Over half of family businesses ready to face challenge of disruption despite unclear leadership pipelines

Published: 20 September, 2019

Family businesses tend to lean towards a long-term view rooted in their shared values, vision and culture, which can help them maintain family control over many years. However, family ownership alone does not guarantee business longevity, according to Deloitte’s recent publication, Global family business survey 2019: Long-term goals meet short-term drive.

In the survey, Deloitte interviewed 791 executives from 58 countries about the challenges and opportunities they face. Retaining family ownership is a key element in their long-term goals, yet only 41 percent feel confident in their succession plans.

"Despite the focus by most executives on long-term goals, family-run businesses appear just as prone to pursuing immediate priorities that, necessary as they may seem at the time, can fail to support a company’s ultimate vision and objectives," says Carl Allegretti, Global Deloitte Private Leader. "Such a disconnect between long-term aspirations and short-term priorities can jeopardize the preservation of family tradition and legacy—as well as family capital."

"Recent statistics show fewer than 30 percent of family businesses survive into the 3^rd generation of family ownership, which echoes a Chinese saying, 'wealth does not pass three generations'," adds William Chou, Deloitte Private Leader in China. "Chinese high net worth individuals [HNWI] represent nearly half of the HNWI population in Asia Pacific. Chinese HNWIs are very different than those in other markets. Ninety-eight percent are first generation entrepreneurs, and many of them are self-made billionaires. They also tend to be younger, with small families. Facing uncertainty and an ever-changing global economy, their focus is moving beyond wealth accumulation to wealth protection and diversification, as well as overall family wellbeing."

Family legacy

Maintaining ownership, ensuring legacy and preserving family capital are three of the main challenges for every family business, but many have not yet created formal succession plans. For instance, despite 68 percent of executives saying they intend to keep their business in the family, only 26 percent have a stated plan for their CEO—and even fewer have one for other C-suite positions.

Moreover, less than one-third of respondents believe their families share a common vision of their business's future development. Furthermore, the same proportion of respondents would be willing to trade at least some measure of family control over their business for even greater long-term financial success.

They should keep in mind that selling minority stakes to other family enterprises can be an alternative way to attract capital, while allowing them to remain true to their vision as a family-owned company.

As Chou explains, "Moving beyond wealth creation and accumulation, Chinese HNW individuals and families are also considering investing more resources in business and wealth restructuring, asset management and wealth planning, risk management, succession planning, business transformation and their social responsibilities, seeking to maintain their legacies through comprehensive, sustainable growth."

Innovation and agility are key to success

When asked about the drivers of stability and future success of the businesses, executives tend to point to agility (61 percent) and innovation capabilities (39 percent), although the possibility of a negative outcome and a reduction in family wealth can keep some of them from fully embracing this potential.

Although some companies are committed to expanding their businesses by industry or geography, only 26 percent view diversification of as a way to sustain a business over the next 10 to 20 years.

Zoom out to zoom in

To help family-run companies connect the present to the future, Deloitte proposes a "zoom out/zoom in" approach to strategic development that aligns short-term initiatives with how leaders envision their markets in 10 to 20 years.

"Synchronicity of vision and values is achievable for virtually any family business, provided they have the right discipline, governance structure and communication practices in place," concludes Allegretti. "Families that can appropriately define their 10- to 20-year aspirations and 6- to 12-month initiatives—and maintain a clear line of sight from the one to the other—will stand a far greater chance of staying ahead of the game for years to come."