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27 January 2015
www.pwc.ie
Latest trends on family businesses
January 2015
PwC
Welcome
Paul Hennessy
PwC Ireland Family Business Leader
2
January 2015PwC Family Business Survey 2014
PwC Family Business Survey 2014
www.pwc.ie
Up close and professional:the family factor
January 2015
PwC
The story so far….
4
January 2015PwC Family Business Survey 2014
Initial survey – Ireland only
Second survey – Ireland only
Third survey – Twelve countries (European)
Fifth survey – Twenty eight countries
Fourth survey – Twenty eight countries
Supplement to Fifth survey – Enhanced comparatives
Sixth survey – Thirty countries
Seventh survey – Forty two countries
2004
2006
2008
2010
2011
2012
2014
2002
PwC 5
January 2015PwC Family Business Survey 2014
2,378 interviews conducted in 34 markets / regions
Western EuropeAustria = 50Belgium = 72* Denmark = 6Germany = 101Ireland = 99Italy = 120Malta = 63Netherlands = 75Spain = 37* Sweden = 73Switzerland = 120Turkey = 71UK = 113
North AmericaCanada = 73USA = 152
Latin AmericaBrazil = 121Mexico = 122Peru = 81
Eastern EuropeCEE = 24Romania = 60Russia = 57
Middle East and AfricaKenya = 62Middle East = 44* Nigeria = 15South Africa = 120
Asia and PacificAustralia = 90China = 30* Hong Kong = 46India = 65* Indonesia = 16* Malaysia = 45New Zealand = 52* Singapore = 43Taiwan = 60
* Interviews still continuing in 7 markets
PwC
PwC Family Business Survey 2014
6
January 2015
Ireland sample profile: Business
23%21% 20%
18%
13%
7%
14% 13%
20%
16%
22%
11%
$5-10m $11-20m $21-50m $51-100m $101-500m >$500m
Turnover (US$s)
Mix of sectors:
• Manufacturing: 23% (30%)
• Retail: 17% (11%)
• Wholesale: 15% (10%)
• Construction: 10% (9%)
• Agriculture: 8% (5%)
• Business activities: 6% (7%)
• Others: 5% or less
15%
44%41%
18%
44%38%
Under 20 years 20-49 years 50+ years
Company age
26%
38%
22%
13%
30%
40%
19%
11%
1 generation 2 generations 3 generations 4+ generations
Number of generationsSector
PwC
PwC Family Business Survey 2014
7
January 2015
Three fifths of family businesses in Ireland grew in the last financial year and 86% are aiming to grow in the next 5 years. Both performance and confidence about the future have grown since 2012
70%69%76%63%
15%12%10%
14%
2012 2014 2012 2014
Sales Growth
Sales Reduction
2012 2014 2012 2014
65%65%60%52%
18%19%25%35%
Grow quickly & aggressively
Grow steadily
17% 11% 16% 13% Consolidate
5% 3% 2% 1% Shrink
97% of Irish family businesses predicting growth are confident of achieving it
Next five yearsLast year
Growth Aims (Next five years)Growth in last financial year
PwC
PwC Family Business Survey 2014
8
January 2015
Main Findings
What are the priorities for family businesses?
What does it mean in practice?
PwC
PwC Family Business Survey 2014
9
January 2015
These overall themes are linkedand at times potentially competing
Achieving
Growth & SuccessTo enable the business to prosper and survive
Whilst mindful of the contribution to the ‘softer’ aspects of
Family & The Community
ProfessionaliseDiversification & Overseas Expansion
PwC
PwC Family Business Survey 2014
10
January 2015
Of course these issues have always been presentbut there have been some noticeable changes
2012 – 2014
ProfessionalismDiversification
Growth & Success Family & The Community
• Business more bullish about increasing their international sales than 2 years ago
• Although still important, there has been an erosion of some of the values family businesses hold possibly driven by commercial pressures
• Staff retention and supporting community initiatives are a lower priority than 2 years ago
• There is now an increasing focus on professionalism, innovation and skills
• And a realisation that this will help drive growth
• Increase in non-family involvement in key roles
• The general economic situation is less of an obstacle than 2 years ago
• But margins are tight and competition is fierce
• Prospects for growth are improving slowly but notback to pre-recession levels
PwC
PwC Family Business Survey 2014
11
January 2015
16.9%
15.2%
9.1%
8.9%
8.4%
8.3%
5.6%
5.6%
5.2%
4.3%
4.2%
4.1%
3.0%
1.1%
16.2%
13.7%
10.1%
8.8%
9.4%
9.3%
4.0%
5.4%
5.6%
4.4%
3.8%
4.3%
4.3%
0.7%
Ensure company's long term future
Improve profitability
Attract high quality skills
Run business more professionally
Ensure staff are rewarded fairly
More innovative
Grow as quickly as possible
Enjoy work and stay interested
Diversify into new products/sectors
Ensure business stays in the family
Move into new regional markets in home country
Different export markets
Contribute to the community / positive legacy
Create employment for other family members
It may be that the recession and the tough environment emerging afterwards has sharpened Family Business thinking. Their priorities are clearly set out here – the long term future and success of the business come first. The key enablers of commercial success are the second priority and family and community related aspects are less important
Relative importance of personal and business goals over the next 5 years (out of 100)
(New question in 2014)
Next five years
PwC
PwC Family Business Survey 2014
12
January 2015
68%
66%
53%
50%
45%
44%
43%
37%
35%
30%
28%
27%
27%
10%
58%
64%
56%
61%
42%
42%
44%
36%
48%
41%
40%
33%
26%
11%
Price competition
Need to continually innovate
General economic situation
Attracting the right skills/talent
Complying with regulations
Number of businesses competing
Containing costs
Company succession planning
Retaining key staff
Need for new technology
Need to professionalise
Increasingly international environment
Suppliers/supply chain
Conflict between family members
Family businesses in Ireland anticipate the general economic situation continuing to ease, and competition and attracting the right skills/talent coming more into play.
Key challenges in five years’ time
(figures in brackets are %s in 2012)
Next five years
(36%)
(85%)
PwC
Main findings
Internationalisation
PwC Family Business Survey 2014
13
January 2015
PwC
PwC Family Business Survey 2014
14
January 2015
Increased internationalisation is predicted. 25% of sales today are accounted for by international sales (expected to rise to 30% of sales). Both figures are closely aligned with the global average.
Avg. % of sales = International(based on all i.e. all exporting and non-exporting businesses)
Countries/regions seeing biggest increase in five years (Ireland)?
71%
21%
13%
10%
9%
4%
Europe
Asia Pacific
Americas
Africa
Middle East/Gulf
No new countries
The new countries for exports will primarily be in Europe, in particular the UK.
UK: 43%
Germany: 9%
France: 9%
Spain: 6%
25% 30%
Currently In 5 years’ time
25% 32%
Next five years
USA: 7%
China: 10%
PwC
Main findings
Professionalism
PwC Family Business Survey 2014
15
January 2015
PwC
PwC Family Business Survey 2014
16
January 2015
There is an increasing focus on professionalism among family businesses and evidence that it is seen as a way of driving growth
all scored highly in terms of relativeimportance over the next 5 years
• Clarify relationship between ownership and management
• Formalise family governance
• Use of non family members to achieve goals
Issues related to professionalism are increasingly seen as important1 Professionalising the Family seen as
equally important to Professionalisingthe Business
2
Professionalism Innovation Skills
And there has been a significant rise in those citing innovation, attracting the
right skills and technology as key challenges
PwC
Professionalism
• Non-alignment of corporate and family governance is a threat to business and family sustainability
• A successful family business must also be a successful business family
PwC Family Business Survey 2014
17
January 2015
PwC
PwC Family Business Survey 2014
18
January 2015
When asked the critical issues faced in professionalising the business, peoplerelated issues were often raised
• Training and refreshing skills of existing staff to better meet current business challenges
• Attracting the right external talent – & having to compete with bigger corporations
• Gaining skills required for international expansion and (digital) innovation
• Training & up-skilling the next generation
• Formalising agreements & the process of succession
• Bringing in external/professional management & widening the talent base utilised
‘Attracting new employees with better skill sets or providing training to existing employees to provide needed skills’
‘We need to be more digital and get in the right leadership talent and we need to have a well trained workforce’
‘Key positions in organisation are held by professionals and top positions are held by family members. Family members are giving up their roles to professionals. This transition needs to happen properly’
‘It is all tied up with the family succession plan, formalising arrangements with the family, setting up a family office, family agreement that sort of stuff, which we are doing’
Staff: Skills & Capabilities Family: Management & Succession
PwC
PwC Family Business Survey 2014
19
January 2015
Irish family businesses have a similar approach to involving non-family members to other family businesses around the world
% have non-familymembers on the board
% have non-familystaff who have shares
Further % likely to offer shares to non-family in the next five years
63% 65%
30% 34%
13% 18%
PwC
PwC Family Business Survey 2014
20
January 2015
37% of family businesses in Ireland have non-working family member shareholders –significantly lower than the global averageFamily involvement in businesses
% have family members working as Senior Executives within the company
% have family members working within the company, but not as senior executives
% have family members who don’t work for the company or have shares, but are
recompensed in other ways
% have family members who don’t work for the company but have company shares
93% 93%
47% 49%
37% 48%
20% 18%
PwC
PwC Family Business Survey 2014
21
January 2015
Just over a half of family businesses in Ireland have next generation family members working for the business – again very similar to the global average. Irish firms are less likely than average to have given shares to non-family members who don’t work for the company
Family “Next Generation” involvement in businesses
% have Next Gen family members working as Senior Executives within the company
% have Next Gen family members working within the company, but not as senior
executives
% have Next Gen family members who don’t work for the company or have shares,
but are recompensed in other ways
% have Next Gen family members who don’t work for the company but have
company shares
(New question in 2014)
Any next gen working for business
57%
55%
39% 43%
32% 28%
12% 23%
10% 7%
PwC
PwC Family Business Survey 2014
22
January 2015
Three-quarters (78%) of Irish family businesses have at least one procedure/mechanism in place to deal with conflict (slightly lower than the global average: 83%). Fewer than average Irish firms have a family council or family constitution
Procedures in place
58%
38%
33%
26%
21%
20%
13%
7%
22%
54%
43%
39%
33%
27%
27%
32%
22%
17%
Shareholders agreement
Incapacity and death arrangements
Measuring and appraising performance
Entry and exit provision
Conflict resolution mechanisms
Third party mediator
Family council
Family constitution
Nothing
PwC
Main findings
Succession
PwC Family Business Survey 2014
23
January 2015
PwC
PwC Family Business Survey 2014
24
January 2015
Fewer than half of Irish family businesses have some sort of succession plan, only 10% of family businesses have a succession plan in place that is robust and documented Succession plan for key senior roles?
% with a succession plan in place for at least some senior roles
Only 10% of Irish family businesses have a succession
plan in place that is robust and documented (16% worldwide)
16%
15%
13%
55%
16%
18%
20%
44%
All senior roles
Most seniorroles
Small numberof senior roles
None
43% 53%
(New question in 2014)
PwC
PwC Family Business Survey 2014
25
January 2015
31%
29%
25%
11%
4%
40%
32%
20%
8%
1%
Pass on management to nextgeneration
Pass on ownership but bringprofessional management in
Sell/float
Don't know
Other
Future plans
The proportion of Irish family businesses planning to pass on management to the next generation has fallen significantly from 55% to 31%. The proportion planning to pass on ownership but bring in professional management has increased significantly since 2012 and the proportion planning to sell or float is higher than the global average at 25%
(figures in brackets are %s in 2012)
Breakdown in Ireland
• Sell to another company: 17%
• Sell to private equity investors: 10%
• Sell to management team: 10%
• Flotation / IPO: 4%
(15%)
(55%)
PwC
Main findings
Messages
PwC Family Business Survey 2014
26
January 2015
PwC
Messages
• Irish Family Businesses are showing improving growing trends and are confident about the future
• There are some notable changes in attitude regarding the importance of business performance, supporting employment and responsibility to community
• The need to professionalise is recognised as both a business and family issue
• There is a greater focus on determining what is required to achieve sustainability in both business and family
PwC Family Business Survey 2014
27
January 2015
PwC
Conclusions
The key challenges – in summary
Understand the sustainability challenge
Determine skill requirements – get them in
Build processes to best practice models
Build effective family governance structures
Determine and formalise succession plans
PwC Family Business Survey 2014
28
January 2015
PwC
The challenge model
PwC Family Business Survey 2014
29
January 2015
Sustainability
Business and Family
Best Practice Business Processes
Determine skills required –get them in
Effective family governance
Formalise succession
Understand the sustainability challenge
PwC
PwC Family Business Survey 2014
30
January 2015
But when thinking long term and about their legacy, heart comes into play more than head!
“To promote sustainable tourism that impacts the community. It has huge economic power for the community as so much money comes into the area”
“I would like to leave a profitable stable company for the next generation and provide secure employment for staff and the local community”
“To build an entrepreneurial company that is sustainable and profitable. Longevity, and diversification - adapting to new technology and new markets….It's not just a case of new physical markets, we have to be flexible enough to adapt our product to suit different areas..”
“Expansion of my company's influence in the industry”
Although commercial success is the clear priority in the short term, when asked about the legacy they would like to leave, FB respondents want equally to be remembered for their family and community contribution. Strong feeling of human motivation and ego comes through here, balancing more hard headed business aspirations
What want lasting legacy to be?
AGENDA
• National and International
Presence
• Understanding the
Complexity
• 4L’s Framework
1-34
1-35
Inevitability• Business• Family
A Logic to the Complexity…
Preparing the
Next Generation
The O'Callaghan's…..
L1
Learn Business
L2
Learn Our Family
Business
L4
Learn to Let Go
L3
Learn to Lead
Source: Moores & Barret, 2005
CONTINUE
DIFFERENTLY
L1
Learn Business
L2
Learn Our Family
Business
L4
Learn to Let Go
L3
Learn to Lead
FAMILY ASSEMBLY
FAMILY COUNCIL
Source: Moores & Barret, 2005
L1
Learn Business
L2
Learn Our Family
Business
L4
Learn to Let Go
L3
Learn to Lead
1- RETIREMENT TIMELINE
2- MANAGEMENT SYSTEMS
Source: Moores & Barret, 2005
Source: Moores & Barret, 2005
Incumbents:1. What are my options?2. When should I consider sharing my intentions?3. How have others managed this process?4. Who should I discuss this with?5. Why would I avoid this topic?6. How much do we need to retire?7. Who………………………………….?8. When………………………………..?9. Why………………………………….?10. How………………………………….?
Source: Moores & Barret, 2005
Aspirants:1. What are my options?2. When should I seriously consider a role in thefamily business?3. What can I contribute without being in anoperational role?4. How prepared am I for a leadership role in thebusiness given my current situation?5. Who should I benchmark myself and our family against?6. What am I doing to better prepare myself for a role in the business?7. Who………………………………….?8. When………………………………..?9. Why………………………………….?10. How………………………………….?
CONCLUSION
• Economic Contribution
• Three Systems of a Family Business- What’s your Number?
• 4L’s Framework- O’Callaghan’s
Thank You
+353 1 700 6921
Get involved with the
DCU Centre for Family Business:
www.dcu.ie/centreforfamilybusiness
DCU Centre for Family Business Launch Event
PwC
Panel discussion
Eamonn Quinn – Chair
Kelsius Limited
Paul Hennessy
PwC Ireland Family Business Leader
Eric Clinton
DCU Centre for Family Business
Conor Whelan
Easons & Son
52
January 2015PwC Family Business Survey 2014
PwC
Family BusinessEconomic and Tax Policy
Colm O’Callaghan
PwC Tax Director
53
January 2015PwC Family Business Survey 2014
PwC
Private and Family BusinessesEconomic and Tax Policy – Budget 2015
54
1) Management of the employment tax burden
2) Management of labour costs and employee taxes
3) Vat –retention of the 9% rate
5) Lending to Private Businesses -Individuals
4) Local Councils – Rent and Rates etc.
6) State-backed enterprise/investment Bank
7) Exporting incentives
8) Entrepreneur relief
10) Business Succession
9) Windfall tax on rezoned land
Key to put Private and
Family Businesses front and centre of the
government’s economic and
tax policy.
10 Point “wish” list prepared for
Budget 2015
Thank you...
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