Global Study: Family Businesses Manage Economic Downturns, but Face Uphill Battles to Remain Competitive
NEW YORK, Sept. 19, 2011 /PRNewswire/ — More than half of all family-owned business owners and executives worldwide overwhelmingly attribute the nature of their businesses to helping them cope and prosper through the economic downturns, yet succession planning and conflicts among family members pose challenges, according to a study released today by executive search firm Egon Zehnder International.
In the study, the 10th International Executive Panel, 720 executives were asked about their experience of family businesses. Respondents included family business owners and executives from the Americas, Asia-Pacific and Europe.
“This study clearly shows that the long-term perspective, value-based decision making and independence from the capital market give family-owned businesses a genuine competitive edge in the marketplace,” said Karena Strella, Co-leader of Egon Zehnder International’s U.S. Business. “However inter-generation rivalry, lack of formal processes for family governance and leadership succession as well as the absence of meritocracy in executive appointments can impact their success dramatically,” he added.
Family vs. Corporate Interests
Balancing the interest of the family and company can be a potential source of conflict. In fact, nearly two-thirds of those surveyed are aware of cases in which family conflicts have hindered business decisions. Only one-third of all respondents describe decision-making at their company as absolutely transparent and comprehensible. The strategic issues are mostly decided by a family council (51 percent), while top management makes these decisions in only one family business out of five. No less than one-third of executives from this type of company describe collaboration with the owners as “marked by major conflicts”. And in Asia in particular, conflict between management and owners seems to be a common occurrence (44 percent).
The most common cause of conflict is the doubts regarding the merits of family members who work at the company (60 percent). The very appointment of family members to management positions leads to conflict in more than one out of four cases.
The lack of transparency in decision making has the most profound impact on leadership decisions in family-owned businesses. In terms of CEO succession, three-fourths of those surveyed consider that family members are at an advantage over non-family top executives. And despite the fact that the majority of respondents say they think it is important to take external professional advice on succession planning, only one-third of executives claim that professional succession planning is a reality at their companies.
One of the biggest challenges for family businesses is recruiting top talent and integrating them into structures that have evolved over the years and that are often perceived as being short on transparency. When asked why they would not work for a family business, 40 percent of the executives surveyed name a lack of career prospects.
Further, according to the survey, there is room for improvement in integration. Over 70 percent of the top executives surveyed believe that formal integration processes for non-family managers are particularly important. However, only one owner in four reports that such integration processes are in place at their companies.
While the majority of owners (55 percent) claim to make management appointments solely on merit, only one executive in three on the panel (36 percent) has the impression that top management posts at their company are awarded without consideration of family membership.
The study detailed the following findings:
- 56.3 percent of respondents stated that the most striking advantage of family-owned businesses is their long-term perspective. In the U.S. 47.2 percent of respondents agreed with this. This was the highest in Sweden (83.3 percent) and the lowest in India (25.7 percent).
- Two out of three family business owners state that the nature of family businesses helps them cope with economic downturns. (76.5 percent in Great Britain; 52 percent in India; 48.1 percent in the U.S.).
- For the majority of survey respondents (53 percent of executives, 64 percent of family business owners) their longer-term outlook means that family businesses can afford to be more innovative than other companies.
Family vs. Corporate Interests
- Big strategic issues are mostly decided by a family council (51 percent), while top management gets to make these decisions in only one family business out of five.
- Decision-making is described as absolutely transparent and comprehensible by only one third of all respondents.
- Two businesses out of three report that family conflicts have been known to hinder decisions.
- No less than one-third of executives from this type of company describe collaboration with the owners as “marked by major conflicts” (43.5 percent in India; 39.5 percent in the U.S.; 37.5 percent in Great Britain).
- Most common cause of conflict is doubts regarding the merits of family members who work at the company (60 percent overall; 65.8 percent in the U.S.; 63.2 percent in India; 53.3 percent in Great Britain).
- The very appointment of family members to management positions leads to conflict in more than one case out of four.
CEO Succession and talent integration
- 75 percent of respondents indicate that family members have an advantage over non-family members when it comes to CEO Succession. (88.5 percent in India; 84.8 percent in the U.S.; 84.8 percent in Great Britain; 58.5 percent in Germany).
- 63.2 percent of family-owned business owners do not have an integration plan in place for non-family senior executives (77.8 percent in the U.S.; 50 percent in India).
To obtain a copy of the study results please visit www.egonzehnder.com/iep-familybusiness
About Egon Zehnder International
Egon Zehnder International is one of the largest privately-held executive search firms in the world with nearly 400 consultants operating from 63 wholly-owned offices in 37 countries. The firm specializes in senior-level executive search, board consulting and director search, management appraisals, and talent management. Egon Zehnder International’s clients range in size from the world’s largest corporations to emerging growth companies to government and regulatory bodies and major educational and cultural organizations. Egon Zehnder International has sector specialists organized into global practices. These include Industrial, Financial Services, Consumer, Life Sciences, Technology & Communications, Services, Private Capital and Sovereign Wealth Funds. For more information visit www.egonzehnder.com.
SOURCE Egon Zehnder International