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70% global family businesses have no formal succession plan: Report

FE Bureau
global family businesses, chief executive officers, formal succession plan, STEP, Family Business, global family CEO, Indian family businesses 

More than half of global family chief executive officers (CEOs) do not have a formal retirement plan and 70% of global family businesses do not have a formal succession plan. With people living longer, increasing demographics and societal changes, family businesses in different parts of the world are exposed to new challenges which make their traditional methods of succession and governance no longer appropriate, says a survey report.

Globally, 48 universities conducted the survey across 33 countries, covering over 1,800 family businesses, under the umbrella of STEP (Successful Transgenerational Entrepreneurship Practices) project, to reflect upon the changing demographics and how they impact family business governance, succession, entrepreneurial orientation and performance. Thomas Schmidheiny Centre for Family Enterprise, Indian School of Business-being the only member from India-conducted the survey in India.

The report, The impact of changing demographics on family business succession planning and governance is co-authored by Andrea Calabrò, (STEP Global Academic director & IPAG Family Business Institute) and Alfredo Valentino (STEP Global Research Champion & ESCE International Business School) and sponsored by the KPMG Enterprise Center of Excellence for Family Business.

"Many of the Indian family businesses were incorporated in the late 1980s and early 1990s when economic reforms were introduced. Most of these business founders find themselves at the brink of retirement with no planned succession. However, the challenges of retirement and succession are not limited to India. The STEP 2019 Global Family Business Survey shows that family businesses in different parts of the world are also exposed to these challenges," said Nupur Pavan Bang, associate director, Thomas Schmidheiny Centre for Family Enterprise, ISB, in a statement.

About 70% of global family businesses do not have a formal succession plan though 47% of global family businesses have a succession plan in case of unexpected events. While this is good, it is not enough to ensure the long-term sustainability of family businesses, it said. Availability of talent is the main concern of family business leaders, globally.

Family businesses, which are led by leaders belonging to Generation X and millennials have higher level of firm performance than family businesses, led by older demographic cohorts. Hence, it is time to "pass the baton" to millennial CEOs to boost family business performance. Moreover, to sustain competitiveness, it is also important to continuously look for talent and family businesses globally should reflect on how to increase and strengthen their branding as an employer, it said.

There is a perceived need for change of family businesses' existing family governance structures. Family businesses wanting to strengthen family members' identification with the firm need to implement more than one family governance tool.

The report said that global family CEOs plan to retire between the age of 61-70. However, more than half of global family CEOs do not have a formal retirement plan and about one third of global family CEOs does not plan to spend time in business activities after retirement. There is a need for family businesses globally to implement CEO retirement plans. Family CEOs are still retiring too late but, after retirement, they plan not to be further involved in the business, the survey added.