Professionalising the Family Business: Moving to the Next Level

Family businesses are important to the economy of Curaçao. They represent a large part of Curaçao business, which makes them an essential part of our economy. Through the years, the family business model has proven that it is usually less affected by economic unrest than non-family owned businesses, as they take fewer risks and are more focused on the longer term. Generally, family businesses are strong and unique, but also complex. Regardless of where they are established in the world, they face the same challenges as any other businesses and as both the business and family grow and expand, they must also deal with a range of specific problems. The economic environment is tough, and there are significant shifts underway in the family business sector. They have to manage the challenges of operating in a difficult global economic environment alongside inevitable generational change.

TEXT LENNART HUIJSEN, DIRECTOR TAX PWC DUTCH CARIBBEAN

PwC Family Business Survey
In 2014, PwC conducted its latest global family business survey. Key decision makers in family businesses over 40 countries worldwide were interviewed, from entrepreneurial start-ups to companies that have survived for five generations or more. This study is conducted every two years to examine the strengths and weaknesses of family owned businesses in the rapidly changing world economy. The results were published by the end of 2014 and they show us that the family business sector is dynamic and resilient, but also that significant shifts are underway. Evidently, these worldwide changes also affect our local family business sector. From society’s point of view, it is crucial that local family businesses continue to be strong and healthy. For this reason, it is time that both the family businesses themselves and society as a whole pay attention to the specific challenges faced by this important group.

From society’s point of view, it is crucial that local family businesses continue to be strong and healthy. For this reason, it is time that both the family businesses themselves and society as a whole pay attention to the specific challenges faced by this important group.

The New Economic Reality
The “new” economic situation has led to more intense competition, growing price pressure, more demanding customers and tight margins. Family businesses have to accept that the conditions they enjoyed before the recession are now unlikely to return. The economy is now a colder and harder place for the family firm. The so-called global megatrends like demographic change, globalisation, urbanisation, and the digital revolution also have their profound shifts that are underway. These trends will significantly impact the economy and will make the business landscape more unpredictable and disruptive. The speed of change continues to accelerate and family businesses acknowledge that they will have to adapt faster, innovate earlier and become far more professional in the way they run their operations.

Professionalising the Firm and the Family
A remarkable finding of the 2014 report is that there is a clear need to professionalise the family as well as the business. Professionalising the family business is about giving structure and discipline to the vision and the entrepreneurial drive that launched the family firm in the first place. On the other hand, this has to be accompanied by an approach to professionalise the family, for example, developing processes to govern how the family interacts with the business, including establishing an infrastructure for decision-making and formal channels for communication. There are still some family firms that manage without a formal business process. Most larger firms, however, now have documented procedures and policies in place. Younger and more ambitious businesses are especially more likely to mention professionalising as a business goal in order to grow their business.

There are still some family firms that manage without a formal business process. Most larger firms, however, now have documented procedures and policies in place.

Attracting and Retaining Skilled Professionals
If family firms are to diversify into new markets, expand internationally, manage risk better, or innovate more effectively, many of them will probably need to hire outside talent to bring in the skills and experience needed. Attracting and retaining qualified talent is, for most firms, a concern and a challenge. Family firms indicate that they find it difficult to compete with the structured career path that other businesses and large firms often offer. There is no point in hiring highly skilled talent unless the system and internal processes have been professionalised. This is essential for these skilled professionals to do the job effectively.

Successful Succession
In many cases, the transition to the next generation is a difficult and emotional moment for the family firm. Nevertheless, the day will come when the controlling owner must renounce his or her ownership interests to another party. Unfortunately, many business owners choose to ignore this inevitability. As a result, they fail to document and discuss a succession plan for the firm. Nowadays, a number of factors are coming together to make the succession process more complicated than it has ever been before. One of these factors is that, since people have children at a later age, there is a bigger gap between generations. In many cases, there is also a significant communication gap between those running the business and the next generation that is slated to take over.

Nowadays, a number of factors are coming together to make the succession process more complicated than it has ever been before.

Lack of a formal succession plan can lead to a number of problems, especially when the moment of transition arrives. For instance, next generations may be reluctant, unprepared, or unable to take over. On the other hand, the owner might identify a willing successor but family members and other key stakeholders do not support the decision. The business owner could also discover that keeping things in the family simply is not feasible. While these types of issues can be difficult to face, it is better to deal with them now than at the last minute, when options may be limited.

Family businesses would not have survived in such a tough business environment if they did not have the qualities necessary to succeed. In today’s economic environment, however, to maintain the success that family firms have enjoyed in the past, it is essential to address these new challenges.