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Future of family business ownership in question


March 17, 2011
By Amanda Ryder

March 17, 2011 – Nearly half (49%) of Canadian family business
owners have not chosen their next business leader, exposing a lack of
succession planning, according to the Canadian results of PwC's latest Global Family Business Survey.

March 17, 2011 – Nearly half (49%) of Canadian family business
owners have not chosen their next business leader, exposing a lack of
succession planning, according to the Canadian results of PwC's latest Global Family Business Survey.

Among those who have planned for the future, many are making
non-traditional decisions about their business with many opting to sell
or choosing not to pass the company along to family. The study found
less than half (48%) of Canadian family business owners plan on passing
their family business onto the next generation—a significant drop from
90% in 2007.

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Within the next five years, the survey found 27% of owners anticipate a
change in ownership of their business. Among those who predict a change
of ownership, 33% plan to sell to a private equity investor, up from
14% in 2007, while 22% plan to sell to a management team.

"It's possible that the global downturn led people to re-evaluate their
plans. People are thinking harder about whether family members have the
talent to take over the business," says Tahir Ayub, Canadian leader of
PwC's Private Company Services practice. "Another factor is that
succession is happening much later. The natural successor may be in
their fifties when the owner is ready to transition out of the
business."

Interest falters by third generation
Half of the study's respondents said their companies were owned by the
first generation; 34% by the second generation; and only 16% by the
third or more generations.

"We've found that by the second and third generations, either the
company doesn't survive or family members are less interested in
running the family business," says Sharon Duguid, director, Centre for
Family Business and Entrepreneurs, PwC. "To set themselves up for
success, owners should be planning well in advance to ease tension and
create the right conditions for a successful transition down the road."

Tension key source of business breakdown
About one-third of respondents said they experienced some to a lot of
tension over: family members not consulting the wider family on key
business issues (36%); decisions over who can work in the business
(31%); and the performance of family members who are actively involved
in the business (39%). Despite this prevalence of tension, only 27% of
respondents said they had conflict resolution procedures in place.

"Tension can be a good thing when it provokes necessary conversations,
but when those discussions never happen, it can lead to the collapse of
family businesses," says Duguid. "People tend to wait until they have a
conflict until they start thinking about conflict resolution strategies
and then wish they had a formal system already in place."

To ease tension before it hits, the report suggests establishing a
family council, which is a family governance structure that proactively
facilitates discussions and resolutions on key issues, including
conflict management and succession planning. Owners can also consider
setting up an external advisory board made up of non-relatives to
obtain some different 'non-family' perspectives, especially about
prospective successors.


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