Dramatic drop in succession to next generation and increase in private
TORONTO, March 14 /CNW/ - Nearly half (49%) of Canadian family business
owners have not chosen their next business leader, exposing a lack of
succession planning, according to the Canadian results of PwC's latest Global Family Business Survey.
Among those who have planned for the future, many are making
non-traditional decisions about their business with many opting to sell
or choosing not to pass the company along to family. The study found
less than half (48%) of Canadian family business owners plan on passing
their family business onto the next generation—a significant drop from
90% in 2007.
Within the next five years, the survey found 27% of owners anticipate a
change in ownership of their business. Among those who predict a change
of ownership, 33% plan to sell to a private equity investor, up from
14% in 2007, while 22% plan to sell to a management team.
"It's possible that the global downturn led people to re-evaluate their
plans. People are thinking harder about whether family members have the
talent to take over the business," says Tahir Ayub, Canadian leader of
PwC's Private Company Services practice. "Another factor is that
succession is happening much later. The natural successor may be in
their fifties when the owner is ready to transition out of the
Interest falters by third generation
Half of the study's respondents said their companies were owned by the
first generation; 34% by the second generation; and only 16% by the
third or more generations.
"We've found that by the second and third generations, either the
company doesn't survive or family members are less interested in
running the family business," says Sharon Duguid, director, Centre for
Family Business and Entrepreneurs, PwC. "To set themselves up for
success, owners should be planning well in advance to ease tension and
create the right conditions for a successful transition down the road."
Tension key source of business breakdown
About one-third of respondents said they experienced some to a lot of
tension over: family members not consulting the wider family on key
business issues (36%); decisions over who can work in the business
(31%); and the performance of family members who are actively involved
in the business (39%). Despite this prevalence of tension, only 27% of
respondents said they had conflict resolution procedures in place.
"Tension can be a good thing when it provokes necessary conversations,
but when those discussions never happen, it can lead to the collapse of
family businesses," says Duguid. "People tend to wait until they have a
conflict until they start thinking about conflict resolution strategies
and then wish they had a formal system already in place."
To ease tension before it hits, the report suggests establishing a
family council, which is a family governance structure that proactively
facilitates discussions and resolutions on key issues, including
conflict management and succession planning. Owners can also consider
setting up an external advisory board made up of non-relatives to
obtain some different 'non-family' perspectives, especially about
The PwC Global Family Business Survey 2010-2011 covers small and
mid-sized family companies in 35 countries. In Canada, 100 family
business leaders were interviewed from July to August, 2010. For the
full report, go to www.pwc.com/ca/familybusiness.
A healthy family business - Effective governance and strong communication keys to
Planning a Successful Transition - The Hitchman family of the Naylor Group Inc. share the steps they've
taken to ensure a successful transition.
Exit Focus Series - Making the decision to sell and Finding the right buyer
A Private Equity Perspective - Anthony Sigel of Kilmer Capital Partners Limited shares his
perspective on what private equity investors look for when they are
considering making an investment in a company.
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More than 65% of PwC Canada's clients are private companies, ranging
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large, professionally-managed businesses. PwC's Private Company
Services (PCS) group is a dedicated team of business advisors who help
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long-term success. PCS offers the perspective of a third party with
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For more information about PwC's Private Company Services, please visit www.pwc.com/ca/private
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Jessica Draker, PwC
Tel: 416 869 8723
David Rowney, PwC
Tel: 416 365 8858