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PwC 2014 Irish Family Business Survey ReportExecutive summary p2 / Organisation performance and challenges p4 / How family businesses differ p10 / Family involvement and succession planning p11 / Embracing digital p13

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PwC 2014 Irish Family Business Survey Report 2

Organisation performance and challenges

How family businesses differ Family involvement and succession planning

Embracing digital Key contacts Executive summary

Executive summary

Confidence, growth and exports are on the agenda

I am delighted to introduce the PwC 2014 Irish Family Business Survey which is part of the PwC Global initiative having almost 2,400 participants in 40 countries including over 100 in Ireland.

Irish family businesses remain a dynamic and resilient sector, contributing more than 50% of of Ireland’s GDP and employment. Having a very specific focus on commercial success, the survey shows that Irish family businesses are confident about growth. However, the environment continues to be tough with continuing pressures on skills, innovation and governance. There are significant shifts underway in the family business sector but there are also new challenges if they are to remain as successful in the future.

Running the business more professionally is a top personal and business goal over the next five years with over a quarter (28%) reporting the need to professionalise being a key challenge. This covers everything from basic systems and processes in areas like finance and HR, to risk management and corporate governance.

The survey also highlights the following key themes:• Growth is on the up: Irish family firms are

confident about the future with 86% planning growth over the next five years and nearly a third (30%) planning to expand their international footprint.

• Price competition, innovation and skills are also high on the agenda: Irish family businesses are more concerned about price competition and the need to continually innovate compared to their global counterparts. They are much more concerned about the ability to attract the right skills (50%) in the next five years compared to two years ago (2012: 36%). Today’s family businesses acknowledge they will have to adapt faster and innovate earlier as the speed of change continues to accelerate.

• There is more work to be done on embracing digital: Ireland scored one of the lowest amongst global counterparts with less than half (45%) reporting they understand the importance of digital (Global: 57%). As the world moves to mobile and digital, customers, suppliers and stakeholders are demanding a new way of doing business. Less than half (48%) are of the view that they can re-invent themselves with each generation (Global: 56%).

Paul Hennessy





• Irish family businesses see the value of outside help: Nearly one third (29%) of Irish family businesses plan to pass on ownership but bring in professional management, up from 15% in 2012. As succession approaches, more family companies are looking to bring in professional help.

• Succession is still a thorny issue: Only one in ten Irish family businesses have a succession plan that is robust and properly documented. Over half (55%) do not have a succession plan for key senior roles. There is a longer gap between generations and too many firms are either not planning for succession at all or are managing it as a personal issue rather than as a process which requires the same rigour as any other business decision.

What does the future hold? Looking towards 2020, the Irish family business sector has a great opportunity to move ahead more decisively. It’s much more sophisticated now, and if family firms can really tackle the ‘family factors’, they will be better placed than ever to make tough decisions. Being able to learn from each other is very important, and the Family Business Survey is one way they can do that.

Paul Hennessy Family Business Leader - Ireland

Running the business more professionally is a top personal and business goal over the next five years


Nearly two-thirds (60%) of Irish family businesses experienced sales growth in the last financial year, compared to just over half (52%) two years ago. A sign of recovery is that those who experienced a sales reduction was significantly less compared to 2012.

Looking to the future, an overwhelming majority (86%) are planning growth over the next five years, up from 77% two years ago. Virtually all (97%) of Irish family businesses predicting growth are confident of achieving it. Nevertheless, there is evidence of some remaining challenges, with 14% still saying that they will consolidate or shrink in the next five years, but is down from one fifth (22%) in 2012.

1. Organisation performance and challenges

Figure 1: Sales performance in the last financial year

0%

10%

20%

30%

40%

50%

60%

70%

80%

60%

65%

25%

18%

35%

19%

2014

2012

2014

2012

Ireland Global

Sales reduction

Sales growth

52%

65%




Figure 2: Growth aims in the next 5 years

Aggressivegrowth

Steadygrowth Consolidate Shrink

2012

2014

2012

2014

2012

2014

2012

2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

10%

15%

14%

12%

11%

13%

17%

16%

3% 1% 5% 2%

76%

70%

63%

69%

Ireland Global

30% plan to internationalise their businesses



Embracing digital Key contacts Executive summary Organisation performance and challenges

Figure 3: International sales - average % of all sales

Figure 4: Countries/regions that will see the biggest increase in Irish exports in the next 5 years

Now In 5 years time

Ireland 25% 30%

Global 25% 32%

Europe 71% (UK: 43%; Germany: 9%; France:9%; Spain: 6%)

Asia Pacific 21% (China:10%)

Americas 13% (USA:7%)

Africa 10%

Middle East 9%

Internationalisation

The survey highlights that many Irish family businesses plan to increase their global footprint through internationalisation. A quarter are currently exporting and this is expected to increase to nearly a third (30%) in the next five years.

In terms of markets, the most popular market is still the UK (43%), followed by China (10%) and Africa

(10%). Just under one in ten plan on targeting Germany (9%), France (9%) and the US (7%).

Irish family businesses are sticking to the markets they know best with the same language and culture. Few are planning expansion in emerging markets. This may be due to the lack of skills and/or confidence to break into new regions – many would

probably need to hire outside talent to bridge the gap and they may well be missing out on new sources of growth as a result. It can also be far more expensive to export to distant markets, with greater accompanying risks.




Figure 5: Key internal challenges in the next 12 months

Figure 6: Key external challenges in the next 12 months

Ireland 2014 Global 2014

Staff recruitment 59% 49%

Cash flow/cost control 33% 19%

Business/product development 25% 25%

Company re-organisation 24% 28%

Profitability/margins 22% 11%

Technology 16% 13%


Market conditions 64% 63%

Competition 37% 32%

Availability of finance 31% 12%

Government policy/regulation 27% 33%

Issues in foreign markets 15% 12%

Fiscal tax regime 12% 8%

Price of raw materials 11% 10%

Exchange rates 10% 13%

Talent and market conditions are key challenges

Irish family businesses are much more concerned about staff recruitment in the year ahead compared to two years ago and their global counterparts. For example, nearly two-thirds (59%) say staff recruitment is an issue, compared to a third (34%) two years ago. A third (33%) say that cash flow and cost control is a challenge compared to just a fifth (19%) globally. Other key challenges in the year ahead are market conditions (64%) which has fallen from 78% two years ago while competition concerns have increased from 20% in 2012 to 37% now. Not surprisingly, the concerns around the availability of finance has increased from 13% to 31% in 2014 and is a far greater worry than their global counterparts (12%).


Figure 7: Key challenges in the next 5 years


Price competition 68% 58%

Need to continually innovate 66% 64%

General economic situation 53% 56%

Attracting the right skills 50% 61%

Complying with regulations 45% 42%

Number of competing businesses 44% 42%

Containing costs 43% 44%

Company succession planning 37% 36%

Retaining key staff 35% 48%

Need for new technology 30% 41%

Need to professionalise 28% 40%

Increasingly international environment 27% 33%

Supply chain 27% 26%

Conflict between family members 10% 11%



So even if the worst of the downturn has passed, getting and retaining good people has become more challenging, price pressures remain intense, customers are becoming more demanding and margins are tighter. In short, family businesses are having to accept that the conditions they enjoyed before the recession are now unlikely to return. This is partly a reflection of the new economic reality, but it’s also symptomatic of the most profound shifts that are underway as a result of global megatrends like demographic change, globalisation, urbanisation and the digital revolution. The business landscape is becoming more fluid and more disruptive than ever before. The winners will be those companies with the agility and flexibility to adapt, and which are able to make the often significant investments required to keep pace with new technology.

Companies which are able to anticipate change and are willing to be disrupters themselves, either in their approach to market, in their products and services, or in their willingness to change strategy will be the winners. This is hard enough for public companies, but still harder for family businesses. They typically don’t have the same access to bank or capital market funding. It’s often more difficult to attract the top talent and family issues can absorb time and attention, or lead to the appointment of family members in senior positions who may not always be the best fit for the job.

For example, when we asked about key challenges, individual participant comments included:

“People retention. We have to restructure people’s rewards to keep them interested in the next phase of the growth of the company.”

(First Generation family business)

“Competition. When we are trying to grow our market share, we’re concerned about what the competitors are doing and keeping one step ahead.”


“Availability of credit, the relationship with banks and the ability of banks to lend money in our sector.”

(Third Generation family business)

“Bringing new products to markets. We have a long list of products but getting them to market is a challenge.”

(Fourth Generation family business)

In the next five years Irish family businesses are more concerned about price competition and the need to continually innovate compared to their global counterparts. They are more concerned now about the ability to attract the right skills (50%) over the next five years compared to 2012 (36%). However, they are less concerned about the general economic situation compared to 2012 and their global counterparts.




Younger and more ambitious businesses are more likely to cite professionalising the business as a goal and are more aware of the risks and opportunities of the move to digital technology. Professionalising is about giving structure and discipline to the business so that they can innovate better, diversify more effectively, export more and grow faster. In short, achieving the twin goals of ensuring the company’s long term future and improving profitability.

There are three distinct areas where family firms are feeling the need to professionalise. Some of this is fairly basic work around systems and processes, but it also concerns corporate governance and people management. On processes, more and more family firms realise procedures need to be documented, if only to comply with external regulations such as health and safety. Many are formalising HR policies. They realise the benefits of automating their operations and increasing the use of IT as a way to improve productivity and efficiency. They are also more structured in their approach to sourcing, often as a result of rising costs.

On corporate governance more family businesses are seeing the value of appointing experienced non-executive directors, though it can be hard to find and recruit people with the right expertise, as family boards are often perceived to be more problematic than those of conventional companies.

‘Head’ over ‘heart’

Recession and the tough environment over the last 5 years or so may have sharpened family business thinking. Their priorities are clear, however, with the long term future and success of the business coming first. The key enablers for commercial success such as attracting high quality skills, running the business more professionally, rewarding staff fairly and being more innovative come first. The survey highlights that family and community aspects are less important.

According to the survey, new economic pressures are forcing many family businesses to re-think their strategies and take some tough decisions. This may be sharpening the tensions already inherent in the family business model between family concerns on the one hand, and business objectives on the other hand: what you might call ‘heart’ over ‘head’. Many family businesses now feel they have ‘done their bit’ to support the community during the recession by protecting jobs and now feel it is time to focus on profitability.

Professionalising the business – Moving to the next level

Over a quarter (28%) of Irish family firms reported the need to run the business more professionally is a key challenge over the next five years but is less of a concern compared with global counterparts (40%). Professionalising the business also scored highly as a personal and business goal over the next 5 years.

28% say professionalising the business is a key challenge




Attracting and retaining skills and talent continues to be a concern and a challenge. Family firms can struggle to compete with the share options and structured career paths offered by major multinationals. If family firms are to expand internationally, diversify into new markets, manage risk better and innovate more effectively, many of them will need to buy in the people to do it. And there is no point in hiring those people unless you have professionalised the systems and processes that will make it possible for them to do their job.

When it comes to skills, ‘professionalising the business’ frequently translates to ‘bringing in outside talent to run it’. This is often the right decision, especially when the business reaches a certain critical scale, but it can still be a challenging moment for the family firm. A different set of stakeholder interests come into play and the business becomes less like a private entrepreneurial venture, and more like a public company. The challenge for the family is to manage that transition, and recognising that they themselves have to change if it is to be a success. They have to accept a reduction in control and an increase of discipline, both of which can be difficult, especially when there are strong personalities involved, as is so often the case.

To diversify and innovate better, many will need to buy in talent


The majority of family businesses feel that they play a key role in society, the economy and job creation. The survey highlights that the majority of family businesses are more likely to take a long term approach to decision making, compared to public companies.

However, less than half (48%) think they re-invent themselves with each generation and are less open to new thinking and ideas. Only 43% think they are more

entrepreneurial than other businesses. Only a third reported that they were able to deal with the recession better than other businesses.

There has been a sharp decline from 2012 levels in the proportion of Irish family businesses agreeing that they have a strong sense of responsibility to support employment (2014:69%; 2012:90%) and community activities (2014:43%; 2012: 74%).

Figure 9: % agreeing with statements about how family businesses behave compared to other businesses

Figure 8: % agreeing with statements about how family businesses differ compared to other businesses

Ireland Global

Play an important role in job creation 80% 78%

Add stability to a balanced economy 72% 73%

Measure success differently – not just profit/growth 71% 71%

Take a longer term approach to decision making 70% 55%

Decision making is more streamlined/faster 60% 69%

Harder to benefit from recovery due to capital access issues

51% 34%

Re-invent themselves with each generation 48% 56%

Less open to new thinking and ideas 47% 36%

More entrepreneurial 43% 59%

Take more risks 35% 38%

Were able to withstand the recession better 34% 47%

Ireland Global

Do all they can to retain staff, even in the bad times 76% 72%

Strong sense of responsibility to support employment 69% 76%

The culture/values tends to be stronger 69% 73%

Strong sense of responsibility to support community initiatives

43% 59%




2.How family businesses differOnly 43% think they are more entrepreneurial than other businesses





3.Family involvement and succession planning

Over half (55%) of Irish family businesses do not have succession plans for key senior roles, compared to 44% for their global counterparts. Furthermore, only one in ten of Irish family businesses have a succession plan in place that is robust and documented (Global:16%).

Just over half (57%) of family businesses in Ireland have next generation family members working for the business and this is similar to the experience around the world. However, less than half (39%) have next generation family members working as senior executives in the business and this is behind the experience globally (43%).

Irish family businesses increasingly see the benefit of outside help. Nearly two-thirds (63%) have non-family members on the board and nearly one in three have non-family staff with shares. More than one in ten (13%) plan to offer shares to non-family members in the next five years.

In terms of succession plans, over three-quarters (78%) of Irish family businesses have at least one procedure in place to deal with conflict and this is slightly lower than the global average (83%). Very few Irish family businesses have a family constitution or family council in place.

Figure 10: Procedures in place to deal with conflict

Ireland Global

Shareholders agreement 58% 54%

Incapacity and death arrangements

38% 43%

Measuring and appraising performance

33% 39%

Entry and exit provision 26% 33%

Conflict resolution mechanisms

21% 27%

Third party mediator 20% 27%

Family Council 13% 32%

Family constitution 7% 22%

Nothing 22% 17%Figure 11: Succession plan for key senior roles

Ireland Global

All senior roles 16% 16%

Most senior roles 15% 18%

Small number of senior roles

13% 20%

None 55% 44%

77% have at least one procedure to deal with family conflict.


Figure 12: Future plans

Ireland Global

Pass-on management to next generation

31% 40%

Pass-on ownership but bring in professional management

29% 32%

Sell/float 25% 20%

Don’t know 11% 8%


How family businesses differ Embracing digital Key contacts Executive summary Family involvement and succession planning

A quarter of Irish family businesses plan to sell or float their operations in the year ahead, up from a fifth in 2012.

From managers to owners – The new model for the family firm

Understanding the difference between ownership and management is becoming more important, because owning-only is a trend that appears to be gaining momentum: the number of family firms looking to pass on management to the next generation is down from 55% in 2012 to 31% in 2014. Those who will pass on ownership but bring in professional management on the other hand has increased to 29% in 2014 from 15% in 2012. As succession approaches, more family companies are actively looking to bring in professional help. Many would be happy to see the next generation take over, but they accept that management may skip one or even two generations, and that it may not revert to the family management at all.

When the family members are owners, not managers, it’s even more vital to formalise and professionalise the relationship between the family and the firm. This is about accountabilities and responsibilities, but families must understand that these work both ways. On the one hand, the family must hold management to account for the performance of the business; but they must also be accountable and responsible shareholders, and clear about expectations. Holding management properly to account requires robust and objective assessment criteria including Key Performance Indicators. Being a good shareholder demands a full understanding of the firm’s strategy, operations and objectives, and crucially, appreciation of the difference between involvement, which is helpful, and interference, which isn’t.

55% have no succession plan for senior roles.

The passing on of the baton has always been a hazardous moment for the family firm, and never more so than now. The ‘generation gap’ is widening and periods between each transition are lengthening, which puts even more strain on a rite of passage which is already fraught with potential problems. As the business gets older more potential successors come into play, and the potential for conflict rises. Succession will always be an emotive issue, which is all the more reason why it needs to be managed on a professional rather than a personal basis. Too many family firms are still approaching it as a one-off event rather than a long-term process.

Lasting legacy: Coming through the recession has clearly challenged some family businesses. For many their legacy will be simply surviving and for the business to have a secure future. We asked family business leaders what they would wish for their lasting legacy. The following are some responses:

“To have helped build a stable and sustainable business with a long term future. To preserve employment and give shareholders value at the end of the day.”


“That the company will be profitable enough that the next generation will be able to make a living out of it.”

(Second Generation family business)

“To have made a difference, had a positive effect on the community and to have passed on a sustainable business on to the next generation.”

(Third Generation family business)

“To have a long term sustainable business, protecting the employees.”

(Family business)


Irish family businesses are less likely to recognise the importance of digital and to have taken steps to implement a digital strategy compared to their global counterparts. Just two-thirds (67%) see the need to adapt their organisation to work in the digital world. Under a third (29%) see the importance of attracting talent to ensure digital is at the top of the agenda.

Ireland scored one of the lowest amongst its global counterparts with less than half (45%) reporting that they understand the commercial potential of digital and have a realistic plan for measuring it (Global:57%).

Family businesses in Ireland have a similar outlook as their global counterparts in terms of the megatrends that will transform their business over the next five years. Technology advances will have the greatest impact.

Innovation in its widest sense remains a key concern for Irish family firms in 2014, with 66% saying it is a key challenge over the next five years (Figure 7, Page 7). Those pressing for aggressive growth are more

likely to see this is a key ongoing challenge. And yet anecdotal evidence and the experience in our own teams suggests that family firms are still reluctant to change. Only 30% see the need for new technology being a challenge over the next five years. Less than half (48%) say they can re-invent themselves with each generation. One of our international interviewees said: “Family firms either don’t want to reinvent themselves, or can’t. In practice they find it hard to divest legacy businesses and only expand or diversify within a narrow range.” There is also some evidence that both growth and innovation are a lower priority for businesses in their third or later generations, who place more emphasis on ensuring that the business remains in the family as they risk becoming uncompetitive.

Figure 13: % agreeing with statements about the digital world

Figure 14: Top global trends that will transform businesses over the next 5 years


Need to adapt organisation to an increasingly digital world

67% 72%

Moving to digital will help raise organisational awareness

58% 64%

Understand the tangible business benefits of moving to digital and have a realistic plan for measuring them

45% 57%

Attracting talent to undertake the conversion to digital is at the top of our agenda

29% 43%


Technological advances 78% 79%

Resource scarcity and climate change 59% 52%

Shift in economic power 56% 60%

Demographic shifts 51% 56%

Urbanisation 42% 40%

4. Embracing digital




Only 45% understand the tangible benefit of digital


About the surveyThe survey was conducted in Summer/Autumn 2014 having 2,378 family business participants in 40 countries including 102 in Ireland. These family businesses included entrepreneurial start-ups to companies who have survived for five generations or more.

The PwC Irish 2014 Family Business Survey is available at www.pwc.ie/familybusinesssurvey The PwC Global Family Business Survey is available at www.pwc.com/familybusinesssurvey





Key contacts As Ireland’s leading professional services firm, we work with family businesses right around the country to help them add value to their organisations. This includes helping family firms develop sustainable businesses for the long term as well as positioning themselves for growth. In particular, we help many families when the time comes to hand-over to the next generation as well as dealing with the many challenges the current economic environment presents.

Dublin

RegionalBilly Sweetman

Irish Family Business Services South-East Practice Tel: +353 (0) 53 9152404 [email protected]

Ken Johnson

Irish Family Business Services Mid-West Practice Tel: +353 (0) 61 212346 [email protected]

Anthony Reidy

Irish Family Business Services Cork Practice Tel: +353 (0) 21 4254004 [email protected]

Siobhan Collier

Irish Family Business Services Kilkenny Practice Tel: +353 (0) 56 7704920 [email protected]

Brian J Bergin

Irish Family Business Services Deals Partner Tel: +353 (0) 1 792 8735 [email protected]

Colm O’Callaghan

Irish Family Business Services Tax Director Tel: +353 (0) 1 792 6126 [email protected]

Paul Hennessy, Leader

Irish Family Business Services Tel: +353 (0) 1 792 6012 [email protected]

John Dunne

Irish Family Business Services Assurance Partner Tel: +353 (0) 1 792 6856 [email protected]

Teresa McColgan

Irish Family Business Services Tax Partner Tel: +353 (0) 1 792 8605 [email protected]

Dermot Reilly

Irish Family Business Services Tax Partner Tel: +353 (0) 1 792 8605 [email protected]




© 2014 PricewaterhouseCoopers. All rights reserved. PwC refers to the Irish member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 05353.

www.pwc.ie/familybusinesssurvey

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