The scale of transformation and challenge since the pandemic is triggering sweeping changes to succession in family businesses, finds research by KPMG Private Enterprise.
The commitment to family ownership is steadfast, with more than seven in 10 family business leaders (72%) intending that their children take on the business when they retire. But the succession plans at four in 10 have changed since the pandemic, resulting in more prominent roles for the next generation at nearly a third of family firms (31%).
Family businesses look to next generation to drive change.
Pandemic grew the role of the next generation in nearly a third of family firms
Seven in 10 family business owners intend their offspring to run the business when they retire
Four in 10 family businesses changed their succession plans as a result of the pandemic
Biggest threat to family firms, cited by sixty percent, is impact of cost of living crisis on consumer demand
The research shows a tale of two halves as some family businesses have accelerated succession plans while others have decelerated or even reversed them. At a third of those whose succession plans changed (30%) the impact is an earlier than previously planned step back from the business by leadership. At four in 10 the next generation have become more involved in the management, though not taking over the leadership. Nearly half, (46%) fear that managing succession on top of other risks is too much change at once and have delayed retirement or leaned back in to the business.
Mark Essex, director in KPMG’s Family Business team, comments: “Succession in family firms has never been such a hot topic. Many plans have changed since the pandemic and in different directions. In many cases tech-based change has been the reason for the next gen to step up swiftly as their skills became critical to the success and survival of their businesses. Looking ahead a year or two, given the retirements that were postponed or reversed during the pandemic, we can expect to see another uptick in the next generation taking the reins, due to pent up demand for stepping back by the current generation of leadership.”
The research, undertaken by OnePoll on behalf of KPMG, also finds six in ten family businesses (61%) consider a collapse in consumer demand as a result of the cost of living crisis to be their greatest threat, followed by a fifth (22%) citing concerns about input cost rises and other supply chain issues. The UK economy is critical to the sector, given the domestic market is the biggest opportunity for more than half (55%).
The fact that a third of family firms (30%) anticipate their growth to be driven by products developed in the last 12 months is evidence of transformation, begun during the pandemic and uncovered by KPMG’s 2021 Mastering a Comeback report which found family businesses were 42% more likely to implement a transformation strategy than non family businesses. Further transformation is anticipated in the sector; nearly one in five current family business leaders (18%) expect their company to be a quite different enterprise in the longer term, focused on new products or markets.
As family businesses respond to current economic challenges and their transformation programmes deliver a new normal, KPMG Private Enterprise launches The Family Business Leadership Academy, in partnership with the University of Leeds, to help the new-in-role now generation and the next generation to successfully run their family businesses. The 30 week course, of virtual and in-person teaching, begins early 2023 to equip new and aspiring family business owners and managers with leadership, stewardship and commercial skills.
Mark adds: “The world the next generation of family business leaders inherit is fundamentally different from even three years ago, let alone the time their previous generation took over. We see a need to augment lessons passed on by previous leaders with insight from world class academics and peers. Nearly four in 10 family business leaders told us they turn to peers for advice and support. At the Family Business Leadership Academy, we hope learners will form bonds with fellow next generation leaders which may prove to be lifelong trusted relationships.”
Julia Bennell, Dean of Leeds University Business School, says: “After years of educating business professionals this is the first time we have developed a syllabus specifically for future family business leaders. It blends academic rigour with business mentorship, designed to provide them with the tools needed in order to run resilient businesses.”
Further Findings From KPMG’s Research:
90% of family businesses have a member of the ownership family in the management team
Seven in 10 (69%) of family businesses have a succession plan
The pandemic led 15% of family businesses to seek external talent as they needed skills that were not available in the family
Six in ten family business leaders (61%) expect their company stay broadly the same in the longer term
13 percent are unsure about their company’s future, and can foresee the business closing due to economic challenges
Only 7 percent expect to have to sell the business in the long term due to lack of appetite for running it from the next generation
Four in 10 family business leaders (43%) use the other family members in the business as confidents with 37% turning to other family business leaders for support
1 in 5 family members have never worked outside family business though on average they work for four years outside before joining the family enterprise
On average family members work in the business for five year before taking a leadership position but one in 10 become leaders after just one year in the firm