Family Business Event 27th Jan 15 PwC & DCU CFB

27 January 2015

www.pwc.ie

Latest trends on family businesses

January 2015

PwC

Welcome

Paul Hennessy

PwC Ireland Family Business Leader

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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….

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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

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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


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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


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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

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January 2015

Main Findings

What are the priorities for family businesses?

What does it mean in practice?

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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


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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


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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


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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%)

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Main findings

Internationalisation


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January 2015

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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


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January 2015

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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

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Professionalism Innovation Skills

And there has been a significant rise in those citing innovation, attracting the

right skills and technology as key challenges

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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


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January 2015

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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


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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


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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%

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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


Any next gen working for business

57%

55%

39% 43%

32% 28%

12% 23%

10% 7%

PwC


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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


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January 2015

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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%


PwC


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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


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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


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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


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January 2015

PwC

The challenge model


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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


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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

1-33

http://www.radisson.com/

http://www.radisson.com/

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


L1

Learn Business

L2

Learn Our Family

Business

L4

Learn to Let Go

L3

Learn to Lead

1- RETIREMENT TIMELINE

2- MANAGEMENT SYSTEMS



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………………………………….?


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

[email protected]

#[email protected]

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

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PwC

Family BusinessEconomic and Tax Policy

Colm O’Callaghan

PwC Tax Director

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PwC

Private and Family BusinessesEconomic and Tax Policy – Budget 2015

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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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Family Business Event 27th Jan 15 PwC & DCU CFB

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Transcript of Family Business Event 27th Jan 15 PwC & DCU CFB