Industry Surveys

Succession Planning Among US Family Businesses Hampered By "Sticky Baton Syndrome" - Study

Eliane Chavagnon Editor - Family Wealth Report January 20, 2015

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An alarming 73 per cent of US family businesses haven't established a succession plan for senior roles, according to a recent survey by PwC in which many respondents also expressed anxiety with the prospect of handing over the reins to their successors.

An alarming 73 per cent of US family businesses haven't established a succession plan for senior roles, according to a recent survey by PwC in which many respondents also expressed anxiety over the prospect of handing over the reins to their successors.

The findings suggest that next-generation family members working in the business view succession as becoming more difficult due to the growing age gap between the current leadership and those in line to take over, PricewaterhouseCoopers said in its Global Family Business Survey. The issue of succession planning is particularly relevant to the family office sector, which places a big emphasis on ensuring current business owners hand over control to others in a way that is least disruptive to their firm’s operations, clients and long-term value.

“We are seeing an increase in what we call the 'sticky baton syndrome,' where the older generation hands over management of the firm in theory, but in practice remains in control of what really matters,” said Alfred Peguero, PwC's US family business survey leader. “As the generational gap widens, the period between each transition gets longer. This means potential successors often are excluded from hands-on involvement and lack the experience needed to run a company.”

He added: “There needs to be a flexible long-term succession plan that includes rotations in senior management positions across the business, in addition to having work experience outside the family company. This will not only transfer valuable skills, but also help successors gain credibility and trust among key stakeholders. Our data shows that too many family businesses don't yet have this level of planning in place.”

Despite a lack of focus on succession planning, most respondents (79 per cent) anticipate steady growth over the next five years. At the same time, however, they recognize the need to adapt, innovate and become more professional in how they run their operations, PwC said. For example, nearly three-quarters of respondents acknowledged the need to adapt their organization in an increasingly digital world.

“With family businesses accounting for nearly one-fifth of the Fortune Global 500, and a big driver of any country's economy, their ability to take advantage of these opportunities and expand their operations becomes even more important for their own organizations' sustainability, as well as that of the country,” said Bob Moritz, US chairman and senior partner at PwC.

In other findings: 73 per cent believe the cultures and values in family businesses are stronger than those in other types of companies; 67 per cent find that shareholder agreements are, by far, the most widely used mechanisms to address conflict; 60 per cent cited recruitment of skilled personnel as a challenge in the next year versus only 46 per cent who voiced concerns two years ago; and 18 per cent are planning to pass their company on to the next generation in the next five years.

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