Tricks to prolong the family trade's success

IT may seem innocuous, but branding yourself as a family business gives firms an edge. Which may be why 76 per cent of the 25 largest family-owned businesses in 21 global markets refer to themselves as a family business in their advertising, websites, social media, press releases, and other promotional materials.

It is not just family pride that influences this strategy, according to the report, Staying power: how do family businesses create lasting success?, which was launched by EY and Kennesaw State University's Cox Family Enterprise Center. Such branding also sets family businesses apart from competitors and improves the reputation of these companies with their customers given that family businesses are generally seen as more trustworthy than other types of businesses.

"Vibrant family businesses around the world know the limitless value of connecting their families to their stakeholders in messaging and all elements of image," says Joe Astrachan, professor of management and entrepreneurship, Kennesaw State University. "It's even better for business success and family health when the family gets engaged in shaping the message and delivering it personally."

Corporate governance

In the area of corporate governance, 90 per cent of the businesses surveyed reported that they have a board of directors. Notably, families make up the majority on most of these boards - nearly 50 per cent are exclusively family members and only 28 per cent have an equal number or greater of non-family voting members on their boards.

Companies in emerging economies are particularly devoted to family board members - family members make up 95 per cent of emerging market boards compared to 78 per cent of developed economy boards.

As pointed out in the report, this result dovetails with another survey finding - that family members are considered by far the most trusted advisers for the world's largest family businesses, with parents heading the list, followed by spouses. After family members, survey participants said they trust their accountants most.

In general, the survey participants said that their boards average eight voting members, and are professionally organised, with well over half having a committee structure. Most of their boards also have formal governance agreements in place, with business mission statements, bylaws and articles of incorporation occupying the top three spots.

Even with families on the board and all the right mechanisms in place, conflict is inevitable in business and family. The businesses surveyed reported that 90 per cent have regular family or shareholder meetings to discuss business issues, 70 per cent have regular family meetings to discuss family issues and 64 per cent have a family council that meets regularly.

Using social media to stay in touch is becoming increasingly popular as well. While the phone is still the primary communication channel for both business and other family-related communication, social media, including family intranet, is used twice as much for business communication (43 per cent) as for family communication (21 per cent).

Succession planning

Another hot topic for family businesses is that of succession planning. According to the businesses surveyed, there are three key things that they do differently from other businesses - namely, they view succession as a long-term process; they clearly define who has the responsibility for succession, and they work steadily to prepare the next generation for leadership.

More than 87 per cent of the businesses surveyed have clearly identified who is responsible for succession, implying that processes to handle traditional transitions as well as potential emergencies are well in place. Across all regions and countries, the board of directors is most often responsible for succession (44 per cent), with the next tier of responsibility shared about equally between owners/family council and the CEO.

Training and educating the next generation is the next critical element when it comes to preparing successors for both ownership and leadership succession.

According to the leaders surveyed, work ethic, leadership and entrepreneurship are the most important attributes to nurture in the younger generation. To help ensure they are tapping the right family members for the leadership pipeline, family businesses tend to require at least three years of outside management experience before family members are allowed to assume managerial positions.

These preparations generate a deep pool of well-trained potential leaders. Survey participants average five family members on the top management team and seven in the business. This results in a large group of potential successors from which to draw from when planning succession.

Says Goh Siow Hui, tax and private client services partner at EY in Singapore: "Family businesses in Singapore are entrepreneurial in nature, striving to achieve growth in a nation that is relatively young. The key to continued success, however, is the ability to plan for succession and instill governance into the family business framework, which is an area that may still not be at the top of the agenda for some Singapore family businesses."

When it comes to picking their successors, 70 per cent of the survey participants indicate that they are considering a woman for their next CEO.

Of the companies surveyed, 11 per cent said that they are strongly considering having a woman as the next CEO/successor. Fifty-nine per cent said they were considering the possibility while 30 per cent said they were not considering it at all.

The companies average five women in the C-suite and four being groomed for top leadership positions. Notably, more than half (55 per cent) have at least one woman on their board.

The businesses, which were surveyed in 2014, hire an average of 12,000 employees with average sales of US$3.48 billion. They come from 21 global markets including Australia, France, Germany, Italy, Japan, China, India, Indonesia, South Korea, and Turkey.