Family Business: Data

Survey results offer insights on competitiveness

How important is talent management to family businesses? It’s a major, pressing concern, according to a new survey of U.S. family business leaders by global professional services firm PwC. The percentage of survey respondents who cited “attracting and retaining the best talent” as an important personal goal was higher than the percentage who selected “improving profitability” (85% vs. 76%).

PwC polled 168 U.S. family business stakeholders online and by phone between April 20 and Aug. 10, 2018, as part of a global survey of nearly 3,000 family companies. Owners, founders and NextGens were among the respondents. The firm has been conducting a U.S. family business survey biennially since 2008.

Family companies are well positioned to succeed at talent management. More than 70% of the survey participants said their company values create a competitive advantage. What’s more, the 2017 Edelman Trust Barometer (a study conducted by Edelman, a Chicago-based global communications marketing firm) found family businesses are more trusted than non-family businesses by a 24-point margin in the United States.

“We’re trying to encourage families to think about embedding their values and their purpose in their strategy, leveraging the trust they have with their employees and their customers,” says Jonathan Flack, U.S. family business services leader at PwC.

“If your values and your purpose are grounded in your strategy, you will continue to focus on the employees you have, provide the education and up-skilling needed, but then also be able to go onto the market with genuineness and speak about your values and purpose, speak about where you’re going in the future,” Flack says.

The survey results indicate, however, that families have more work to do in this area. While 81% of the North American respondents in the global survey felt that they had a clear sense of agreed-upon values and purpose as a company, only 49% had put these values in writing.

Optimism about growth
Family business owners tend to be optimistic, and PwC’s U.S. survey respondents were confident about the near-term prospects for their companies. More than three-quarters (79%) expected to deliver “steady growth” by 2020. Another 16% anticipated “quick and aggressive gains.”

About half of these business leaders said they would invest in their companies in the next two years, with 52% expecting to make significant strides in their digital capabilities and 47% planning to bring in outside expertise to help run their businesses.

Strategic changes were also predicted. Nearly four in 10 of the study participants (39%) said their businesses might buy or merge into other companies by 2020, and 16% anticipated significant changes to their business models.

Despite these ambitious goals, most survey respondents neglected to formalize their planning. Only 42% reported having documented plans with budgets and key performance indicators to measure against. Nearly a third (31%) said they had an informal plan, and 27% said they had no strategic plan at all.

Succession planning procrastination
The U.S. survey population had high expectations for their next-generation family members. Almost two-thirds of respondents (62%) planned to pass the business on to the NextGen, and 39% said they would pass on leadership within five years. Nearly half (47%) of the survey participants said their NextGen leaders would take on non-senior roles in the family business.

Most of those surveyed (62%) said they were encouraging the NextGen to gain work experience outside the family business. Family business consultants generally recommend that NextGens establish a track record elsewhere before joining the family firm; it helps the young family member to build credibility and confidence, and it gives them an outside perspective that in many cases can help the family business.

Unfortunately, the U.S. family business leaders who completed PwC’s survey were more likely to keep their transition plans in their heads than to commit them to writing. More than half (58%) had succession plans, but most of these plans were informal. Only 18% of respondents had documented succession plans that were communicated to others in their organizations.

Digital vulnerability
Participants in the 2018 U.S. family business survey reported a growing concern about digital disruption, with 37% acknowledging that their businesses are vulnerable, an increase from 32% in 2016.

Digitalization was listed as a challenge by 44% of PwC’s 2018 global survey participants. The growth of artificial intelligence and robotics was cited by 22%, and cybersecurity was noted by 39%.

A significantly higher percentage of participants in PwC’s U.S. family business survey than global survey respondents said their company could be vulnerable to cyberattacks (57% vs. 40%).

“Family business owners are very much concerned about disruption of their business,” Flack says. “There’s disruption with how they produce and develop their products and services, and also how they deliver their products and services. There’s disruption across the board relating to technology, relating to new business models.

“And then, in addition to that, families are very loyal to their employees. That’s a hallmark; that’s something they’re very proud of. And when the business environment is changing as quickly as it is, family businesses are very concerned they’re not going to change quickly enough. And if they had to change faster, would they potentially move away from some of their values and some of their core beliefs, one of which being loyalty to their employee base?

“So they’re concerned that they have some employees who don’t have the skills that are going to make them successful in the future, and how [will they be] able to deal with that while still being true to their values and to their core?”

NextGen family members might be able to play an important role in getting the family business ready to address digital disruption. In a 2017 PwC survey of NextGens, only 7% thought their family firm had a strategy fit for the digital age, and 75% said they had big plans for moving the business forward.

Professionalizing the board
Eight in 10 of the U.S. family business survey respondents with a strategic plan and a board of directors reported that their directors were involved in developing and achieving agreement on the plan. More U.S. family business owners are beginning to realize that an independent board can help their companies fend off disruption, Flack says.

“A lot of family businesses still are working hard to professionalize their board. We see that as an area of growth,” he says.

“Family businesses know that they need to transform. They know that they need new skills in their workforce. And what we’re seeing is that families are seeking out that skill in the boardroom.”

Family firms recruiting independent directors today are seeking those with experience expanding into new markets, managing organizational change or doing M&A deals, Flack observes. “What they’re asking for on their board is consistent with this overall concern of adapting to transformation,” he says.

An independent board can also help a family company manage succession, PwC notes.

Advice from PwC

Based on the findings of its U.S. family business survey, PwC offers the following recommendations:

1. Codify your values and purpose into your strategy. There are ways to make family values explicit and measurable to guide decision making.

2. Ensure your NextGen is deeply involved. NextGens have a lot to offer families grappling with digitalization. Their involvement will help them build a strong connection to the enterprise. Preparing them for leadership should be a priority.

3. Raise the digital IQ of the business. Doing so will reveal new possibilities and draw out the best talent.

4. Professionalize your board. Bring in independent directors with expertise in future growth areas for your business.

The trust premium
Family firms working to stay ahead of a rapidly changing marketplace can use their values to their advantage, according to Flack. “We try to take an optimistic view about companies facing disruption,” he says.

Most multigenerational family companies have survived at least one cycle of disruption. Companies can draw on this history in confronting today’s challenges. “We have seen families that have successfully managed through disruption, through technology changes and through changes of consumer habits, while still keeping their values and their purpose at the core of their strategy,” Flack says.

Family businesses can leverage employee and customer loyalty, Flack adds. “Trust will help companies get through dramatic change and transformation.”         

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

Overcoming family business myths

Family businesses are reputed to be unprofessionally run and destined to fail in the third generation. So how does one explain the continuity of companies like Cargill Inc. (founded 1865), S.C. Johnson & Son (founded 1886) and Mars Inc. (founded 1891)?

For about five years, Dennis Jaffe of Wise Counsel Research and his team have been studying what he calls “generative families” — those who have successfully pursued business opportunities as a family for more than three generations. Jaffe and coworkers have examined nearly 90 families across 20 countries who created a successful business (or set of businesses) with annual revenues of more than US$200 million. Families in this study range from the third to the eighth generation of shared family enterprise.

In his fifth working paper based on this research (“Resilience of 100-Year Family Enterprises”), Jaffe debunks five prevalent myths about family businesses. If your transition plans are being guided by these false assumptions, it’s time to reframe your thinking.

The myths
1. Family businesses face a predestined decline over three generations. Most family business owners have heard the saying, “Shirtsleeves to shirtsleeves in three generations,” meaning that a founder’s children and grandchildren are likely to mismanage the family business. What’s more, frequently cited statistics (from a study conducted back in 1987) imply that only about 10% of family businesses make it to the third generation. The experiences of generative families debunk the notion that decline or stagnation will inevitably begin in the second generation. These families, Jaffe reports, follow a cycle of continual reinvention across generations, rather than a path of linear decline.

2. Wealth creation takes place largely through the achievement of a single entrepreneur in the founding generation. In many generative families, the founders were only the first of a series of wealth creators. Some founders, for example, developed small, unremarkable businesses that were later super-charged by a son or daughter who led expansion and growth. Jaffe points out that a generative family enterprise often has multiple wealth creators over successive generations.

3. Wealth creation results primarily from the founding of one successful business. The founder’s success must be followed by additional — often less newsworthy — activities to sustain the business under the leadership of the second or third generation, Jaffe notes. A mature business produces capital to fund new ventures, spearheading further wealth creation.

4. A sale of the legacy business marks the end of a family enterprise. Generative families make an explicit commitment to reorganize as a business family after a sale via a family office or other shared investments, Jaffe has found.

5. Success of the business in later generations occurs because the family moves away from involvement and influence. The most demeaning myth about family businesses, in Jaffe’s view, is that they are “lesser” organizations that must evolve into “professional” enterprises by removing the emotional bonds of the family. Generative families build their businesses on a foundation of family culture and values that guide how they do business. While family values and practices can certainly undermine the business in some cases, Jaffe observes that generative families minimize the ways the family drains the business while optimizing benefits added by the family.

Seek out success stories
In today’s rapidly changing marketplace, any business whose leaders fail to look ahead is vulnerable. In 2017, Credit Suisse analysts noted the average age of companies listed on the S&P 500 was less than 20 years, down from nearly 60 in the 1950s. Family firms actually have an advantage in this regard because family owners tend to invest for the long term rather than demand profits each quarter.

This is not to suggest family businesses should be closed systems. Indeed, without the inclusion of talented non-family managers, board members and advisers, it’s likely the generative families would not have achieved the positions they enjoy today.

These top-performing family firms serve as models of transgenerational business growth and renewal. Rather than focus on ominous myths, you are better off studying successful families’ outlook and planning process to see if they can be adapted for your family business.      

Copyright 2018 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact               

A critical look at 'survival' statistics

Most family business owners have heard these statistics: 30% of family businesses make it to the second generation and only 13% make it to the third generation. This often-repeated statement, which is widely accepted as fact, actually is wrong.

The research that is the source for the statement, conducted by John Ward of Northwestern University's Kellogg School, is accurate. Ward, who also co-founded the Family Business Consulting Group, published his findings in 1987 in his book Keeping the Family Business Healthy. His team researched 200 randomly selected Illinois manufacturers listed in annual publications from 1924 to 1984. Here is what they found in those records:

• 20% still survived as an independent firm with the same name. Of that 20%, 13% were still owned by the same family.

• 80% no longer survived as an independent firm with the same name.

Of that 80%:

• 33% ceased operating 0 to 29 years from the date of their founding.

• 35% ceased operating 35 to 59 years from the date of their founding.

• 16% ceased operating 60 to 89 years from the date of their founding.

• 16% ceased operating 90 years or longer from the date of their founding.

Ward presented the data on the first page of his book as follows: "Only 13% of successful family businesses last through three generations [emphasis added]. Less than two-thirds survive the second generation."

It's a fairly innocuous finding—interesting but limited. Unfortunately, these statistics have taken on a life of their own. Let's take a quick survey of the misperceptions they have caused.

A scary misquote

Many people who cite these findings misquote the highlighted word "through" as "to." Thirty-two percent of firms lasted at least 60 years, or through the second generation. Misquoting "through" as "to" reduces the life expectancy of the firm by at least 30 years. Further, the research indicates that nearly 13% of the companies in the study lasted as independent firms with the same name for at least 90 years, which is well into the fourth generation. The upper limit of years was not given, so this 13% may have continued for many more generations.

Context matters

These statistics are from a 1987 study of manufacturers that existed in 1924 in the Midwest region of the U.S. and survived the Great Depression. To suggest these results can be extrapolated for all family-owned businesses, in all industries, in all geographies and in all economic times is a stretch. As a simple example of how industries change, the Dow Jones Industrial Index in 1924 included American Locomotive and Baldwin Locomotive, as well as only one herald of the automotive age to come: Studebaker.

'Failing' by selling at a profit

The use of the word "survival" in this context is interesting. The original study looked at whether a firm was still independent and had the same name. Firms that were sold, merged or spun off into a new, more successful enterprise would be excluded.

More recent research suggests successful families often experience "transgenerational entrepreneurship," in which one generation inspires the next generation of entrepreneurs, but often in new ventures (T.M. Zellweger et al., Family Business Review, 25[2]:136-55, 2012). This far more useful framework suggests a new way to look at how families succeed in business. Though the sample size for this more recent study is also small (only 118 participants), it casts new light on what we might consider family success. The families in this study currently controlled 3.4 companies on average but acknowledged control over an average of 6.1 companies in the family history. This would suggest they were responsible for 2.7 "failed" companies on average, because they had not continued to transfer ownership to family members. This seems like a ridiculous conclusion in light of the families' success; more likely, these divestments reflect a thoughtful progression of the family wealth strategy.

The next time you hear the 70% failure statistic, be aware of the inaccuracy. Further, it might be worth considering whether the person citing the statistic is making an innocent mistake or is using it as a scare tactic with an ulterior motive. The important factor is not survival, but entrepreneurship.

Robert Holton is vice president in the Private Client Group at Cleary Gull (

Copyright 2016 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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November/December 2014 Openers

A survey of family businesses in Western Michigan found that family firms in the region are highly committed to their employees, to philanthropic giving and to keeping their companies in the family. Yet despite this commitment, most of these companies lack formal policies to help perpetuate the family values and ensure a smooth generational transition.

The study was a collaborative effort of the Seidman College of Business at Grand Valley State University and the Haworth College of Business at Western Michigan University. Academics and professionals at the two universities plus the Family Business Alliance of Grand Rapids helped develop the survey questions. Laurel Ofstein, an assistant professor of management at Western Michigan University, analyzed the data.

The online survey was completed by 156 family business stakeholders, including owners, CEOs/presidents, managers, board chairs and directors, and employees. More than a third (36%) said the second generation was the youngest generation working in the business; 26% said the most junior generation was the third, and 19% said the fourth generation was the youngest employed in the company. Nearly four in ten of these companies (38%) generated annual revenues of $1 million to $9.9 million; 17% reported revenues of $100,000 to $499,000; 9% said sales were in the range of $500,000 to $999,999; and 18% had sales of $10 million to $24.9 million. Less than a fifth (17%) generated revenues of $50 million and above; 1% reported sales of less than $100,000.

Although most of the survey participants were associated with smaller companies, the Western Michigan region is home to many large family firms, including Amway, Bissell, Gordon Food Service, Meijer, Haworth, Irwin Seating, Steelcase and Lacks Enterprises, notes Joseph Horak, director of Grand Valley State's Family-Owned Business Institute (FOBI). "We think Western Michigan is a unique area when it comes to the prevalence of family-owned businesses," Horak says.

Avoiding layoffs

One of the most significant findings, according to the survey team, was the business owners' intention to avoid layoffs. Respondents were asked what measures they would consider taking if earnings fell at their companies. Only about a fifth (21%) said they would be likely or very likely to institute layoffs; 27% said layoffs would not likely occur, and 30% said layoffs would not happen at all. On the other hand, 58% said that to counteract an earnings decline they would be likely or very likely to reduce family members' salaries, and 76% said they would be likely or very likely to reduce distributions to owners.

While family businesses are often criticized for being risk-averse, their conservatism means they are less burdened by debt, Horak says. "In a downturn, they can function differently [from public companies] because they have less debt," he explains. While a debt-ridden company would reduce staff as a cost-cutting measure, family firms are better able to protect employees' jobs in hard times, Horak says. "Because they're risk-averse, they can live out this value," he observes.

Ninety percent of the Western Michigan survey respondents said they participate in philanthropy. More than eight in ten (82%) estimated their annual philanthropic giving at "up to $100,000." Six percent said they gave between $100,001 and $500,000, and 2% said they contributed between $500,001 and $999,999. One family company gave between $1 million and $10 million annually. More than half (56%) of the respondents said their philanthropy was a combination of individual and business giving. One fifth contributed "as a business," and 21% gave on an individual basis. Only 3% of the respondents said their gifts were made through a foundation.

"There's something special about Western Michigan," says Ellie Frey, director of the Family Business Alliance of Grand Rapids, which offers workshops, assistance and networking opportunities to family business owners. "There's a focus on doing the right thing for the community, even if you're not making a lot of money. I'm pleased to see family values that transcend into the family business and into the community."

Governance challenges

Like other recent family business surveys, the Western Michigan study found a disconnect between business owners' intentions to keep their company in the family and the development of plans governing how that goal will be achieved. One telling statistic: 80% of the respondents said they plan to pass the family business to the next generation, but 81% said they lack a formal, written succession plan.

"Getting these numbers higher should be our sole focus," says Family Business Alliance director Frey. She says succession planning is an important part of her center's agenda. "[Members] know what a succession plan is. They know it takes between five and ten years to transfer the business." Like their counterparts throughout the nation, family business owners in her region find excuses for delaying the hard work of developing a transition plan, Frey observes. "They say, 'I'll put it off till tomorrow,' or 'I'm not ready yet,' or 'I have so many things to think about, I don't have the time to think about this now,' " she says.

Although 63% of the survey participants said they have a formal shareholder agreement, the documents they have developed appear to lack some key provisions that could help protect the business from family disputes. For example, only 26% of respondents have a mechanism for removing disgruntled shareholders (such as a stock redemption plan). Less than half (43%) of companies with shareholder agreements have identified who is permitted to own shares of the business, and just 25% have spelled out who may inherit shares. A mere 6% of the survey participants have a prenuptial policy. Only 16% have developed a tie-breaking mechanism in the event of an ownership dispute, and just 19% have a formal dividend policy.

Nearly a fifth (18%) of the respondents have a family employment policy, but only 8% have created a family constitution. While 13% have a family council, 40% of those prohibit in-laws from serving on the council.

The next step for the survey team, according to FOBI's Horak, is to conduct studies of the economic and philanthropic impact of the region's family companies. Horak says his institute is broadening its research and education mission to include advocacy for policies that create a favorable environment for family-owned businesses.

"Family-owned businesses are the ballast of the economy," Horak says. "They may actually have a buffering effect in a downturn."

Copyright 2014 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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May/June 2014 Openers

The 2014 edition of the Edelman Trust Barometer, an annual global study, found that in all regions except Asia, family-owned businesses are more trusted than big businesses. In fact, people in North America trust family-owned companies nearly twice as much as they trust big businesses (85% vs. 45%), according to the survey, which was conducted by Edelman, the giant, family-controlled public relations firm. In the EU, family firms are trusted by 76%, vs. 47% for big businesses.

To produce the Trust Barometer, Edelman's market research firm conducted online interviews in October and November 2013. The firm sampled 27,000 members of the general population as well as 6,000 members of the "informed public" (defined as people age 25-64 who are college-educated, with household income in the top quartile, and who read or watch business/news media at least several times a week and follow public policy issues in the news at least several times a week) in 27 countries. Although the Trust Barometer survey has been issued for 14 years, this edition was the first to include questions on trust in business based on ownership structure, according to Ben Boyd, global chair of corporate practice at Edelman.

Respondents in North America and the EU said they trust family-owned companies more than they trust publicly traded companies (85% vs. 60% in North America and 76% vs. 48% in the EU). Family companies also are seen as more trustworthy than privately held companies in these regions (85% vs. 63% in North America and 76% vs. 57% in the EU).

In Latin America, too, family companies, trusted by 83% of respondents, have an advantage over big businesses (trusted by 70%), public companies (72%) and private companies (70%), according to the study report. In Asia, however, the 62% trust level for family businesses was lower than the figures for big businesses (73%) and public companies (74%). Boyd offers two possible reasons for the Asian statistics. One potential explanation is that leaders of family-controlled conglomerates, such as the South Korean chaebol, are viewed as too closely connected with the government, Boyd says. Another reason, he adds, could be that big business is considered a factor in the emergence of a middle class in India, China and Indonesia.


How the public views
privately held companies

The Edelman Trust Barometer also assessed the general public's perceptions of privately owned vs. publicly traded companies. Respondents said they consider private companies to be more entrepreneurial (70%, compared with 62% for public companies), more responsive to customers' needs (67%, vs. 58% for public companies) and more innovative (66% vs. 60%). Survey participants rated privately held firms more likely to offer high-quality products or services (65% vs. 61%). Private companies are also viewed as more responsive to society's needs (54% vs. 50%) and employees' needs (49% vs. 45%). In addition, they are seen as more likely to act responsibly (55% vs. 52%).


Capitalizing on the trust advantage

Family businesses have a reputation for being "more community-minded and more values-based" than other types of companies, Edelman's Boyd says. "If I ran a family business today," Boyd says, "I'd want to make sure this was understood in the public messaging of my company. I would want to talk about the values-based culture and the connection to the community."

Boyd points out that while owners of small companies tend to take a conservative approach to marketing, family businesses should trumpet their trust advantage. "This is an opportunity for family businesses to utilize social media to humanize their enterprise," the Edelman executive says.

Family business CEOs, in particular, should tout their presence at community events through full-on social media campaigns rather than just issuing a press release, Boyd advises. "Family businesses should take full advantage of a perceptual asset that many others would kill to have," Boyd says.





Family businesses in the Pacific Northwest report progress on succession planning

A new survey of nearly 200 family businesses in the Pacific Northwest has found that 59% have a written plan to address succession and ownership—an increase of 26% over the percentage in 2012.

The 2014 Northwest Family Business Survey, a joint effort of the Pacific Family Business Institute and Riley Research Associates, was conducted via telephone and online. More than 69% of the respondents reported annual revenues over $5 million, and 5% reported sales of at least $75 million. Just over half employ two generations, about a quarter employ one generation and about one-fifth employ three or more generations.

Pacific Family Business Institute co-director Mark Green attributes the planning progress to two factors: the long tradition of family business education in the region, and baby boomers' willingness to embrace a systematic approach to succession.

Oregon State University's College of Business established what is now known as the Austin Family Business Program in 1985 and began the program's educational events in 1986. It was the second family business program established in the U.S. (The first was founded at the University of Pennsylvania's Wharton School.) "We've been spreading the gospel of family business and helping advisers hone their skills," Green says. "I think that's set the stage... For the last 25-plus years, it's been part of our culture and environment."

Green adds that in contrast to their parents, who came of age around World War II and favored strict hierarchy, the baby boomers who are now retiring are taking a "much more productive approach" to succession. "They are being strategic and actually going through a process," he says.

Green points out that the succession planning process can take seven to ten years. "This is hard work; it's very sensitive and very difficult," he says. "People are living longer, and there's a lot of complexity there." The study found—not surprisingly—that older firms are more likely to have a written succession plan than those in business for 20 or fewer years.

Evolving governance structures

About a third (31%) of respondents said they have a formal board, while 30% have an advisory board and 28% have no board at all. (The remaining responses were characterized as "unspecified" or "refused.")

Green refers to an advisory board as "a step in the evolution of governance" and notes that he's seen an increase in the number of business owners who are interested in setting up a board of advisers. "They are asking questions about how that works," he notes.

Most survey participants (68%) said they have four or fewer board members; 32% have five or more. Older companies and those with higher revenues were more likely to have five or more board members, the survey report noted. The survey did not ask whether the boards included any independent members. "We will certainly add that question in a future survey," Green says. The vast majority (87%) of respondents do not compensate their board members.

Half of the respondents' boards meet between two and four times per year, while 40% meet just once a year and 10% meet five or more times.

Green acknowledges that boards with few members (especially those whose members are all family owners) and those that rarely meet are not optimal governance structures but says he expects more family companies in his region to shift to professional boards over time, as business owners educate themselves about how a board can help their companies.

Optimistic owners

The 2014 Pacific Northwest survey found that respondents are optimistic about their future. Most (71%) anticipate higher revenue over the next three years.

Participants in the study also were optimistic about their family's ability to continue or expand the family business. On a scale of 1 to 10, with 10 representing "completely confident," the average response was 7.2. The level of confidence increased with the number of full-time equivalent employees.

"They're investing in themselves, and they have confidence," Green comments. "Family businesses are flexible, adaptable and opportunistic. They're coming up with new ideas in order to grow and sustain their businesses."






Copyright 2014 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact

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March/April 2013 Openers

U.S. family business owners were less concerned about market conditions in 2012 than they were in 2010, and more optimistic about growth prospects than their global peers were, according to PwC’s latest global family business survey.

For the U.S. edition of its survey, the professional-services firm interviewed 100 owners, leaders and top executives of family businesses via telephone between June and September 2012. Of this cohort, 93% said they were confident about growth in the next five years, compared with 81% of respondents in the global survey, in which representatives from nearly 2,000 companies in 28 countries were queried.

More than two-thirds (68%) of the U.S. respondents cited market conditions as a main issue they will face over the next year. In 2010, by contrast, 88% said market conditions would be a major challenge.

Perhaps because of optimism about the economy, 76% of the U.S. executives who responded to the survey said they plan to pass the business to the next generation rather than sell it. This is the highest percentage since the first PwC family business survey in 2007, and a significant increase over the 2010 figure (55%).

Yet not all of these U.S. heirs will run the companies they inherit. Of the 76% who planned to keep their businesses in the family, 52% expected that the heirs would both own and manage the business, while 24% said they intended for the next generation to own but not run the company. This indicates that family business leaders are objectively evaluating the next generation’s leadership skills.

In the global survey, 41% of the respondents said they planned to pass management on to the next generation, and 25% said they intended to pass on ownership but bring in professional management.

Alfred Peguero, PwC’s U.S. Family Offices Services leader, foresees an increase in demand for non-family talent in closely held businesses as a growing number of retiring leaders seek outside executives to lead their companies. More than half (52%) of the U.S. executives cited “attracting the right skills/talent” as a top challenge in the next five years.

Need for innovation

While 46% of the U.S. executives said family businesses reinvent themselves with each new generation, 31% said that having family members in key positions makes a company less open to new ideas. And half the U.S. respondents voiced concern that next-generation members might not have the drive and aptitude to lead the business into the future.

More than two-thirds (69%) of the U.S. survey participants said family businesses are more entrepreneurial than other companies. But 58% of the U.S. executives said the need to continually innovate was a major challenge. In fact, the only challenges cited more frequently were the “general economic situation” (66%) and price competition (61%).

A board of directors that includes outside members can help a family firm address its internal and external issues. Nearly two-thirds (64%) of the global respondents said they have non-family board members; among those with revenues of more than $100 million, the figure was 75%. Yet PwC noted wide global variations; in the U.K. and North America, the percentage of companies with outside directors was as low as 49%.

Nearly three-quarters of the global respondents said family businesses contribute to economic stability, and 53% said family firms take a long-term approach to decision making. Because of their emphasis on legacy, family firms have a reputation for conservatism. Yet 42% of respondents to PwC’s U.S. survey said they tend to take on more risk than other types of businesses.

“The [family firms] that are successful are really grasping new technologies and new innovations,” says PwC’s Peguero. “They’re making these investments.”

Family business leaders consider their personal connections with customers to be a competitive advantage and an important part of their business model. Most (78%) of the global survey participants said family businesses stand out because of the strength of their culture and values. Among third-generation firms in the global study, the figure rose to 85%.

Facing the challenges

Although tax issues were hotly debated in the U.S. election campaign of 2012, only 9% of the American respondents to PwC’s 2012 study cited taxes in their top three external challenges for the next year, a 10-point drop from the 2010 survey. Yet the survey report authors note that participants “voiced a strong desire to see the inheritance tax go away and for the tax code overall to be simplified.” About a third (34%) of U.S. executives ranked government policy among the top external issues that would affect them in the next year.

When family business leaders were asked about external challenges, “Their big concern was market conditions,” rather than taxes, Peguero notes. “The economy, and finding talent, is what keeps them up at night.”

More than a third (38%) of the U.S. respondents said succession planning would pose a challenge in five years. Among global respondents, 32% said they were apprehensive about transfer of the business to the next generation, and 9% said there might be family conflict as a result.

A recurring theme in conversations with survey respondents, according to Peguero, was, “I have this family business, and I love my children, but who do I hand over the wealth, as well as the power, to?” Many leaders recognize that a non-family member may be the best choice for the next CEO—though they realize their relatives may not agree with that decision when it’s first announced.

“It’s that part that is the holy grail —obtaining a quality succession plan that at least a majority of the family agree to,” Peguero says.

Global respondents: Future plans

U.S. respondents: Future plans

U.S. respondents: Challenges in the next 5 years




Copyright 2013 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact




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September/October 2012 Openers

A recent survey of Canadian family businesses found that although about half the respondents expect a generational transition in the next five years, few have plans or governance structures in place to smooth the handoff. But the good news uncovered by the study is that next-generation members are aware of the challenges they face—and they have insightful suggestions about how their elders can help them.

The study, entitled “Family Ties: Canadian Business in the Family Way,” was conducted by KPMG Enterprise, a unit of the giant professional services network, in cooperation with the Canadian Association of Family Enterprise (CAFE), a national non-profit organization. There were two phases to the project, both conducted via online surveys. In the first phase, completed in June 2011, 322 family business members were polled; 43% of these respondents said their companies have revenues greater than C$10 million, and 38% have been in business more than 40 years. Survey participants’ companies had an average of four shareholding family members with an active role in the business.

In the second phase of the study, completed in January 2012, 195 next-generation members were questioned; two-thirds of these respondents represented the second generation of their business families.

Planning is overlooked

Half the survey participants predicted their next CEO will be recruited from the business, and 42% said the new leader will be a member of the owner’s or major shareholder’s family. Yet only 11% of respondents have developed a formal plan for CEO succession; one-third of those surveyed said they are in the process of creating one.

According to the survey report, a majority of respondents said their family firm had not developed formal policies to cover family employment, conflict resolution or mentoring, training and development of family members.

Participants’ responses indicated that few were devoting much attention to governance issues. Only 28% of respondents said their company has a formal board of directors that convenes for reasons other than meeting corporate legal requirements. More than half said their boards or governing bodies have had no training to perform their roles. Three-quarters said their board was not subject to formal assessment.

Only 12% of the respondents said they have a formal family council, and a mere 7% said they have a formal family constitution. One-quarter of the participants said they hold formal shareholder meetings; another 25% said their shareholder meetings were informal.

Respondents who left their family’s business were asked why they did. Among their reasons were a desire for new challenges, difficult family dynamics and no announced successor to the current owner/manager.

Canada’s economic engine

CAFE chairman Allen S. Taylor says that helping family business owners succeed in passing their companies to the next generation is essential from a national perspective. “The business family community is very much an engine of the Canadian economy,” Taylor tells Family Business Magazine. “Much of the innovation, much of the job growth, much of the GDP and much of the philanthropy is rooted in business families. There’s a risk to the economy if we’re not more diligent and professional in planning that transition.”

While family business centers in the U.S. tend to be regionally oriented, CAFE is a national organization devoted to family business best practices, Taylor notes. “CAFE is a connective association where ideas can be discussed,” he says. His organization’s effort to build a family business community “is going to encourage that conversation.”

The survey results, Taylor says, confirm family business observers’ suspicion that generational transition is imminent in many Canadian family firms. “The message is: There’s a big wave coming, and there’s going to be a lot of work to do,” he says. “We need to get on with the business of planning good transitions.”

Next-generation sophistication

Beverly J. Johnson, partner and Canadian national chair of the Family Business Committee at KPMG Enterprise, says the next-generation members’ comments abounded with good ideas. The study’s most encouraging finding, she says, was “the ability of the next generation to say, ‘Here’s what we really need to help the transition move forward.’”

Both Johnson and Taylor note that resources for family business stakeholders have become more widely available since the 1980s, and many universities now include family business courses in their business school curricula. Younger-generation members are using the Internet to find information on family business ownership, Taylor says. “There is a lot more awareness,” he notes.

Next-generation mem-bers who participated in the survey were asked about the biggest obstacles to their success in the family business. Second- through fourth-generation members were targeted in this phase of the study. These re-spondents cited the following challenges:

• Gaining experience by working outside the family firm.

• Acquiring skills needed in their family business or expertise that complements the skills of current family members or employees.

• Gaining business knowledge.

• Acquiring vision and leadership capabilities.

>• Overcoming entitlement issues by developing a strong work ethic and recognizing that success in the family business must be earned.

The next-generation respondents also proposed ways that business families can help develop young members, including better communication, formal education and training, a requirement for experience outside the family business, openness to new ideas, clarity of vision and future plans, and a mentoring program. “Survey responses show that future generations clearly want more mentoring from senior family members,” the survey report states.

CAFE’s Taylor notes that responses from next-generation business owners indicate that they want to be involved in transition planning. “There’s a risk in not engaging them early on in the process,” he says. “They want to see their views and visions incorporated.”

The findings from the first phase of the survey indicate that many senior business owners address planning issues on an ad hoc basis. But, Taylor says, when it comes to transition planning, “The next generation wants to embrace a formal approach. They’re looking to the family and their advisers to develop a plan that they can participate in.”

The next-generation portion of the survey, Johnson says, highlights the need for intergenerational dialogue in business families. “When you read the comments in the next generation’s responses,” she notes, “communication comes up a lot.” Fear of conflict keeps business families from starting conversations, she says. But the impending management and ownership transition in so many Canadian firms will require serious discussion.

“I see it as a challenge,” Johnson says, “but it’s really an opportunity to get communication going.”







Copyright 2012 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact








Does your business utilize the following practices?



  Yes, with
a formal
status (%)
Yes, infor-
mally (%)
No (%)
A shareholder assembly/meeting

(Periodic meetings of the shareholders)

25 25 50
A family assembly/meeting (Periodic or

regular meetings with family members

who are active in the business)

15 33 52
A family council (Periodic meetings with

most or all of the family [active and

non-active members])

12 29 59
A family office (Managing the family’s wealth) 9 13 78
A family constitution (Set of family business

written rules that helps govern the family’s

employment, ownership and wealth distribution)

7 9 84

Source: “Family Ties: Canadian Business in the Family Way”











“It’s remarkable that so much name-calling has been made in public. It shows that there’s a great amount of tension in the family.”


— Seoul-based business consultant Thomas Coyner, discussing the feud between Samsung Electronics chairman Lee Kun Hee and his siblings (Bloomberg Businessweek, June 7, 2012).

“I would have preferred for my sons to be interested in joining the family business, but it doesn’t bother me that they didn’t. They’re all very creative, and I think it’s most important that they pursue something that they love, like I did.”


— Cheesecake Factory CEO David Overton (Los Angeles Times, June 24, 2012).

“There are more than 27 million businesses in the United States. About a thousand are huge conglomerates seeking to increase profits. Another several thousand are small or medium-size companies seeking their big score. A vast majority, however, are what economists call lifestyle businesses. They are owned by people whose goal is to do what they like and to cover their nut. These surviving proprietors hadn’t merely been lucky. They loved their businesses so much that they found a way to hold on to them, even if it meant making bad business decisions. It’s a remarkable accomplishment in its own right.”


— Adam Davidson,“Can Mom-and-Pop Shops Survive Extreme Gentrification?,” New York Times Magazine, June 10, 2012.

“Imagine we did sell the company and they [the shareholders] collected several billion euros in return. What would they do with the money? Who could they trust to look after it for them? There’s no reason for anyone to want to leave [being a shareholder] in Freudenberg, which is becoming more valuable by the day.”


— Peter Bettermann, retiring CEO of Freudenberg, a large textile and chemical firm in Weinheim, Germany, that is owned by 320 descendants of Carl Johann Freudenberg, who founded the business in 1849 (Financial Times, June 14, 2012).

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Winter 2012 Openers

Why family firms are exceptional

Several recent studies sought to identify and explain family businesses’ competitive advantages.

Three recent studies aimed to shed light on family companies’ competitive advantages, and to explain the role of the “family factor” in conferring those advantages. The findings confirm some conventional wisdom about family businesses. They also indicate that if a proper balance is not achieved, a strength can become a weakness.

• A research team from Brigham Young University’s Marriott School of Management compared family-controlled public companies with other publicly owned businesses and found that companies whose founder or founding family strongly influences management are involved in more socially responsible initiatives.

John B. Bingham, an associate professor of organizational leadership and strategy, and associates (Journal of Business Ethics, 99:565-85, 2011) analyzed 700 companies that were listed on the S&P 500 between 1991 and 2005. They concluded that compared with non-family corporations, family firms are more likely to consider the local community and employees when making decisions and were more likely to engage in social initiatives that benefit their staff (such as retirement benefits) and the community (such as volunteer activity or charitable giving).

• U.K. private bank Coutts & Co. analyzed 300 nominees for its Coutts Prize for Family Business between 2005 and 2010 to glean insights into what has made these family firms successful. (Citing the dismal economic climate, Coutts announced in October 2011 that it would stop granting the prize, which honored companies in England and Wales.) Researcher Rupert Merson from London Business School and INSEAD studied the companies and found that five groups of strengths were most frequently cited:

1. Exceptional human resources practices.

2. Agility and flexibility in decision making.

3. A personal approach to doing business.

4. Honesty and integrity in business affairs.

5. The family as a source of competitive advantage and brand image.

The Coutts report noted that several of these strengths have their downsides. For example, a company with many long-tenured employees could be seen as inspiring great loyalty or as too timid to prune the deadwood. By the same token, a company that benefits from strong personal relationships with customers and suppliers might be too dependent on a few key people.

• Executive search firm Egon Zehnder International queried 720 managers from around the world on their experiences with family businesses and their views on family firms. Respondents to the online survey included family business owners, non-family managers in family companies and executives with no family business experience.

More than half (56.3%) of the respondents said family firms’ most striking advantage is their long-term perspective. According to 53% of the executives and 64% of the family business owners, this long-term outlook allows family businesses to be more innovative than other companies. And two out of three of the family business owners said that being a family company helped them cope with economic downturns.

However, 63.3% of respondents with family business experience were aware of cases in which family conflicts hindered business decisions, and 29.7% described collaboration between family owners and non-family managers as “marked by major conflicts.”

Only 29.8% of those with family business experience said decision-making processes were transparent. According to 59.1%, “competence of family members working in the business” was a main source of conflict, followed by “lacking agreement on vision and future strategy of the business” (48.1%).

About 75% of respondents said that family members have an advantage over non-family members when it comes to CEO succession in family businesses. Nearly two-thirds (61.6%) of the participants cited “lack of professional structures and procedures” as a disadvantage of family firms, and 49% cited “limited potential to attract professional management.”

The researchers concluded that in order to make the most of their competitive strengths, family business owners should consider taking three measures: strictly separating family and company interests, instituting a policy of transparency in decision making, and offering attractive career opportunities for non-family members.

Copyright 2011 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact




The Scoop: Dodd-Frank deadline is March 30

Under the Family Office Rule —which Congress inserted into the Investment Advisers Act of 1940 last year as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act—certain family offices must register with the Securities and Exchange Commission by March 30, 2012.

Family offices are exempt from this requirement if they provide investment advice only to family clients (as defined by the SEC), are wholly owned and controlled by family members and do not hold themselves out to the public as investment advisers.

The Family Office Exchange (FOX) —a research, education and consulting resource to wealthy families and their advisers—notes that families that do not qualify for the SEC’s family office exemption have several alternatives to registering with the SEC.

1. Declining all clients that don’t fit the SEC definition of “family client” in order to become a qualifying family office.

2. Removing the investment function from family office control.

3. Reorganizing the office as a state-regulated, family-owned private trust company.

4. Seeking an exemption from the SEC.

Non-compliance with the law, however, is not an option, FOX stresses.

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Final Point

We asked participants in our Family Business Survey—an anonymous online poll conducted in July and August 2011—to list the family and business issues that keep them up at night. Here are some of the responses:

Family concerns

“Is it the business that keeps the family together or the family that keeps the business together?”

“Increased numbers of family members in coming generations.”

Appropriate distribution of family assets between those in the business and those outside the business.”

“Strained relationships with family members not in business because of jealousy.”

“Are the successors really going to manage the company properly?”

“Can they all get along when I am gone?”

“A divorce of a family business member.”

“Next generation has had it too easy, but not their fault.”

“Effects of alcohol on the happiness of family members.”

“Wondering if the cousins can work together in the family business. What next?”

“The challenge of passing on the wealth creating tools that my Dad showed me to my children before I die.”

“Non-active family members wanting to sell shares.”

“What to do with myself if I step down.”

“What will be the best succession plan if none of the third generation becomes involved in the business?”

“Founder not willing to name a successor because he may hurt children’s feelings.”

“What company debt load will be to buy out retiring family.”

“Lack of a shareholder agreement —no easy way to deal with issues or have someone exit.”

“Migration of key older leaders out of the business.”

“Underlying issues between members that aren’t discussed.”

“Fairness—all siblings paid the same.”

“How can I create a sense of urgency with family about strategic growth?”

“Keeping family satisfied with cash generated from business.”

“What can be done to instill the vision to create and perpetuate a legacy family in the current family members?”

“Lack of adequate estate planning to address value growth in business.”

“Making business decisions like a family instead of like a business.”

Business concerns

“Trying to make decisions with my head instead of my heart.”

“Meeting current obligations in this economy.”

“Losing the company culture under professional management.”

“Increasing cost of complexity as work scope expands.”

“Strategic direction that will satisfy elder generation’s dividend needs and allow company to grow for future generation’s wealth.”

“Excessive rules & taxes.”

“Dysfunctional and divisive -government.”

“Impact of failed U.S. financial policy on private business.”

“Timeline for succession.”

“Borrowed money.”

“Should we bring in private equity for growth capital?”

“Consolidation in the industry.”

“Unwillingness to listen, learn and be open to new ideas and suggestions on how to improve.”

“Minority investors.”

“Possible need for job reductions and its negative impact on morale and performance.”

“Cost to manufacture in the U.S. and availability of technical, qualified workforce.”

“How do I get money out of company? Asset rich/cash poor.”

“Repurposing our company for future needs.”

“Soft board of directors.”

“My senior team is getting a little old.”

“Lack of agreement from second generation as to the direction the founder wants the business to take.”

“We are not unionized in a unionized industry. We work hard to educate our employees as to why we are beating the competition and why we should remain non-union.”

Other comments

“Objective counsel is the key to success and to be willing to objectively listen to it. Especially when it is about oneself. That can be hard to swallow.”



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Family business longevity examined in a new light

In this issue, we celebrate the longevity of America’s oldest family businesses—companies that have been continuously owned by the same family for 155 years or more. Sustaining a family enterprise for more than a century and a half is a truly remarkable achievement. But does that mean family companies that last for only two or three generations are a failure? Should we consider families who have exited their businesses as less accomplished than those who continue to operate the legacy company—even if those who sell their businesses use the proceeds to create new, and greater, wealth? Why is business longevity so often viewed as the only meaningful measure of an enterprising family’s success?

A three-year study conducted under the auspices of the Family Firm Institute—a global association of researchers and advisers—aimed to reframe the view of family enterprise from a focus on operating companies to an assessment of value creation over time. The “FFI/Goodman Longevity Study,” completed in 2010, was conducted by Robert Nason, who was then at Babson College and is now pursuing a Ph.D. in entrepreneurship at Syracuse University, along with two European researchers: Mattias Nordqvist of Jönköping International Business School in Sweden and Thomas Zellweger of the University of St. Gallen in Switzerland. The study was funded in part by attorney and FFI member Joe Goodman. It will be published in a forthcoming issue of the field’s academic journal, Family Business Review.

Putting statistics in context

The investigators re-examined frequently quoted statistics from a 1987 study by John L. Ward, now at the Kellogg School. Ward’s nearly quarter-century-old report said that only 30% of family companies survive through the second generation, and just 13% make it through the third. Ward himself has acknowledged the limitations of that study, Nason and Nordqvist noted in a presentation at FFI’s 2010 annual conference in Chicago. Ward surveyed just 200 companies from only one state (Illinois) and only one industry (manufacturing).

Moreover, the researchers noted, Ward’s family business findings should be compared with longevity statistics for companies in general. Based on an assessment of U.S. Census data on start-ups founded in 2000—both family and non-family businesses—50% to 60% of all companies failed in the first five years, and only 25% lasted a decade. “[Ward’s] oft-cited survival statistics are low, out of context and not generalizable,” Nason and Nordqvist asserted in their presentation.

The FFI/Goodman team circulated an online questionnaire to senior family firm executives and received 541 responses, which they winnowed to 118. About 70% of the respondents were from the U.S. The survey participants’ annual revenues ranged from less than $1 million to $3 billion; the enterprises ranged in age from less than 20 years to 384 years (the mean was 60 years).

Challenging traditional assumptions

The study found that just 10.6% of the family enterprises owned only one business. The average number of companies controlled by these families was 3.4; 21.3% controlled five or more. Over the history of the participating families, they had owned an average of 6.1 firms. The investigators noted that research in the field has traditionally centered on firms founded by families and has not sufficiently addressed companies acquired through M&A; the families in their study added an average of 2.7 companies via acquisition.

Nason notes that since nearly 90% of the families in the study population own multiple businesses, shuttering one family-owned company would not spell the end of those families’ wealth-creating activity. “They’re divesting underperforming assets and redeploying them,” Nason notes. In other words, these successful families have business “failures” in their history.

The findings, the investigators pointed out, indicate that the key wealth creation vehicle is not the firm but the family.

Moreover, the researchers noted, companies can be old but not entrepreneurial. A number of the historic firms on the Family Business 100, for example, have survived but not grown; in fact, several have contracted over the years.

The FFI/Goodman team noted that previous studies have not adequately addressed the importance of innovation and risk taking to family firms’ entrepreneurship and longevity. Another important component is what they call “transgenerational entrepreneurial orientation,” or “decision making with the success of the next generation in mind.”

In a 2002 article (Family Business Review, 15[3]: 223-38, 2002), researchers Timothy G. Habbershon and Joseph Pistrui wrote, “Families committed to transgenerational wealth must understand that markets inevitably change and that all asset-dependent advantages erode over time…. Transgenerational wealth, therefore, embodies an implicit assumption that the family ownership group will develop entrepreneurial change capabilities in line with the inevitable need to shed or redeploy assets once its value-creating properties approach exhaustion.”

Habbershon and Pistrui contended that a “prevailing stereotype” exists in the family business arena: “diversifying assets through a sale (even at a premium) or utilizing traditional growth strategies—going public, forming a strategic alliance, merging, leveraging the company—can be viewed as a failure rather than a step toward continued wealth creation.”

In other words, Nason says, the focus of family business owners and their advisers should be on sustainability of the family’s wealth, not on longevity of a particular operating entity.

Families with a transgenerational orientation view the legacy company broadly rather than narrowly. Though they lovingly tell their children tales of the original business model and the town where it first took root, those aspects are just part of the family story. They place their emphasis on the founder’s entrepreneurial spirit, attention to the marketplace, flexibility and sense of stewardship. This perspective raises the odds that the family will prosper as an economic unit over many generations, no matter what form its wealth-creating entities take.












The FFI/Goodman Longevity Study


• 10.6% of the families studied controlled only one business.

• 21.3% of the families controlled five or more businesses.

Over the history of the participating families, they had owned an average of 6.1 firms.

The families added an average of 2.7 firms through M&A.

Over the history of the families’ business activity, their main industry shifted an average of 2.1 times.

Over the families’ history, they spun off an average of 1.5 companies.

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