Family Business Owners Anticipate Continued Growth, Yet Lack Adequate Plans for Succession...

Family Business Owners Anticipate Continued Growth, Yet Lack Adequate Plansfor Succession and Conflict Resolution

NEW YORK, Nov. 29 /PRNewswire/ -- Almost two-thirds of the family ownedbusinesses surveyed for PricewaterhouseCoopers' Family Business Survey 2007/08experienced a growth in demand in the past 12 months, with nearly the samenumber expecting the value of orders or contracts to increase over the nextyear. However, while nearly 75 percent of family businesses have developed astrategic business plan, approximately 44 percent of all respondents have notcreated a formal succession plan for key senior roles and almost four out offive companies have no procedures in place for dealing with disputes betweenfamily members.

Facing Challenges: While a majority of surveyed companies believe the mainexternal challenges over the next 12 months will be market conditions (56percent), competitive pressure (34 percent) and government policy (24 percent)

-- they recognize that significant challenges arise internally as well.-- they recognize that significant challenges arise internally as well.Leading their list are labor shortages (49 percent), cash flow management (25percent), and the need for corporate restructuring to adapt to a fast-changingbusiness environment (24 percent).

A labor shortfall is particularly acute in the U.S., where an entiregeneration is preparing to retire and the pool of younger replacement workersis smaller. "With the labor pool shrinking, companies will find it difficultto retain their most talented workers, who will have many options in the newmarketplace. Employers must begin planning now on how to replace key personnelwho will be retiring over the next three to five years. Family businesses inparticular need to carefully plan for the future of their company to avoid anypotential conflicts between family members involved in the company," saysAlfred Peguero, U.S. Family Office Services Leader, PricewaterhouseCoopers'Private Company Services practice.

Succession Planning: Approximately one out of four (26 percent) of thesurveyed companies plan to change hands within the next five years, but onlyhalf have chosen a successor and a significant percentage (44 percent) do nothave a succession plan in place.

"Grooming a successor can be a difficult challenge for family ownedcompanies because of the potential for acrimony within the family based onthose decisions," adds Peguero. "A good plan will outline how succession wouldoccur and what criteria will be used to judge when a successor is prepared forthe job. It will also encourage heirs to work in the business, rather thanembark on alternative careers, because they can see what roles they will beable to play."

However, surveyed companies are better prepared to cope with other, lesspredictable issues, as four out of five companies have made provisions to dealwith both business and family issues in the event of untimely death orincapacity of key managers and/or shareholders.

"One reason for the high percentage may be that the future of the estatetax has been a leading topic of political debate in the U.S., forcingcompanies to plan ahead to minimize the tax consequences of passing thebusiness to the next generation if the founder should die prematurely," saysPeguero.

Conflict Resolution: While few respondents reported a significant levelof tension resulting from family members involved in the business, they didrecognize "some tension" or "a lot of tension" in several core issues:

Some tension A lot of tension

future strategy of the business 32% 5%

performance of family members 23% 8%

reinvestment of profits vs.

payment of dividends 24% 6%

family member compensation levels 24% 2%

who can and cannot work in the business 19% 6%

"We were surprised that so few respondents reported a significant level oftension resulting from having family members involved in the business," saysPeguero. "Based on our experience with these types of companies, we believethere is likely to be slightly more tension than reported, as leaders offamily businesses are not always aware of simmering tensions among familymembers that could erupt into conflict."

Additionally, nearly four out of five (79 percent) do not have conflictresolution procedures in place. "These companies may be calling upon objectivethird parties or advisory boards to help them prevent or resolve conflicts.Simply having a neutral facilitator in the room can diffuse tension. They areoften helpful when transitioning the business from one generation to thenext," adds Peguero.

PricewaterhouseCoopers defines family businesses as those companies inwhich at least 51 percent of the shares are held by a family or relatedfamilies, the family members comprise the majority of the senior managementteam, and the owners have day-to-day responsibility for the management of thebusiness.

The U.S. survey covers 89 family companies. It is one component ofPricewaterhouseCoopers' global survey of 1,454 companies in 28 countries.Interviews were conducted between February 5 and June 15, 2007. Allrespondents were interviewed via a 20-minute telephone discussion.

Research was conducted by the PricewaterhouseCoopers International SurveyUnit, Belfast, the Firm's global centre of excellence in market research,which designed the questionnaire in conjunction with family business expertsfrom PricewaterhouseCoopers.

Full report available at www.pwc.com/pcs/usfamilybusiness

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"PricewaterhouseCoopers" refers to the network of member firms ofPricewaterhouseCoopers International Limited, each of which is a separate andindependent legal entity.SOURCE PricewaterhouseCoopersAmy O'Brien of PricewaterhouseCoopers' Private Company Services,+1-312-298-2878, amy.w.obrien@us.pwc.com; or Meaghan Smith of Edelman,+1-212-704-8196, meaghan.smith@edelman.com, for PricewaterhouseCoopers'Private Company Services