Family business successors typically change strategy and governance

02 June 2016 Consultancy.uk

Next generation leaders of family business are increasingly bringing change to their organisation, in many cases departing from former strategies, governance structures and leadership styles. The new leaders are likely to take more risks, seek to expand into new markets and ramp up innovation to bolster their offerings.

A new study from Deloitte shows that family business succession comes with more change than just a new leader. The report was produced by the Deloitte EMEA Family Business Centre and involved 92 in-depth, face-to-face interviews with next-generation representatives from family-owned companies in 19 countries across the EMEA. The majority of the respondents are generation X or early millennials, with 61% between 30-44 years old and 28% 45 or older, with the majority of the business they would take over being more than 50 years old.

Strategy and leadership style of family businesses
Leadership style
Future leaders of family businesses state that they will bring in a new style of leadership than that of their predecessors. 52% probably will have a different leadership style than their predecessors, while 38% of them will probably run the business differently. Only 9% say that they will probably or definitely not change their leadership style. Since many of the previous generation will continue to have a hand in the business – in their own style – this may well create some tension. 

The respondents are also likely to change the company strategy when they take its reigns. 25% say it is very likely that, once they have all the facts, they will bring in new strategies, while around 30% say they are likely to do so. Reasons for a change in governance, according to the report, include bringing in outside skills.

Risk attitudes of family businesses

Risk taking
As it stands the majority of respondents (51%) suggest that their family businesses tend to be relatively cautious, while 29% say that they are aggressive. Various reasons for limiting risky projects include the possibility of a negative outcome and a reduction in the family’s wealth. The new generation is also likely to, at least initially, throw caution to the wind; in the future, an aggressive attitude is set to take hold at 51% of respondents’ businesses, while 35% say that caution will be their guide.

Innovative leads
Many of the respondents are also keen to make innovation a priority. Around a fifth will make innovation the top priority of their new business, while around three fifths have it in their top three. Only around a quarter have it as a top five or lower priority. The largest cited concern for respondents is expansion into new markets, at 20%, followed by R&D/innovation at 19% of respondents. New technology comes in third, at 17% of respondents, while M&A and staff training & development were both cited by 13% of respondents.

Future innovation of family businesses

Mennolt Beelen, Head of Deloitte's EMEA Family Business practice, states: “We found that in today’s family businesses, a new generation is emerging with many highly qualified young men and women, often with experience in other companies and abroad, ready to face the challenges ahead, such as internationalisation, innovation and digitisation – while maintaining the core family values of the business and respecting the legacy of the generations before.”

Further research into the attitudes of the new generations have been highlighted in recent reports, including a study by EY into the difficulty of grooming succession and from PwC into family business diversity.

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