Tax, governance and succession are among the key issues highlighted by KPMG’s most recent European Family Business Barometer survey of 1,100 European family business owners. Respondents, including those in Ireland, named the “war for talent” in recruiting skilled staff as their number one challenge.
These concerns are increasing – with talent an issue for 33 per cent of respondents in 2015, rising to 37 per cent in 2016 and now cited by 43 per cent in 2017 as their main concern. This places it ahead of topics such as regulation (28 per cent) or access to finance (7 per cent).
While the survey shows that greater competition and reduced profitability pose challenges, a majority (71 per cent) are either “confident” or “very confident” about their family business economic prospects in the year ahead.
Ryan McCarthy, Dublin-based partner with KPMG Private Enterprise, says: “Ireland is no different to the rest of Europe in that we see an increasing trend for family businesses to fill senior skills gaps with non-family members.”
Perhaps not surprisingly given the plethora of new issues to deal with, more than three quarters (77 per cent) of those surveyed agreed that non-family members bring expertise to a family business where the business doesn’t have the skills.
McCarthy cites examples such as hiring new sales teams for overseas expansion or ensuring greater cyber-security expertise as areas where there has been heightened interest, noting: “Many of the new skills required aren’t hereditary by nature, so there is often a need to look outside the family when a business moves to the next level.”
Political uncertainty also ranks as a major concern for almost one in three (30 per cent) of respondents. In Ireland, family businesses may face issues such as cheaper imports from the UK and the risk of more complex cross-border and cross-channel trade exacerbated by the risk of a hard Brexit. McCarthy believes that despite all the coverage of the topic, it still isn’t being sufficiently prioritised. “In our view, Irish businesses are not yet focused enough on the potential impacts of Brexit.”
Concerns
Among other concerns highlighted by the research was the need to balance the interests of the family and those of the business. Eighty-seven per cent of respondents ranked this as important or very important – growing sharply in significance since 2014, when 59 per cent found it very important or important.
Many leading family-owned companies have established clear, formal rules for what family members can expect from the business and what the business can expect from them.
McCarthy has seen an increase in interest in governance structures and the benefits they can bring. “Good governance helps protect families and businesses from each other,” he says. He also believes family businesses appear to be adopting a more formal approach to various governance mechanisms.
Such an approach is borne out by the survey, with a formal board of directors in place for 70 per cent of survey respondents and formal advisory boards used by a fifth (20 per cent) of those questioned. Meanwhile, 33 per cent of those surveyed indicated they have adopted a family council whose role is to resolve and regulate family issues by creating a common set of rules. These can cover issues such as the conditions for entering family ownership, governing bodies and operational positions within the company.
McCarthy sees the use of non-executive directors as very valuable in implementing better governance structures: “There can be huge value in selecting the right non-exec for smaller businesses and typically this can be achieved at modest cost.”
As part of their governance agenda and highlighting the role of external talent, almost a third (31 per cent) of those surveyed also have a formal policy for the selection, remuneration and promotion of non-family members.
Inevitably, succession planning is also an important theme for family business. More than 50 per cent of respondents said they have a member of the next generation in a management role to allow them to prepare earlier for succession planning. McCarthy notes that getting clarity around ownership and the role for non-bloodline family members such as spouses “should be significant priorities”.
A third (34 per cent) of respondents believe they will face such issues in the coming year as they plan to hand over management or business ownership to the next generation. “Talent, governance and succession-planning warrant the attention of all successful family businesses,” McCarthy concludes.