New research undertaken by KPMG estimates that $3.5 trillion will transition generationally in the next two decades across Australia. The study warns, however, that 70 per cent of family businesses globally do not yet have a succession plan in place.
The business advisory firm report that it is experiencing a strong demand for family advisory services that support the integration of family office structures that may mirror corporate frameworks.
“Managing the transition – making continuity planning a focus for the business and the family – is key to success,” Daniel Trimarchi, Director Family Enterprise Advisory at KPMG Australia, said. “That means clearly defining this objective – to embed continuity planning into broader plans for preserving wealth – is vitally important. It means an increased spotlight on deliberate actions and planning around governance is needed.”
Trimarchi emphasised that achieving a successful succession is not just about passing the CEO baton to the next generation but also about the continuity of the family and the family’s wealth. He further explained that dealing with this generational transition in a business family involves a unique set of skills that may not necessarily exist within the family enterprise, not to mention that governance structures are lacking in the majority of businesses.
“In working with many successful family business entrepreneurs and family elders in Australia and around the world, there is often an unfair assumption that due to their experience and knowledge in business – that that knowledge and experience automatically transfers into the world of succession,” Robyn Langsford, KPMG’s Global Head of Family Business, said.
“But [as we’ve seen from the popular TV series Succession] there can be competing agendas and priorities within family businesses,” Langsford added. “Complex governance challenges, and never before experienced dynamics regarding inter-generational needs, come into play.”
Langsford also noted the changing relationship between the family and their wealth with a larger focus on ownership governance and training the next generation to be good owners/stewards of wealth vs good managers.
“The focus is shifting towards ‘business families instead of family businesses,” Langsford said. “They’re about increased diversification of wealth, they’re about letting go of leadership when the time comes and providing liquidity when family owners want to exit. They’re also about capital management and structuring for the future.
“These goals lead to the need for more complex wealth management,” she added. “We are also seeing the rise of family offices where the function of that office goes beyond pure investment and addresses the relationship between the family and the wealth.”
Trimarchi is encouraging business families to consider transition as a human process, affecting all individuals and the organisation equally.
“We suggest looking closely at the continuity issues, how the family’s shared purpose is being defined and achieved through the transition of various roles and responsibilities within the business,” he said.
KPMG advises family businesses to undertake the three R’s in planning the transition process:
- Rethinking – who should be involved in the transition discussions and when those conversations should be taking place through understanding the family demographics.
- Rebalancing – the support that both the senior and rising generations need
- Reinventing – the transition process itself, understanding the need for the entire family and enterprise system to provide support for the senior generations involved in that transition.
Trimarchi said that a starting point is to ensure you are holding space for the right conversations, in the right rooms, with the right people.
“You can use the support of independent facilitators and professionals to support the discussions and planning in a very effective way,” he concluded.
