Only 15% of Indian family businesses have a robust succession plan: PwC Report

  • 75% of Indian family businesses have grown in the last 12 months; 84% expect to grow either steadily or quickly and aggressively over the next 5 years
  • The need to innovate, keeping pace with digital and technology and the ability to attract and retain talent are the top three challenges family businesses anticipate facing over the next five years
  • Only 15% of family businesses have a robust, documented and communicated succession plan
  • 35% plan of family businesses plan to pass on management to the next gen; 48% plan to pass on ownership but bring in professional management

New Delhi, November 21, 2016: While three-quarters of Indian family businesses have grown in the past one year, barely 15 per cent of them have a robust, documented and communicated succession plan, according to PwC’s 2016 India Family Business Survey Report.

PwC spoke to 2,802 family business leaders across 50 countries and in India with 102 family business leaders. According to the report, 84 per cent of Indian family businesses expect to grow either steadily or quickly and aggressively over the next five years. Of those looking at an annual growth of over 10% over the next 5 years, about 96 per cent said that the growth of core business in existing markets will enable them to reach their targets. Over half of the family businesses surveyed said they were looking to expand into new sectors or new countries and will consider inorganic growth. The positive sentiment can be attributed to two broad factors. One: family businesses tend to remain relatively resilient and stable in adverse conditions. And two: the India growth story has been reinforced.

Praveen Bhambani, Partner and Leader – Private and Entrepreneurial Business, PwC India, said "A strong sense of pride is clear in the comments of Indian family business leaders. Indian family businesses are very optimistic about their future, which is clearly demonstrated by the heightened entrepreneurial activity being witnessed in the country. Strategic planning in both dimensions of a family business – the family and the business – will go a long way in enabling family business leaders to achieve their goals.”

The participants in the survey feel that key challenges their business will face in the next five years are: the need to innovate, keeping pace with digital and technology, attracting and retaining talent, competition, need to professionalise the business and regulatory compliances.

According to the report, priorities of family businesses for the next five years are not quite in line with the challenges anticipated. As part of personal and business goals, the endeavor of most Indian family businesses is to build an enduring profitable enterprise, enjoy work and stay interested, innovate and leave a positive legacy. Innovation, which is considered the biggest challenge, comes fourth in business priorities—maybe because the need to innovate is linked with revenue growth at the enterprise level. Digital comes second in the list of challenges, yet only 22 per cent of family businesses feel their business is vulnerable to digital. While most family businesses understand the benefits of moving to digital technologies, more than half do not discuss them on the board.

Similarly, while the ability to attract talent comes in third in the list of challenges and businesses aim to bring in more professionals to give future direction over a span of the next five years, their ranking among business priorities is low.

On the family front the report throws up some more interesting statistics:

  • Alignment of business and family strategy: 76 per cent of family businesses feel their business and family strategy is aligned and 55 per cent of those surveyed said they have a family office in place to deal with personal and financial affairs of the company. Yet, only 23 per cent of family offices advise on strategic direction of the business.
  • Dealing with conflict: 85 per cent of Indian family businesses have a mechanism in place to deal with family conflict including by way of shareholder agreements, measuring and appraising performance, family councils etc.
  • Succession planning: Only 22 per cent of the businesses have a succession plan for all their senior executives, 31 per cent have a plan for most senior executives while nearly half the people surveyed said there is either no succession plan or that it covers a small proportion of the key personnel.  Even more alarming is the fact that only 15 per cent of those surveyed have said that their succession plan is robust, documented and has been communicated.
  • Future ownership plans, next gen and professionalisation: 78 per cent of family businesses have next gen involved in the business. At the same time, professionalisation imperative is high. Of the participants surveyed, 81 per cent have non-family members on board, 72 per cent plan to bring in non family professionals to help run the business. 35 per cent plan to pass on management to next gen while 48 per cent of family businesses plan to pass on ownership but will bring in professional management.

Ends

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