Family business: resilient, adaptable, sustainable

With estimates that up to 70 per cent of Australian businesses are family run, it’s interesting (to say the least) that there is a consistent lack of available and reliable data on the sector, especially in terms of its contribution to gross domestic product, scope, structure and key trends.

It’s encouraging to learn that one of the 21 recommendations made by the Australian Joint Senate Enquiry titled ‘Family Businesses in Australia – different and significant: why they shouldn’t be overlooked’ is for the Australian Bureau of Statistics to collect statistics on Australia’s family business sector. We sincerely hope that the ABS receives the support necessary to act on this recommendation as soon as possible.

In the absence of government mandated data collection, KPMG and the peak body for families in business, Family Business Australia, have undertaken research on Australian family businesses since 2005.

This year, KPMG and FBA partnered with the University of Adelaide’s Family Business Education and Research Group to undertake its 2013 survey, which received responses from 570 family business leaders from around Australia.

In addition to its usual focus on family business challenges, governance, and exit and succession, the survey asked family businesses to rate how they felt they are performing compared to their key competitors. It also asked how satisfied they are in achieving their family-oriented goals. Based on economic indicators and the views of leading business commentators, it is widely acknowledged that all businesses are facing a tough economic environment. However 83 per cent of the 2013 survey respondents reported that being a family business assisted them in coping with the ongoing economic uncertainties.

What’s more, the majority of family firms felt they outperformed their key competitors in a range of areas, including product and service quality, productivity, innovation, growth, and financial performance. This view is supported by research recently published by FBERG in the leading international journal Family Business Review, where Australian family firms were found to financially outperform their non-family counterparts. Further analysis of the survey data, combined with focus groups of family business owners held in Brisbane, Sydney and Adelaide in June 2013 led us to conclude the following:

Through shared values and ethos, being guided by a long-term and consistent approach to strategic planning, and being embraced by a committed workforce, many family businesses are adaptable and resilient to market conditions and therefore consistently and efficiently deliver superior products and services to their customers.

Beyond financial performance and stability, family owners are realising their goals for the business to provide personal challenges and rewards, independence, and to enhance the family’s standing in the community.

However, they were less satisfied with regard to the level of achievement of other family-oriented goals, such as spending time with the family, increasing family wealth and quality of work-life balance. This may be partly related to the level of commitment shown to the business; where two thirds of respondents felt family members work longer hours than non-family counterparts at comparable levels.

We know that long-term sustainable performance in family businesses is dependent on achieving both business and family-oriented goals. It is no surprise then that respondents to the 2013 survey identified balancing ‘family and business issues’ as the biggest challenge they faced.

Emphasising the needs of the business over those of the owning family (business-first) often results in eroding the family’s invaluable ongoing commitment to the business. Conversely, emphasising the needs of the owning family over those of the business (family-first) will inevitably lead to a decline in business competitiveness and performance.

The aim should be to balance family and business needs. As KPMG Partner Dominic Pelligana often advises clients, “Balancing family priorities with those of the business can be difficult, but being able to effectively manage them is essential for success. To help achieve this balance, it is important that the family has clarity and alignment in relation to what they want for the business, and from the business as a family unit. These collective needs and aspirations can then be used to adapt the family’s and the business’ values, purpose, strategy and tactics, investment guidelines and governance models.”

In the survey, over a third of respondents believed that family issues have an equal or greater influence on family business performance than business issues. This is why it is so important that family businesses adopt governance mechanisms, such as a board of directors, formal advisory board, or a family council, to ensure both the needs of the business and the family owners are taken into consideration. It was evident in this survey that family businesses with formal advisory boards performed better (both in terms of business performance and achievement of family-oriented goals) compared to those that did not have formal advisory boards.

Other challenges indicated by respondents included maintaining family control of the business; preparing, training and selecting a successor; and communication between generations.

Sixty per cent of respondents experienced conflict within the business over the last 12 months, predominately around issues such as ‘vision, goals, and strategy’, ‘how decisions are made’, ‘managing growth’, ‘financial stress’ and ‘competence of family members’. To manage such conflict, family businesses most commonly utilised family gatherings to discuss contentious issues, while multi-generational firms also used boards, family councils and shareholders’ agreements.

Consistent with the ageing demographics of Western economies, Australia will increasingly experience the transfer of business control and/or ownership as members of the incumbent generation retire. In this survey, around two-thirds of the current family CEOs were 50 years of age or older, while nearly 20 per cent were 65 plus years of age.

Despite this fact, only around a third of family businesses considered themselves exit or succession-ready, as most family businesses intend to enact an exit strategy in the longer-term (5 plus years). Many family businesses were considering more than one exit option, with the most likely exit option being to pass the management and ownership of the business on to the next generation. This intention was more evident in second or later generation-owned family businesses.

It is critical that family businesses consider and undertake exit and succession planning well in advance of when it’s likely to occur, as it maximises the number of available alternatives (especially if it happens unexpectedly). One of the reasons why an appropriate business continuity (succession) plan can take time to develop is that it involves a range of interrelated issues to work through, many of which require input from professional advisers such as tax accountants, lawyers, financial planners and family business advisers.

For family businesses to remain resilient, adaptable and sustainable, all of these issues must be carefully considered in the years ahead. The KPMG/FBA 2013 Family Business Survey is available at www.kpmg.com/au/familybusiness

Dr Chris Graves and Dr Jill Thomas are the co-founders of the Family Business Education and Research Group and senior lecturers in The University of Adelaide Business School.