As we begin to grasp the implications of the new reality, it is clear that many family CEOs are facing a watershed moment and may need new thinking about the future of their business. The pandemic has been the greatest health and economic crisis in recent history, shutting down sectors of the economy and altering ways of working and business models. As we emerge from this crisis, many family businesses may require the next generation to step into leadership roles sooner rather than later and forge new paths toward a sustainable future.
But here is the challenge: 53 percent of family CEOs globally do not have a formal retirement plan, as revealed in the Successful Transgenerational Entrepreneurship Practices (STEP) Project Global Consortium 2019 Global Family Business Survey, planned and developed through a strategic alliance with KPMG Private Enterprise.
This finding is concerning, as it has important implications for the future of CEOs and their family businesses. Now more than ever, there is an urgent need for greater business innovation and agility, which is often driven by next generation leaders.
When do family CEOs expect to retire?
As reported in the STEP Project Global Consortium survey, more than half (53 percent) of all family CEOs plan to retire between the ages of 61 and 70, with 27 percent planning to retire after age 70. There are some regional variations: in North America, 40 percent of family CEOs plan to continue working past 70; in Europe and Central Asia, this rises to 60 percent. In Canada, a 2018 survey1 showed that 42 percent of small business owners were unsure about their retirement plans, and that 36 percent plan to continue working as long as they can.
Why are family CEOs delaying their retirement plans?
There are several possible reasons why family CEOs may delay their retirement plans. Some are too busy running their business to spend time thinking about a distant future. Others can’t imagine a time when they aren’t running the business.
There are also situations where CEOs have underlying and sometimes unspoken concerns. Contrary to a popular perception that entrepreneurs are gamblers who enjoy taking risks, many are successful because they have mastered the art of avoiding risk.
To address the impact of the pandemic, however, the risk mindset is beginning to change. Today, innovation and agility have become paramount for family businesses globally, as they find new ways to maintain the family legacy while also making it fit for the new normal.
What is the path forward?
Prior to the onset of COVID-19, a US study2 conducted by the Conway Center for Family Business showed that fewer than half of family CEOs who are planning to retire within 5 years have selected a successor; in Canada, only 36 percent3 of small business owners report that their families are aware of their succession plans.
Retirement and succession planning can give CEOs the confidence to retire earlier, however, knowing that their business is in safe hands with the next generation.
While there are many considerations, here are four core elements:
- Management process planning to ensure family members clearly understand the expectations and responsibilities required to take over the business and determine if the potential management capability and interest exists within the family.
- Family and ownership structures with well-defined rules. A family constitution and family council can help address these issues.
- Leadership succession strategies can help assess and identify the right leader to lead the business forward. This may include developing a program to train and mentor the next generation of family members or identifying business professionals outside the family for senior leadership roles.
- Communication and implementation of the succession plan to help identify all the risk factors and ensure everyone is equally informed on the goals, process and timelines.
In the event that a decision is made to exit the family business altogether, an entirely new set of considerations comes into play. If this is something you are considering, I encourage you to read “Transition: Family business dynamics” (PDF 1 MB), which, provides a good starting point for examining the options for management and ownership transition.
Passing the reins to the next generation or a non-family member is not always easy. Without question, the pandemic, has shaken things up and accelerated the need to adapt to change and seize new opportunities. It is a stark reminder of the vital importance of forward thinking and planning to ensure that family businesses and future generations continue to be successful.
In-depth interviews with family business leaders across the globe provided us with firsthand and profound perspectives on their retirement plans. I encourage you to read their stories in a series of articles published on the KPMG website beginning in October.
With the need to prioritize a succession or governance strategy, the KPMG Private Enterprise Family Business Dynamics Assessment can help. This complimentary online assessment is dedicated to helping family-owned businesses like yours evaluate key opportunities and issues commonly identified by business families globally and can be used as part of your strategic planning as you chart a new course into the new reality.
Interested in learning more about how KPMG Private Enterprise can help with succession planning for your family business? Contact your KPMG Private Enterprise adviser or find a KPMG Private Enterprise Family Business adviser.