Family Business Survey 2015: An overview

Family Business Survey 2015: An overview

Australian family businesses are optimistic about their future growth prospects and are becoming increasingly adept at managing and facilitating change.

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Family Business Survey 2015: An overview

"It is no surprise that family businesses with an entrepreneurial culture are outperforming others. Innovativeness, the willingness to take risks, delegate authority and proactively seek new ideas and opportunities are all important attributes for developing a sustainable competitive advantage, that technology can help to harness.” – Bill Noye

Since 2005, we have sought to better understand the unique nature, opportunities and challenges of family owned businesses, and in this year’s survey we have gone deeper, to identify the characteristics of high performing family businesses.

Produced in collaboration with Family Business Australia and the University of Adelaide's Family Business Education and Research Group (FBERG), the Family Business Survey 2015 reveals the five key trends that are shaping the future of Australian family business.

1. Objectives and performance

One of the greatest challenges in 2015 is balancing business objectives with those of the family. Results from this year’s survey also suggest that this is one of the top reasons for conflict in family business.

Top business objectives include product and service quality, cash flow, and net profit. Top family objectives include financial security for the family, personal challenge, satisfaction and rewards; and quality of life outside work. 

Below are the characteristics of family businesses that are able to achieve a business/family objective balance:

  • Age matters: performance peaks with a CEO aged 51 – 60 years of age. 
  • Diversity in leadership: more likely to have a female CEO, and have a formal board of directors with a non-family or non-executive director. 
  • Agreement and communication: utilise governance mechanisms that emphasise communication of the expectations of the family, the business and shareholders. 
  • Outward focus: adoption of management practises that focus on what is happening outside the business. 
  • Entrepreneurial culture: support of the pursuit of innovation to develop the business  and the people in it. 
  • Access to resources: the financial resources to realise their strategies and vision.

2. Managing and resolving conflict

We found that too much emphasis on business can cause conflict and resentment within the family. Conversely, an over-emphasis on family objectives can undermine business performance. 

Over 80 percent of the family businesses surveyed indicated they had experienced some conflict or tension between family members over the last 12 months. The most common reasons for conflict were issues around the following:

  • vision, goals and strategy 
  • balancing the needs of the business and vs. the family 
  • a lack of family communication. 

Analysis of the 2015 survey data reveals that family businesses with a Family Council (i.e. formal family gatherings) are significantly less likely to have encountered conflict within the family within the last 12 months. 

3. Technological change and future outlook

Nearly 80 percent of businesses surveyed say they are optimistic about their future growth prospects, but we also wanted to know the effect of technological change on family businesses. 

Businesses agreed that technological change is creating disruptions in the way business is done, with more than half of reporting that this change is creating a positive impact on their business, including:

  • the way they manage their business 
  • internal business processes 
  • customer interaction and relationships 
  • viability of current business model 
  • supplier interaction and relationships. 

However, over 20 percent indicated that technological change is increasing the costs of doing business, as well as increasing competition.

4. Evolving governance mechanisms

There is an increasing trend for family businesses to adopt formal governance mechanisms. These are critical for aligning the needs of both the family and the business, developing goals and increasing business performance.

Significant increases in the 2015 survey included:

  • 52 percent of businesses have a formal board of directors (39 percent in 2011) 
  • 43 percent have a shareholders’ agreement in place (36 percent in 2013) 
  • 31 percent have a family constitution or code of conduct (20 percent in 2011).  

There is also a noticeable trend for family businesses to appoint non-executive directors from within the family. Seventy-two percent of non-executive directors are family members, which is more than 50 percent higher than 2013.

5. Preparing for leadership and ownership transitions

For all family CEOs, there will come a time to pass on the leadership baton. Seventy-six percent of businesses surveyed expect to appoint a new CEO in the next 5 years, and 60 percent of those businesses intend to pass on leadership to a family member.

It is essential that a suitable successor is appropriately prepared and that the CEO hands over the reins in a timely manner. However, 55 percent of those passing on leadership in the next 2-3 years do not believe their successor is ready. CEOs believe their potential successor needs to work on:

  • financial management 
  • strategic planning 
  • leading and managing people.

In regards to ownership, the survey overwhelmingly suggests that most family businesses will undergo some form of ownership change in the next 5 years:

  • 72 percent expect to have some transfer of ownership in the next 5 years 
  • 64 percent intend to pass ownership solely to family members.

Consistent with prior research, family businesses appear to be ill-prepared for exit/succession with regard to their documented plans, however, encouragingly are more prepared than in 2013.

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