Family Business Event 27th Jan 15 PwC & DCU CFB

27 January 2015
www.pwc.ie
Latest trends on family
businesses
January 2015

PwC
Welcome
Paul Hennessy
PwC Ireland Family Business Leader
2
January 2015PwC Family Business Survey 2014

PwC Family Business Survey 2014
www.pwc.ie
Up close and professional:
the family factor
January 2015

PwC
The story so far….
4
Initial survey – Ireland only
Second survey – Ireland only
Third survey – Twelve countries (European)
Fifth survey – Twenty eight countries
Fourth survey – Twenty eight countries
Supplement to Fifth survey – Enhanced comparatives
Sixth survey – Thirty countries
Seventh survey – Forty two countries
2004
2006
2008
2010
2011
2012
2014
2002

PwC 5
2,378 interviews conducted in 34 markets /
regions
Western
Europe
Austria = 50
Belgium = 72
* Denmark = 6
Germany = 101
Ireland = 99
Italy = 120
Malta = 63
Netherlands = 75
Spain = 37
* Sweden = 73
Switzerland = 120
Turkey = 71
UK = 113
North
America
Canada = 73
USA = 152
Latin
America
Brazil = 121
Mexico = 122
Peru = 81
Eastern
Europe
CEE = 24
Romania = 60
Russia = 57
Middle East
and Africa
Kenya = 62
Middle East = 44
* Nigeria = 15
South Africa = 120
Asia and
Pacific
Australia = 90
China = 30
* Hong Kong = 46
India = 65
* Indonesia = 16
* Malaysia = 45
New Zealand = 52
* Singapore = 43
Taiwan = 60
* Interviews still continuing in 7 markets

PwC
6
January 2015
Ireland sample profile: Business
23%
21% 20%
18%
13%
7%
14% 13%
20%
16%
22%
11%
$5-10m $11-20m $21-50m $51-100m $101-500m >$500m
Turnover (US$s)
Mix of sectors:
• Manufacturing: 23% (30%)
• Retail: 17% (11%)
• Wholesale: 15% (10%)
• Construction: 10% (9%)
• Agriculture: 8% (5%)
• Business activities: 6% (7%)
• Others: 5% or less
15%
44%
41%
18%
44%
38%
Under 20 years 20-49 years 50+ years
Company age
26%
38%
22%
13%
30%
40%
19%
11%
1 generation 2 generations 3 generations 4+ generations
Number of generationsSector

PwC
7
January 2015
Three fifths of family businesses in Ireland grew in the last financial year
and 86% are aiming to grow in the next 5 years. Both performance and
confidence about the future have grown since 2012
70%69%76%
63%
15%12%
10%
14%
2012 2014 2012 2014
Sales
Growth
Sales
Reduction
2012 2014 2012 2014
65%65%60%
52%
18%19%25%
35%
Grow quickly &
aggressively
Grow steadily
17% 11% 16% 13% Consolidate
5% 3% 2% 1% Shrink
97% of Irish family businesses predicting growth are
confident of achieving it
Next five yearsLast year
Growth Aims (Next five years)Growth in last financial year

PwC
8
January 2015
Main Findings
What are the priorities for family businesses?
What does it mean in practice?

PwC
9
January 2015
These overall themes are linked
and at times potentially competing
Achieving
Growth & Success
To enable the business to prosper and survive
Whilst mindful of the contribution
to the ‘softer’ aspects of
Family & The
Community
Professionalise
Diversification &
Overseas Expansion

PwC
10
January 2015
Of course these issues have always been present
but there have been some noticeable changes
2012 – 2014
ProfessionalismDiversification
Growth & Success Family & The
Community
• Business more bullish about increasing their
international sales than 2 years ago
• Although still important, there has been an erosion of
some of the values family businesses hold possibly
driven by commercial pressures
• Staff retention and supporting community initiatives
are a lower priority than 2 years ago
• There is now an increasing focus on professionalism,
innovation and skills
• And a realisation that this will help drive growth
• Increase in non-family involvement in key roles
• The general economic situation is less of an obstacle
than 2 years ago
• But margins are tight and competition is fierce
• Prospects for growth are improving slowly but not
back to pre-recession levels

PwC
11
January 2015
16.9%
15.2%
9.1%
8.9%
8.4%
8.3%
5.6%
5.6%
5.2%
4.3%
4.2%
4.1%
3.0%
1.1%
16.2%
13.7%
10.1%
8.8%
9.4%
9.3%
4.0%
5.4%
5.6%
4.4%
3.8%
4.3%
4.3%
0.7%
Ensure company's long term future
Improve profitability
Attract high quality skills
Run business more professionally
Ensure staff are rewarded fairly
More innovative
Grow as quickly as possible
Enjoy work and stay interested
Diversify into new products/sectors
Ensure business stays in the family
Move into new regional markets in home country
Different export markets
Contribute to the community / positive legacy
Create employment for other family members
It may be that the recession and the tough environment emerging afterwards has
sharpened Family Business thinking. Their priorities are clearly set out here – the
long term future and success of the business come first. The key enablers of
commercial success are the second priority and family and community related aspects
are less important
Relative importance of personal and business goals over the next 5 years (out of 100)
(New question in 2014)
Next five years

PwC
12
January 2015
68%
66%
53%
50%
45%
44%
43%
37%
35%
30%
28%
27%
27%
10%
58%
64%
56%
61%
42%
42%
44%
36%
48%
41%
40%
33%
26%
11%
Price competition
Need to continually innovate
General economic situation
Attracting the right skills/talent
Complying with regulations
Number of businesses competing
Containing costs
Company succession planning
Retaining key staff
Need for new technology
Need to professionalise
Increasingly international environment
Suppliers/supply chain
Conflict between family members
Family businesses in Ireland anticipate the general economic
situation continuing to ease, and competition and attracting the
right skills/talent coming more into play.
Key challenges in five years’ time
(figures in brackets are %s in 2012)
Next five years
(36%)
(85%)

PwC
Main findings
Internationalisation
13
January 2015

PwC
14
January 2015
Increased internationalisation is predicted. 25% of sales today are
accounted for by international sales (expected to rise to 30% of
sales). Both figures are closely aligned with the global average.
Avg. % of sales = International
(based on all i.e. all exporting and non-
exporting businesses)
Countries/regions seeing biggest increase
in five years (Ireland)?
71%
21%
13%
10%
9%
4%
Europe
Asia Pacific
Americas
Africa
Middle East/Gulf
No new countries
The new countries for exports will primarily be in Europe, in particular the UK.
UK: 43%
Germany: 9%
France: 9%
Spain: 6%
25% 30%
Currently In 5 years’ time
25% 32%
Next five years
USA: 7%
China: 10%

PwC
Main findings
Professionalism
15
January 2015

PwC
16
January 2015
There is an increasing focus on
professionalism among family businesses
and evidence that it is seen as a way of
driving growth
all scored highly in terms of relative
importance over the next 5 years
• Clarify relationship between ownership and
management
• Formalise family governance
• Use of non family members to achieve goals
Issues related to professionalism are
increasingly seen as important1 Professionalising the Family seen as
equally important to Professionalising
the Business
2
Professionalism Innovation Skills
And there has been a significant rise in
those citing innovation, attracting the
right skills and technology as key
challenges

PwC
Professionalism
• Non-alignment of corporate and family governance is a threat to
business and family sustainability
• A successful family business must also be a successful business
family
17
January 2015

PwC
18
January 2015
When asked the critical issues faced in
professionalising the business, people
related issues were often raised
• Training and refreshing skills of existing staff to better
meet current business challenges
• Attracting the right external talent – & having to
compete with bigger corporations
• Gaining skills required for international expansion and
(digital) innovation
• Training & up-skilling the next generation
• Formalising agreements & the process of succession
• Bringing in external/professional management &
widening the talent base utilised
‘Attracting new employees with better skill sets or
providing training to existing employees to provide
needed skills’
‘We need to be more digital and get in the right
leadership talent and we need to have a well trained
workforce’
‘Key positions in organisation are held by
professionals and top positions are held by family
members. Family members are giving up their
roles to professionals. This transition needs to
happen properly’
‘It is all tied up with the family succession plan,
formalising arrangements with the family, setting
up a family office, family agreement that sort of
stuff, which we are doing’
Staff: Skills & Capabilities Family: Management & Succession

PwC
19
January 2015
Irish family businesses have a similar approach to
involving non-family members to other family
businesses around the world
% have non-family
members on the board
% have non-family
staff who have shares
Further % likely to offer shares to non-
family in the next five years
63% 65%
30% 34%
13% 18%

PwC
20
January 2015
37% of family businesses in Ireland have non-
working family member shareholders –
significantly lower than the global average
Family involvement in businesses
% have family members working as Senior
Executives within the company
% have family members working within the
company, but not as senior executives
% have family members who don’t work for
the company or have shares, but are
recompensed in other ways
% have family members who don’t work for
the company but have company shares
93% 93%
47% 49%
37% 48%
20% 18%

PwC
21
January 2015
Just over a half of family businesses in Ireland have next generation family members
working for the business – again very similar to the global average. Irish firms are
less likely than average to have given shares to non-family members who don’t work
for the company
Family “Next Generation” involvement in businesses
% have Next Gen family members working
as Senior Executives within the company
% have Next Gen family members working
within the company, but not as senior
executives
% have Next Gen family members who
don’t work for the company or have shares,
but are recompensed in other ways
% have Next Gen family members who
don’t work for the company but have
company shares
Any next gen working
for business
57%
55%
39% 43%
32% 28%
12% 23%
10% 7%

PwC
22
January 2015
Three-quarters (78%) of Irish family businesses have at least one
procedure/mechanism in place to deal with conflict (slightly lower than the
global average: 83%). Fewer than average Irish firms have a family council
or family constitution
Procedures in place
58%
38%
33%
26%
21%
20%
13%
7%
22%
54%
43%
39%
33%
27%
27%
32%
22%
17%
Shareholders agreement
Incapacity and death arrangements
Measuring and appraising performance
Entry and exit provision
Conflict resolution mechanisms
Third party mediator
Family council
Family constitution
Nothing

PwC
Main findings
Succession
23
January 2015

PwC
24
January 2015
Fewer than half of Irish family businesses have
some sort of succession plan, only 10% of family
businesses have a succession plan in place that is
robust and documented
Succession plan for key senior roles?
% with a succession plan in place
for at least some senior roles
Only 10% of Irish family
businesses have a succession
plan in place that is robust and
documented (16% worldwide)
16%
15%
13%
55%
16%
18%
20%
44%
All senior roles
Most senior
roles
Small number
of senior roles
None
43% 53%

PwC
25
January 2015
31%
29%
25%
11%
4%
40%
32%
20%
8%
1%
Pass on management to next
generation
Pass on ownership but bring
professional management in
Sell/float
Don't know
Other
Future plans
The proportion of Irish family businesses planning to pass on management to the next
generation has fallen significantly from 55% to 31%. The proportion planning to pass on
ownership but bring in professional management has increased significantly since 2012
and the proportion planning to sell or float is higher than the global average at 25%
(figures in brackets are %s in 2012)
Breakdown in Ireland
• Sell to another company: 17%
• Sell to private equity investors: 10%
• Sell to management team: 10%
• Flotation / IPO: 4%
(15%)
(55%)

PwC
Main findings
Messages
26
January 2015

PwC
Messages
• Irish Family Businesses are showing improving growing trends and
are confident about the future
• There are some notable changes in attitude regarding the
importance of business performance, supporting employment and
responsibility to community
• The need to professionalise is recognised as both a business and
family issue
• There is a greater focus on determining what is required to achieve
sustainability in both business and family
27
January 2015

PwC
Conclusions
The key challenges – in summary
 Understand the sustainability challenge
 Determine skill requirements – get them in
 Build processes to best practice models
 Build effective family governance structures
 Determine and formalise succession plans
28
January 2015

PwC
The challenge model
29
January 2015
Sustainability
Business and Family
Best
Practice
Business
Processes
Determine
skills
required –
get them
in
Effective
family
governance
Formalise
succession
Understand the sustainability challenge

PwC
30
January 2015
But when thinking long term and about their
legacy, heart comes into play more than head!
“To promote sustainable
tourism that impacts the
community. It has huge
economic power for the
community as so much
money comes into the area”
“I would like to leave a
profitable stable company
for the next generation and
provide secure employment
for staff and the local
community”
“To build an entrepreneurial
company that is sustainable
and profitable. Longevity,
and diversification - adapting
to new technology and new
markets….It's not just a case
of new physical markets, we
have to be flexible enough to
adapt our product to suit
different areas..”
“Expansion of my company's
influence in the industry”
Although commercial success is the clear priority in the short term, when asked about the
legacy they would like to leave, FB respondents want equally to be remembered for their
family and community contribution. Strong feeling of human motivation and ego comes
through here, balancing more hard headed business aspirations
What want lasting legacy to be?

AGENDA
• National and International
Presence
• Understanding the
Complexity
• 4L’s Framework

Inevitability
• Business
• Family

L1
Learn Business
L2
Learn Our Family
Business
L4
Learn to Let Go
L3
Learn to Lead
Source: Moores & Barret, 2005
CONTINUE
DIFFERENTLY

L1
Learn Business
L2
Learn Our Family
Business
L4
Learn to Let Go
L3
Learn to Lead
FAMILY ASSEMBLY
FAMILY COUNCIL

L1
Learn Business
L2
Learn Our Family
Business
L4
Learn to Let Go
L3
Learn to Lead
1- RETIREMENT TIMELINE
2- MANAGEMENT SYSTEMS

Incumbents:
1. What are my options?
2. When should I consider sharing my intentions?
3. How have others managed this process?
4. Who should I discuss this with?
5. Why would I avoid this topic?
6. How much do we need to retire?
7. Who………………………………….?
8. When………………………………..?
9. Why………………………………….?
10. How………………………………….?

Aspirants:
1. What are my options?
2. When should I seriously consider a role in the
family business?
3. What can I contribute without being in an
operational role?
4. How prepared am I for a leadership role in the
business given my current situation?
5. Who should I benchmark myself and our family against?
6. What am I doing to better prepare myself for a role in the
business?
7. Who………………………………….?
8. When………………………………..?
9. Why………………………………….?
10. How………………………………….?

CONCLUSION
• Economic Contribution
• Three Systems of a Family Business
- What’s your Number?
• 4L’s Framework
- O’Callaghan’s

+353 1 700 6921
Get involved with the
DCU Centre for Family Business:
www.dcu.ie/centreforfamilybusiness
familybusiness@dcu.ie
#familybusiness@dcu.ie

DCU Centre for Family Business Launch Event

PwC
Panel discussion
Eamonn Quinn – Chair
Kelsius Limited
Paul Hennessy
PwC Ireland Family Business Leader
Eric Clinton
DCU Centre for Family Business
Conor Whelan
Easons & Son
52

PwC
Family Business
Economic and Tax Policy
Colm O’Callaghan
PwC Tax Director
53

PwC
Private and Family Businesses
Economic and Tax Policy – Budget 2015
54
1) Management
of the
employment
tax burden
2) Management
of labour costs
and employee
taxes
3) Vat –
retention of the
9% rate
5) Lending to
Private
Businesses -
Individuals
4) Local
Councils – Rent
and Rates etc.
6) State-backed
enterprise/inve
stment Bank
7) Exporting
incentives
8)
Entrepreneur
relief
10) Business
Succession
9) Windfall tax
on rezoned land
Key to put
Private and
Family
Businesses front
and centre of the
government’s
economic and
tax policy.
10 Point “wish”
list prepared for
Budget 2015

Thank you...
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Family Business Event 27th Jan 15 PwC & DCU CFB

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