Next generation outlook gives cause for optimism on sustainable growth

For the next generation of family business leaders, growth and sustainability ambitions go hand in hand – but there is still more action needed on sustainability. In recent research from PwC, 65 per cent of next-generation (NextGen) family business members say achieving business growth is a top priority.

At the same time, 64 per cent say their family business has the opportunity to lead the way in sustainable business practices. Seventy-one per cent recognise their business has a responsibility to fight climate change and its related consequences, yet 45 per cent do not believe their family business puts sustainability at the heart of everything they do. While the consequences of the war in Ukraine, rising prices and supply-chain disruption may find businesses more focused on short-term issues, the survey shows that sustainability will be key to long-term growth.

PwC’s Global NextGen Survey 2022 questioned more than one thousand next-generation members of family businesses across 68 countries, including Ireland, to understand their key priorities and challenges.

“It is difficult for a family business to survive multiple generations,” says John Dillon, partner and leader of Entrepreneurial and Private Business Practice at PwC Private. “The NextGen members we surveyed, like the current generation, understand the fundamental need for growth to create value and a legacy for future generations.

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“The NextGens also recognise that it will take new approaches and skills to keep the business thriving. The survey confirms that addressing sustainability and climate-change ambitions are high on their agenda but more action is needed to fully embed sustainable practices right across their businesses.”

While NextGens clearly see sustainable business practices as integral to long-term success, the survey shows they need to step up their engagement in the near term. Only 28 per cent say they are currently engaged in increasing the focus on sustainability and impact, though 72 per cent say they expect to be involved in it in the future.

Similarly, just a quarter of NextGens say they are presently engaged in reducing their business’s environmental impact, whereas 65 per cent expect to be in the future. Covid-19 was a double-edged sword for NexGen involvement in the family business, with 56 per cent believing that communication between family members about the business increased during the pandemic. However, less than half of respondents, 43 per cent, say they feel more committed to the business than they did before the pandemic.

The uncertainty created by the pandemic also appears to have made the current generation less likely to relinquish control and more difficult for NextGens to establish themselves. Reluctance of some of the current generation to provide a seat at the table poses a particular challenge for NextGens, according to 57 per cent of those surveyed, with four out of 10 saying there is resistance within the business to embrace change.

PwC research shows time and time again that diverse businesses create better outcomes. In this context, greater focus on female participation is crucial for family businesses going forward

—  Mairead Harbron, PwC

“Robust succession planning is essential for the family business, particularly as we head into a period of greater uncertainty,” says Mairead Harbron, partner at PwC Ireland. “The challenge is to build confidence between the current and next generation. Our survey shows communication has increased. This is the time to flesh out succession plans and to define the leadership skills required to deliver growth in the future. That way the current generation can transition to a supporting role with greater confidence.”

While the current generation of family business owners do see eye to eye with NextGens in a number of areas, there are some notable differences. Both generations are focused on growth but only half of the current generation believe their business has a responsibility to fight climate change and its consequences, compared to the nearly three-quarters of NextGens.

The survey shows that many family businesses could gain from bringing greater attention to the relative roles of their male and female NextGen members. Far fewer female NextGens surveyed are in leadership roles (43 per cent) than male respondents (59 per cent). In addition, 35 per cent of female peers believe their male counterparts are more likely to be expected to run the business. Fewer women – 66 per cent – have a clear idea about their personal ambitions for a future role in the family business compared to male NextGens (79 per cent). Moreover, for the top-ranked priority area of achieving business growth, just half of women, 53 per cent, say they are actively engaged, compared to 69 per cent of males.

“There are some barriers to female leadership in family businesses that come from tradition, such as the firstborn son inheriting the business, and while the tide is turning, it is still the case that female leadership participation is lower than male participation at present,” says Harbron.

“PwC research shows time and time again that diverse businesses create better outcomes including business returns and innovation as well as for customers and attracting and retaining key talent. In this context, greater focus on female participation is crucial for family businesses going forward. Family businesses are a good barometer for the global economy and we are encouraged by the findings of our survey.

“The NextGens of family businesses see the vital link between growth and environmental, social and governance [issues]. They are ready to learn, adapt and play a larger role in shaping the future for the business and the family. The commitment we see from the NextGen gives us optimism for a future built on sustainable growth.”

Harbron adds: “From stimulating growth to protecting your legacy, we know private business leaders have a lot on their plate. At PwC Private, we’re growing our business to help our clients grow theirs. With our recent acquisition of boutique tax practice Twomey Moran, clients now have access to 20 partners, 150-plus specialists and more than 150 years of experience and heritage in the private business and private clients space.”

Ensure your successor has skills to meet ambitions

Business owners must focus on developing an appropriate succession plan, ensuring they have the right skills to manage succession, grow the business, look after all stakeholders and nurture the next generation, advises Michael Lynch, tax partner in KPMG’s Cork office.

“One of the most complex decisions in succession planning can be deciding who to appoint as your successor(s). It’s even more challenging for family businesses. The persons who own the business may not be, and do not have to be, the persons who run the business. Whatever the decision, it must be right for the company,” says Lynch.

“When choosing the most suitable candidate(s), it is essential to be proactive. Create a plan covering what needs to be done by the business, the family, and the owners to ensure change happens in a manner that is optimal for all stakeholders. Identify every successor and document their exact roles and responsibilities. Prepare a timetable for the transition to help all the stakeholders stay on track and, finally, design a communication strategy to inform other key stakeholders about what is happening.”

Soft-skill factors such as vision, passion, mindset and work ethic are critical, as is ability to lead the team and grow the business, Lynch says. “Identifying the necessary skills and capabilities, preparing a job description, assessing your candidates’ objectively and getting an external perspective are helpful,” he adds.

“Once you have selected your successor(s), start planning a gradual transition and involve them in all aspects of the company’s operations. This will help them better understand the business, strategies, challenges and priorities. Developing their leadership, communication and commercial skills through professional and on-the-job training is necessary.”

Lynch recommends allowing enough time to create a structured training, coaching and mentoring plan to help the next generation acquire the skills to grow the business and make it successful. Be open to the possibility that ownership and management of the business are not binary options, he advises. And if you decide to hire externally, be transparent with your succession planning process and share the details with all relevant stakeholders.