Family businesses face next gen succession challenge

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Wednesday 23rd September 2015

Just one in five college students with a family business background are open to the prospect of one day taking over their family’s firm, according to a new global report from EY.

The study, Coming home or breaking free? (2015), was carried out by EY with the University of St Gallen Center for Family Business to examine the succession intentions of more than 34,000 next-generation family business members globally.

It found that, among students who were potential family business successors, few had aspirations to take over their family firm and the number of those who are interested is falling. In fact, succession intentions have dropped by as much as 30% when compared with like-for-like figures in a comparable survey that took place in 2011.1

EY’s Oceania Family Business Leader, Ian Burgess said family businesses faced a challenge in convincing younger members of the family that their long-term futures lay within their businesses.

“Not only is there competition from the wider jobs market, with young people keen to explore their options in today’s fast-moving economy, but many also feel that they need to prove themselves outside of the family firm first,” Mr Burgess said.

“In many ways, this is a healthy attitude. But the challenge for family businesses is how to harness the next generation’s ambitions to break free to benefit the family firm in the longer term.”

Interestingly, the size of a family business was one factor that appeared to affect succession intentions, with only 5.2% of next-generation members wanting to take over at firm with two to five full-time staff, rising to 16.3% for family firms with more than 100 full-time staff.

Of those who said they were interested in taking over the family business, only 3.5% want to take over directly after graduating, while 4.9% plan to do so five years later.

The idea of obtaining some outside employment history prior to joining the family business is also one that resonates with today’s family business leaders. A separate survey2 by EY and Kennesaw State University’s Cox Family Enterprise Centre of 25 of the largest family-owned businesses in each 21 global markets, found the average number of years a family member was expected to work outside the business before joining was three years.

“External experience can be invaluable, but the challenge for family businesses is how to ensure potential successors are willing to come back into the fold once they have gained it,” Mr Burgess said.

“Having a clear succession plan in place is paramount in this environment. Family members must be willing to address the issue head on through an open and ongoing dialogue.”

According to Mr Burgess, while fewer next-generation members intend to become successors, those that do may be more motivated and better prepared to do so.

“Clearly, the succession career path is in competition with other career options, such as taking another job or starting a company. But this isn’t necessarily bad news for family businesses.”

“While the overall number of potential successors may have declined, those that actually wish to join the parental firm may be more motivated and better trained to take on the challenge,” Mr Burgess said.

“Parents and children should engage in an open and constructive dialogue about all aspects of succession. This can help find the best solution for the individual, the family and the firm.”

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Notes to editors

About EY
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This news release has been issued by Ernst & Young Australia, a member firm of Ernst & Young Global Limited.

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About the study
This study is based on data collected by the GUESSS project (Global University Entrepreneurial Spirit Students’ Survey), which is supported by the EY Global Family Business Center of Excellence. GUESSS investigates entrepreneurial intentions and activities of students across the world and also explores succession intentions in family firms. Between October 2013 and April 2014, GUESSS collected data from 34 countries. More than 750 universities were involved, and 109,000 surveys were completed. Our study is based on the responses from 34,113 students (31.3%) with a family business background (one or both parents are self-employed).

About the Center for Family Business at the University of St. Gallen
The Center for Family Business at the University of St. Gallen (CFB-HSG) is committed to providing family-owned businesses with long-term support. To this end, the Center has established itself as an internationally active expert in family-owned businesses in the areas of research and outreach programs. The Center’s work involves initiating, managing, promoting and running training and transfer programs, research projects and executive courses.

  1. When comparing responses from 29 universities that took part in both the 2011 and 2013-2014 studies.
  2. Staying power: how do family businesses create lasting success?