'War for talent' intensifies for family businesses, latest KPMG report finds

05/12/2017 News Team

Europe’s family businesses are now more impacted than ever by the ‘war for talent’, the latest Enterprise European Family Business Barometer 2017 from European Family Businesses (EFB) and KPMG.

These businesses ability to attract and retain the skills needed throughout their business is now the sector’s number one concern. 

More than four in ten (43 percent) of the family business representatives surveyed named recruiting skilled staff as one of their businesses’ major issues, coming ahead of increasing competition (37 percent) and declining profitability (36 percent) in second and third place.

The proportion citing the recruitment of talent as a key concern has risen from 37 percent last year and 33 percent in 2015.

 With almost eight in ten (78 percent) family businesses across the continent employing external directors, representing a steady incline since the Barometer first asked the question in 2015, the issue of attracting skills is increasingly pertinent from the bottom to the very top of family businesses.

Ken McCracken, KPMG’s UK head of family business consulting and a 2018 eprivateclient 50 Most Influential, said: “The culture and values that become apparent to employees within many family businesses, once they have joined, means they tend to perform strongly when it comes to retaining talent. However, as their appetite to tap into the skills that exist outside of the family gene pool grows, in a high employment economy, their experience of the war for talent intensifies as they compete to attract staff with sought after skills.

“Given the vast majority (87 percent) of the families behind the businesses are committed to maintaining family ownership, and have a potentially wide pool of relatives amongst whom to share dividends, the remuneration packages on offer to attract talent can be more limited than businesses with other ownership forms.

"Share schemes and option plans tend to be off the table. So, it’s important that they effectively build and communicate their value proposition as an employer; what it means to be a family business and why it’s a good thing to work for one. This might include their commitment to staff and communities, and be demonstrated by tangibles such as higher levels of investment in training and corporate responsibility as well as relatively fewer redundancies during tougher times. 

“Make no mistake, this is a critical business issue, as without the right skills in a business it will struggle to deliver on its potential and to grow in a competitive market. With 41 percent of family businesses growing their headcount in the last year and 37 percent identifying increased competition in the markets for their goods or services as a significant commercial issue, families in business cannot afford to lose out on skills.”

Other key findings from the report include:

- 71 percent report feeling confident or very confident in their business’ prospects for the next 12 months. A quarter are neutral, with only two percent feeling negative. 

- 57 percent report increased turnover over the past year, while 27% maintained revenues and 13 percent saw a reduction.

- Of those that experience an increase in revenue, 74 percent of the business leaders plan to reinvest it.

Elizabeth Bagger, executive director at the Institute for Family Business, the UK Chapter of the EFB, commented: “Family businesses are the backbone of the UK economy, and these findings show yet again how resilient and ambitious they are.  UK family firms have a strong heritage and track record, but they are always looking to the future.  They are ambitious to grow, to create jobs, to build a stronger presence in their local communities, and to pass something stronger on to the next generation.

“This latest barometer gives important insights into the challenges family firms are facing and some of the barriers to them achieving their ambitions.  Despite these challenges it is encouraging to see how many families have plans in place to grow their business, including reinvesting in their business, and exploring new markets.  These findings reflect the dynamic, innovative and ambitious family firms we work with every day.” 

Key family findings:

- The need to balance family concerns and business interests is important or very important to nearly nine in ten (87 percent) of those running family businesses. This issue has grown sharply in significance each year since 2014, when 59 percent found it very important or important.

- 84 percent of respondents indicated that preparing and training a successor was important or very important to their business, though only 22 percent have a succession plan in place for the role of CEO.

- 22 percent are preparing to hand over the management to the next generation in the coming year, while 10 percent intend to appoint an external CEO.

- Half of businesses have a member of the family’s next generation in a management position.

Mr McCracken added: “It’s undoubtedly a positive that the desire to balance the needs of the business with those of the family is emphatic given it suggests an acknowledgement that without careful management of both, conflict can arise. While in-itself not always a negative, most people would rather avoid conflict and a good start is to establish clear rules for what family members can expect from the business and what the business can expect from them. 

“Succession meanwhile is a perennial family business issue. Again, I’m pleased to see such a majority placing value on preparing a successor and, as such, that half have the next generation in management roles while one in ten are clear on their aim to appoint a non family chief executive in the near future. However, eight in ten are without a chief executive succession plan which suggests there is work to do in many cases. I do think there is still an overly blurry line about the distinction between being a family owner and being a family manager. Deciding on this point can be a pivotal moment for a family at a crossroads.”

The Barometer’s snapshot of UK family business sentiment shows that broadly the leaders of UK companies are experiencing similar successes and challenges as those on the continent. However, there are some areas where specific issues have impacted the results. 

One key divergence relates to the political climate. Against 30 percent pan-Europe citing political uncertainty as a key business concern, in the UK the figure is 53 percent. And, nearly twice as many of those running UK family businesses compared to the European average cited an unstable currency as a key issue (28 percent v 16 percent).

However, of those who had enjoyed a revenue rise in the last year, 16 percent in the UK attributed it to a more favourable competitive landscape compared to 10 percent across Europe, which may be the other side of the coin when it comes to Sterling’s value. 

The responses from UK family businesses also suggest that they are less engaged with exporting than the European average. Forty four percent are without any overseas activity; a figure that’s only 24 percent across the continent. Appetite to change this exporting gap is also lacking according to the UK sample, with only 26 percent planning to increase their activity levels abroad, compared to 44 percent pan-Europe.

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