KPMG and EFB have launched the 4th edition of the European Family Business Barometer, which seeks to measure the confidence levels of family-owned businesses across Europe. The European Family Business Barometer shows that the majority of family businesses have a highly positive outlook for the future. Concerns persist around employment and attracting the best people. Many family businesses are planning a strategic change in the next twelve months.
It is refreshing to see that family businesses, which hold a strong presence in Europe (more than 14 million family businesses in the EU) and account for an important part (over 60 million jobs in the private sector, i.e. on average 40 - 50% of all jobs), continue to actively contribute to regional economies. The European Family Business Barometer is based on the responses of an online survey from 1401 questionnaires which were received from family businesses across 25 European countries, including Romania; this fourth edition was open from 1 May to 5 July 2015.
Two years since the first European Family Business Barometer, the number of companies which are optimistic in their forecasting has reached 75%. Though the survey shows overall confidence across businesses of all sizes, small companies are slightly less optimistic than large ones: while 66% of small companies express a positive outlook for the future of their business, this rises to 81% among large companies.
Although the performance indicators are positive, increased competition, mentioned by 37%, has come top in the list of major challenges for family businesses. Unsurprisingly, the ‘War for Talent’, an increasing trend over the last two years, continues to be a big influencer on future success. Family businesses are well aware that employing the right people with the right skills is key to their success and 33% of them are concerned about their company’s capability to compete to recruit and retain skilled staff. In 2013 this issue was not even ranked in the top five challenges. However, last year it moved to number two where it remains. This may be a warning sign for some businesses, as difficulty to compete for the best talent may pose limitations for family businesses’ future performance.
Alexandru Massaci, Director, Private Clients services, KPMG in Romania, says: „The so-called “War for Talent” has rapidly climbed the ranks as a major source of concern for entrepreneurs in Europe. While in 2013 the “War for Talent” was not included in the top 5 causes for distress in family businesses, last year it turned into a serious theme that remains high on the agenda and has created a trend. In Romania, the percentage of employers that have increasing difficulties in identifying employees / candidates with high potential exceeds the global average. Identifying / recruiting talent is a multifaceted issue involving lack of technical qualification, lack of experience, absence of communication skills, a geographic location not suitable for family business, lack of appetite among candidates for mobility or part-time employment, or – for management positions – absence of intellectual abilities that are essential in defining individual values and personality, all of which contribute to limiting family enterprises’ competitiveness. Furthermore, 35% of respondents consider that a legal framework fostering labour market flexibility could stimulate business growth. 35% selected more permissive labour legislation, 28% were in favour of a reduction in non-salary costs and 23% pointed to a cutback in the bureaucratic / administrative burden...
Appointing a CEO from outside the family is no longer a priority for family businesses (down to fifth from the top place on the priorities list over the past two years) despite pressure by specialists to implement corporate governance in family businesses that have reached a certain level of development. The reason could be that a member of the family is readying him/herself to take over the management (according to the KPMG survey, 26% of respondents plan to pass on the business management to the next generation). Recruiting and retaining talent is closely linked to competitiveness and the desire to maintain sustainable business growth – let us not forget that 1.2 million new businesses emerge every year in Europe."
The survey also reveals that family companies are thinking about their long-term strategic future. This year 41% of the surveyed companies are planning a strategic change in the next twelve months. Of this group, 26% plan to pass the management to the next generation and 20% plan to pass on the ownership, 1st and 3rd choice respectively in the ranking of the envisaged changes. These figures are consistent with the results of the previous editions and confirm that the drive to transfer the business to the next generation is still highly important for family businesses.Overall, the findings of our survey reflect the rise in companies’ confidence in the future, and positive trends in all the major business performance indicators confirm improved results. With 58% of respondents reporting that their turnover has increased, 26% indicating that they have maintained turnover, and 16% stating that their turnover has decreased (half the number of two years ago), the future for the majority appears bright.
Richard Perrin, Partner, Head of Advisory, KPMG in Romania, says: „The European Family Business Barometer launched by KPMG and EFG (European Family Business) reveals that 41% of respondents are planning a strategic change over the next 12 months. 26% of respondents to the survey stated they would pass the management to family members of the next generation, 21% plan to sell the business, and 20% intend to transfer property in the form of assets or shares held in family businesses to the next generation. The barometer reveals an increase in the numbers opting to sell compared to previous editions of the survey. The trend could be contextual if we look at the fast-changing environment around us. The barometer shows that owners would rather sell their businesses to a third party than to a family member or an employee. Family businesses are aware of the strengths that help them survive under increasingly difficult or even unexpected market conditions: using family-specific values and choosing the right time to pass on the business to the next generation. The urge to preserve the family name and keep the business running for generations to come requires a long-term strategy, patience, as well as shared values and ethos.
In terms of corporate or family business governance, we note a growth in specific mechanisms and practices: 63% of respondents have a Board of Directors, 23% - a Family Council, 22% - a succession plan for the CEO; 19% - a Family Constitution, 14% - Rules for family members’ involvement in the business, all of which point to family businesses being increasingly aware of the need for good governance.
”‘Despite the challenges facing businesses in the European Union, it is once again encouraging to see that family companies remain confident about their futures. There is still however, a persistent worry surrounding employment and the ‘war for talent’. Family businesses are demonstrating a continued commitment to creating jobs and growth in Europe; policy makers must respond in kind by improving their understanding of what this vital business sector contributes to the European economy,’ explains Roger Pedder, EFB President.
Christophe Bernard, Global Head of KPMG’s Family Business Practice,says: „Nine months on from our previous Barometer, it is really pleasing to see that Family Businesses are increasingly confident in the future and demonstrate a positive curve in all major performance indicators. Backed by their confidence, these business are not passively relying on previous success and waiting for new business opportunities to come. They demonstrate strong voluntarism and ability to adapt to an ever changing environment: they are actively preparing and integrating the next generation into management roles and are increasingly recognizing the need for outside expertise and talent.”
European Family Businesses (EFB) is the federation of national associations representing long-term family owned enterprises, including small, medium-sized and larger companies. EFB represents 1 trillion euros in aggregated turnover, which is 9 per cent of European GDP. EFB’s mission is to press for policies that recognise the fundamental contribution of family businesses in Europe’s economy and create a level playing field when compared to other types of companies.
KPMG’s Global Family Business Centre of Excellence is designed to leverage KPMG member firms’ expertise on Family Businesses, enabling them to offer specialized insight to clients. This cross-border initiative aims to position KPMG member firms as leading advisors to family businesses. KPMG operates in 155 countries and has 162,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.