Most family firms have a formal succession plan in place, right? Wrong. Ireland and its business families, it seems, is the latest example to be held up in a growing list of apparently shoddy planners. Almost half of Irish family businesses have no formal succession plan in place, according to a survey by PricewaterhouseCoopers. The report, released in March, involved 55 family businesses ranging in size from those with fewer than 25 employees and an income of less than €2 million to those with more than 100 employees and an annual income of more than €20 million. Just half of the businesses surveyed had a formal management succession plan in place, and 63% felt they would consider a non-family manager as a potential successor. Only 20% of those surveyed had a family council to deal with issues to do with family and ownership.
The key threat to all family businesses, says PwC, is succession. Yet only half of the firms it surveyed bothered to plan. Never mind the stats. The question is why? And who's to say the findings would be significantly different in any other industrialised nation. In the US, family-owned firms account for 95% of businesses and generate 50% of GDP, according to Hubler Family Business Consultants. Their success, the consultant adds, is the backbone of the economy. Really?
Unfortunately, some three in four US family businesses – depending on whose data you believe – fail to carry on to the second generation. Fewer make it to the third. No news here, but economists would be hard-pressed to find evidence of global economies grinding to a halt because Junior wasn't interested in carrying the torch. What it might explain is why the market is awash with family business consultants, skills merchants peddling everything from asset protection strategies to estate planning to, you guessed it, succession planning. Still, the issue remains fraught.
Paul Hennessy, PwC's lead partner for business and wealth services, believes it boils down to ignorance. "Family business owners have not had access to information which allowed them to compare their level of preparation for ownership and management succession with either best practice or the related activities and plans of their peer group of companies," he says. This deficit of information, as he calls it, leaves family businesses exposed.
Now, presumably, that critical information is available. But that doesn't alter the fact that in a family, conflict is inevitable. Nor will planning guarantee Junior's passion for the family business. Free will is one of life's big variables. It would be churlish to shrug off the findings of yet another family business study. After all, like the consultants who prosper from the market, we're part of it too. So here's another finding. One-third of the Standard & Poor's 500 companies have founding families involved in management. And in what may be Corporate America's biggest and best-kept secret, they're crushing their non-family-run rivals. One of the biggest strategic advantages a company can have, it turns out, is bloodlines. Maybe the economy really does depend on a family's success.