for any owner.
and more from intuition, according to
what he sees in the business.

The same applies, of course, if the Conversely, managers of family firms
business is handed down to a successor, need to understand and appreciate the
but the potential for conflict can be very different environment they are
more pronounced with an experienced going into, and adapt their working
manager with strong ideas that may style accordingly. For example,
well differ from the owner’s. Family anecdotal evidence suggests that
businesses that bring in senior employees continue to consider that
executives to run their firms need to they work for a ‘family firm’ long after
learn how to ‘manage their managers’ the members of that family have ceased
to get the most out of them, and a key to be actively involved. This can be a
part of this involves understanding source of competitive advantage in
when interference will be a hindrance, terms of loyalty and commitment,
and when it can be beneficial, or even but it can also create tensions and
vital. This might include, for example, unrealistic expectations, which need
bringing their influence to bear to careful management.
ensure that the culture and values of
the firm are protected.


“[The risk is you have] a narrow vision in terms of experience, and need to
inject new blood to get a different perspective. You can get complacent with a
stable mind-set and it would be better to be open or receptive to change” (UK)

“[We need to] bring outsiders onto the board of the company, and learn how to
deal with that. Also the organization of internal processes to streamline our
operations. In other words, the professionalization of management” (Brazil)

“A family business can be hampered by an insistence on continuing with a low-
performing line of business. Emotions can dominate, and founders can
become obsessive about control” (Turkey)

“In the event that someone is not pulling their weight, it is much more difficult
to make a business decision that you should make – there can be a conflict
between the head and the heart” (Ireland)

“Family businesses do not place enough importance on proper procedures and
governance” (Middle East)

Hiring independent non-executive Own, manage, or sell? The majority of the remaining 34% of
directors can be one way to inject 41% of our respondents intend to our respondents had either not yet
valuable experience and expertise, but pass on both the ownership and decided what to do with their business
it is often hard to find the right people, management of their business to when they retire (12%), or were
and if a family business takes this route the next generation, though it was planning to sell or float it (17%). Those
it’s vital that the NEDs are given the noticeable that more than half of them in the latter category had come to this
scope they need to be both constructive still remained unsure whether the next conclusion either because the next
and objective, and that the family is generation would have the skills and generation did not want to take the
prepared to take that input on board. enthusiasm to do this successfully. business on, were too young, or did not
have the necessary skills. Flotation will
Tipping point 3: Succession 25% intend to pass on their shares but probably not be an option for most
The very essence of the family business bring in professional managers, citing family businesses, which leaves
is, of course, that it has been passed the next generation’s lack of skills as acquisition by a larger public company
from one generation to the next, but the main reason for this decision. or a private equity firm as a far more
the moment of transition – and the The numbers were – understandably likely outcome. Family businesses that
years leading up to it – can make or – slightly higher for those looking to are considering taking this route have
break the firm’s future success. start exporting for the first time. to consider carefully what this would
mean in practice, and what they might
need to do to configure or restructure
their operations to make them an
attractive prospect for a commercial
Fewer than half of family businesses plan to pass the business buyer or private equity investor. Those
fully (ownership and management) to the next generation who value the personal nature of their
Future plans business and the strength of its values
need to accept that both of these are
likely to be diluted – if not eliminated
Pass on management
41% – if the firm is acquired by a third party.
to next generation

Pass on ownership but bring Regardless of the form it takes,
25% the moment of transition is rarely
professional management in
Sell to private equity investors: 8% completely straightforward, and is
Sell/float 17%
Sell to other company: 8% one of the most common sources of
Sell to management team: 3%
Flotation / IPO: 5%
conflict within both the family and
Multiple options allowed the business.
Don't know 12%

Other 5%


14 Family firm

Where does the business go next?
I want to double the business in the next
three to five years. I think the international
opportunities are huge for us. We’re
looking at my first retail site in the US,
and if that’s successful we’ll quite quickly
On the crest of a wave: roll out a few stores over there. We just
opened up our first international store in
Seafolly Singapore which has been very
successful, so we’re looking for a second
site there. We’re also expanding the
Seafolly brand beyond swimwear – about
25% of our business is now coming from
non swimwear categories
Name: Anthony Halas, CEO, Seafolly
Anthony Halas runs the highly successful What’s your biggest challenge now?
swimwear brand that was set up by his Currency fluctuations are a big risk at
father over 30 years ago. current levels – at the moment we’re
Sector: Swimwear trying to maintain prices but that means
we’re taking a hit in margins. A big part of
Market: Australia our business is the stock, and holding
stock of swimwear is a risky business,
Founded: 1975
because it’s so weather-dependent. So
Turnover: A$95m, with exports to the as the business grows, your stockholding
UK, the US, Canada, Germany and is growing and your risk is growing. So
elsewhere in Europe. that’s something that we really have to
control. The whole international
manufacturing issues is a challenge to –
How did the Seafolly business change at the moment we manufacture in China,
when it passed from your father to you? but that’s a market that’s changing fast
My father was an incredible trader – he – it’s not easy to predict what will happen
knew how to pick good product and buy to wages and labour availability there,. So
it at a good price and he was an amazing we have to remain flexible and keep other
salesperson. But obviously now the options open.
business is this size, you can’t get as
involved in the day-to-day, it becomes a What’s the advantage of being a
question of about managing teams and family firm?
employing the best people to do the job
and being more strategic. So a very Definitely the ability to be able to make
different management style is needed good decisions and react quickly – not
now, compared to when he was running being bound by outside investors who
the company. are purely looking at the bottom line. I
think what a family business can do is
really invest in the future. In the early
days we would forgoing profit for
investing in the brand and up till about six
or seven years ago up the money was
going into investing in marketing, I don’t
know if you could have done that if you
were a public company or had private
investors. It’s all about long-term vision.


“It would be the succession to the next generation that a family
company will face, and the ability to survive the succession. It is
often here it goes wrong” (Denmark)

“Family politics [is an issue], specifically people being hampered
by family members. In our culture, for example, the grandsons
do not tell the grandfathers what to do, but that’s not
necessarily the case in a normal business” (South Africa)

Coping with conflict latter may suggest that that particular
“Corporate governance standards Conflict can arise from any number of business has experienced conflicts
are an issue – if we want to grow different causes, from professional to in the past. 32% have also instituted
then our standards will need to be personal. These might range from formal measures for assessing
up to speed with international best disagreements about future strategy performance, which can be the result
practice – in India the majority are and direction, to the personal of bringing in professional managers
not up to speed” (India) performance and remuneration of who would need such appraisal, or
individual family members. The evidence of the need for an objective
“Mentoring and developing the consequences can be temporary and process to manage underperforming
next generation family members is minimal, or so disruptive as to family members out of the firm.
crucial to the success of the family overwhelm what might otherwise have
business” (Middle East) been a perfectly healthy business. In Across our respondents as a whole,
the Middle East, for example, some 79% had some sort of mechanism
family disputes have ended up in the like this in place, which rises to
courts, and the assets of the entire firm 84% for second + generation
have been frozen until the case could businesses, though it is possible that
be resolved. many of these mechanisms are very
rudimentary, and there is no way of
A good number of our respondents knowing how effective they are likely
had put measures in place designed to be should an actual conflict arise.
to deal with potential conflict, ranging Indeed, we suspect that some family
from shareholders’ agreements (49%), businesses are seriously
entry and exit provisions (28%), and underestimating the degree of conflict
provision for a third party mediator that the next transition point will
(24%) – though the presence of the generate, and would benefit from a
greater understanding of the best
practice governance measures they
might take now to mitigate it.

16 Family firm

The benefits of listing: Henry Tan, CEO, Luen Thai Holdings
“I’m very proud that we made the
a Hong Kong perspective decision in 2004 to turn the family
business into a public listed company.
One interesting finding from our survey Not only does this bring in the additional
was the fact that many more family capital we need for the business, it also
businesses are listed in Asia, in demands a specific governance
comparison with firms of a comparable framework which supports better family
size elsewhere in the world. So we asked governance as well. I would encourage all
three prominent family businesses in family businesses to get a public listing
Hong Kong about their experience of the whenever they can. It helps ensure a
listing process, and what benefits it can proper structure between the
bring to the governance and shareholders, the management, and the
management of a family firm. business and makes each of these roles
clearer.”
Tom Tang, Managing Director, Asia
Pacific Region, TTM Technologies Cheung Kit, Chairman, EVA Precision
“The transition to a listed company is Industrial Holdings Limited
quite dramatic. As a private company, “The process of preparing for a listing
everything is quite easy. You can change can help you achieve greater clarity
direction, you can invest in products about management responsibilities within
that have a much longer time horizon the business, which can also prevent
and in much more riskier projects. potential conflict. In my company, my two
After you become a public company, brothers and I agreed on the allocation of
these decisions have to be justified shares in the period leading up to our
because you will be asked questions IPO. We also mapped out a clear set of
about their returns by the fund managers. roles and responsibilities and the process
Being a public company helps us for making collective decisions.”
because most of our customers are
large companies which would not buy
from a private company. Some actually
require US listing because they need
their suppliers to be Sarbanes-Oxley
and Dodd-Frank-compliant. And being
a public company gives you other
options. You can issue shares and
bonds, neither of which are really
available to a privately-held company.
It does give you more flexibility.”


A unique social contract:
Are governments supporting
family firms?
Family firms feel under-valued
Some of the world’s largest corporations began life as and overlooked
family businesses, and in the years since Rémy Martin Our results suggest that regardless
bottled his first brandy or William Procter founded his of their size, sector or market,
soap and candle firm, the relationship between family firms are proud of the economic
governments and firms like this has changed radically. contribution they make, and yet many
As part of our survey we asked family businesses feel this is overlooked or underrated
whether they feel valued by their governments, and what by their own governments. Firms in
markets like Turkey, Switzerland,
more they think should be done to support them.
Mexico, India, Malta and Singapore
generally agree that their government
values their sector, but this positive
sentiment was outweighed overall by
the number of respondents who
Family businesses feel negatively about government’s role in helping considered that theirs does not – South
them in the current climate. Again, differences by market Africa, the UK, France, Russia, Italy,
Net agreement that your government is doing what it can to help businesses survive Romania, and Greece were the most
and develop their activities in the current economic climate*
negative here.
Singapore 34%
Malta 19%
Turkey 8% Real support –
Middle East 3% or benign neglect?
Canada -14%
Feelings run even higher when it
Switzerland -19%
South Korea -24% comes to the action governments are
Hong Kong -26% taking – or not taking – to support
Mexico -32% family firms. Only three markets
Austria -36% (Singapore, Turkey, and Malta)
India -38%
agree that their government is
Sweden -38%
Germany -39%
doing everything it can to help
Ireland -42% them, and there was overwhelming
Taiwan -47% dissatisfaction from countries
Belgium -49% such as Australia, Denmark,
UK -54%
France, Romania, the USA, Italy,
Brazil -56%
Finland -58%
South Africa, Russia, and Greece.
Australia -62% NET agreement
Denmark -62%
France -66% Western Europe: -37%
Romania -71% Eastern Europe: -75%
USA -71% North America: -46%
Italy -72% Latin America: -48%
South Africa -77% Middle East/Africa: -45%
Asia Pacific: -26%
Russia -78%
BRIC: -51%
Greece -97%

*NET agreement = proportion of those agreeing and subtracting the proportion of those disagreeing

18 Family firm

Indeed, a number observed that their
government takes unfair advantage “Private companies must grow and increase their impact on the
of one of characteristics of the family economic and political environment. They must be better
firm that governments always claim to represented within the institutions that define Russia’s economic
value: other corporations can threaten strategy and political views” (Russia)
to re-locate if they aren’t given tax
breaks or other incentives, but there’s “I think family businesses are critical to the Irish economy. We
no need for governments to make have seen time and time again where multinationals have
the same effort for family businesses, pulled out of Ireland and moved to Asia or wherever, and that is
because their strong local ties mean a decision that’s made on the basis of bottom line. Traditionally
that they are highly unlikely to move family businesses can’t make that decision” (Ireland)
to a more advantageous jurisdiction.

So what are family businesses
looking for?
This divides into general measures,
and specific demands. Family businesses
– like all businesses – want to see a
reduction in red tape, a more stable
economic environment, low interest
rates, a more flexible labour market,
further incentives for employment and
training, a more consistent tax and
regulatory framework, and investment
in infrastructure.


Etude PwC sur les entreprises familiales (2012)

Etude PwC sur les entreprises familiales (2012)

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