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2007

MGI New Zealand Family& Private Business Survey

Business Solutions Worldwide


Researched and Prepared by

Professor Kosmas X. Smyrnios & Lucio E. Dana

RMIT University

The research support of Carol Tan, Prue Dana, Laurie

Armstrong, and Reece Lamshed are gratefully acknowledged.

MGI proudly supported this research: June 2007

No part of this publication can be reproduced in whole or in part by anymeans whatsoever, without the written consent of the authors ©

The information in this report is based on data collected from selectedbusinesses. We accept no liability on the information contained hereinand therefore no warranty is given in relation to any statement or opinionor any error or omission, however caused.

The MGI New Zealand Family and Private Business Survey 2007


Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Survey Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2 Definition of Family Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

4 Profile of Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

5 Profile of Family Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

6 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

7 Gross Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

8 Business Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

9 Sources of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

10 Governance: Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

11 Governance: Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

12 Management Planning & Communication . . . . . . . . . . . . . . . . . . . . . . . . . . 18

13 Business Objectives of Family Enterprise Owners . . . . . . . . . . . . . . . . . . . . 20

14 Wealth of New Zealand Family Business Sector . . . . . . . . . . . . . . . . . . . . . 21

15 Sale of The Family Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

16 Family Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

17 Succession Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

18 Estate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

19 Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

20 Superannuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

21 The Use of External Advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

22 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

The Study Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Contents


The MGI 2007 Family and Private Business SurveyFamily and privately owned businesses represent an important section of the New Zealand

economy. It is well known that we are a nation of small and medium sized businesses – per

capita there are more companies than many other developed nations.

Because of the significance of family owned businesses to our economy and way of life it is

important to understand their special characteristics, challenges and priorities, and their

plans for the future. This research conducted by RMIT University sheds light on these

issues and provides comparisons with our neighbour Australia, with whom we enjoy close

economic ties.

One of the key findings of the 2007 MGI New Zealand Family & Private Business Survey

is the reported intention of approximately two thirds of New Zealand’s family business

owners to transfer their equity in their business by sale to third parties, to non-family

managers or to the next generation of family members within the next decade. And yet,

53% report that they do not believe that their businesses are exit ready!

This finding indicates a clear need for the bulk of New Zealand’s family business owners to

take steps to prepare their businesses for sale or succession in a timely way, so as to increase

their attractiveness to prospective buyers or successors, and to maximize their realizable value.

MGI Wilson Eliott is committed to supporting New Zealand private and family businesses

and providing the proactive financial and business advice required by this sector. We were

very pleased to be part of this highly important initiative. The findings of this survey will

be of significant value not only to the privately-owned business sector, but to professional

advisors and other interested parties.

We congratulate the authors and the RMIT University on their most valuable research.

A copy of the Australian Report is also available from our office.

Nick FrancisManaging DirectorMGI Wilson Eliott LimitedMGI International Committee Member

Foreword

The MGI Group is a

leading worldwide association of

independent accounting, auditing

and consulting firms operating

in over 240 offices and more

than 70 countries.


Desirability of Family BusinessContinuity and SuccessionWe find that only 24% of NZ family business owners have a

policy of definitely remaining family owned; with 40%

indicating either that they have no specific policy regarding

the future ownership of their business or that they do not

consider continued family ownership to be important.At the

same time, 48% foresee the family relinquishing future

management control, with 53% indicating that the current

CEO is more likely to be succeeded by a nonfamily member.

We also find that 54% of family business owners are actively

planning the future sale of their business either now (24%) or later

(30%). Moreover, 69% note that they would seriously consider

selling their business, if approached; with 57% reporting that

they had been approached within the last five years.

The main business objectives identified by approximately

three quarters of family business owners are: accumulating

family wealth (28%), increasing the value of the business (20%),and

growing the business (25%). A small minority of owners list as

main business objectives: passing the business on to the next

generation (5%) or employing family members (4%).

Although 84% of family business owners report that they

regard succession planning as important, 81% have NOT

documented management succession plans, 75% have NOT

documented ownership succession plans, 44% have NOT

sought outside advice on their succession options and

strategies, and 67% indicate that the family has NOT agreed

upon the succession plans and succession of the next CEO.

It would appear, therefore, that neither family business

continuity nor succession (or succession planning) are priorities

for these business owners. Accordingly, nearly 50% of family

firms are unlikely to become later generation firms, not as a

result of any failure on their part, but because the intentions of

their owners, as well as their active plans, are to exit their

businesses via a trade sale. To that extent, it would be

inappropriate simply to equate the success of these businesses

with succession.

Feasibility of Family BusinessContinuity and Succession Concurrently, 51% of family business owners do NOT

think that younger generation family members are as

interested in the business as the older generation.

Additionally, 17% of owners give lack of a family successor as

their primary reason for planning to sell their businesses,

14% express concern about the lack of family interest in

the business, and 13% express concern about successor

selection. These findings raise doubts about the feasibility

of succession even for those family business owners who

may consider continued family ownership of their business

to be desirable.

Conclusion Given that continued family ownership appears to be

neither desirable nor feasible for approximately half of the

family business owners, we suggest that it would be

optimistic to expect that more than a third of family

businesses in New Zealand would pass to the next

generation. We reached a similar conclusion about

Australian family businesses (Smyrnios & Dana, 2006).

Survey Highlights

Among other things, our Survey findings raise questions regarding both the desirability and the feasibility of familybusiness continuity and succession for approximately half of New Zealand (NZ) family business owners.


Other Significant Findings• Approximately 56% of family business owners see

themselves working in the business beyond age 65 years.

The primary reasons given include: good health and

longevity (58%); identification with and inability to

dissociate themselves from, the business (9%); ingrained old

work ethics (8%) and lack of other interests (6%). Only 29%

indicate that they are looking forward to their retirement.

• The vast majority of NZ family business owners report

that their retirement programs are adequately funded

(86%) and that the programs will meet their anticipated

future needs (94%). Just under half of them indicate that

their retirement programs rely on the use of business

assets; with 34% indicating that they will require the sale

of the business. Only 14% indicate that their retirement

programs rely on superannuation.

• Just over half of the business owners do NOT think that

their businesses are exit or succession ready, although 78%

of owners would like them to be. This is an even more

clearly indicative assessment by owners of their lack of

preparedness to exit their businesses than the lack of

documented succession plans, since it is a relatively

unambiguous statement that applies equally to both family

succession and sale of the family business to third parties.

• Of concern is the finding that a majority of businesses

do NOT use life assurance to minimize financial loss

from the death of key family and nonfamily members,

or business partners; with 41% indicating that the

Founder/CEO is NOT covered. This concern is

exacerbated by the report that 48% of owners do NOT

have contingency plans to cover unforeseen events.

• Many more sons (32%) are involved in day-to-day

management than daughters (6%). It also appears that

sons are approximately 6 times more likely to succeed

the current CEO (60%) than daughters (11%).

• 58% of NZ family businesses do NOT have a process for

handling conflicting family and business issues, and 82%

indicate that in the event of conflict involving family

relationships,business objectives are given the highest priority.

Comparison of New Zealand and AustralianFamily Business Management Practices• More New Zealand family businesses appear to have

implemented formal management processes than their

Australian counterparts as the following Table indicates:

• More NZ family businesses trade as private companies

and fewer as trusts (93% and 4%, respectively) than

Australian family businesses (73% and 19%, respectively).

• More NZ family business owners (53%) have considered

expanding ownership to nonfamily members than

Australian owners (42%); and more would consider offering

part of the ownership of the business to secure funding for

growth (34%) than their Australian counterparts (28%).

• Fewer NZ family business owners (25%) intend to transfer

equity to family members via wills than Australian owners

(44%). Conversely a greater number of NZ family business

owners (40%) intend to transfer equity to family members

via sale to the next generation (who will be expected to pay

for the equity) than Australian family business owners (28%).

Survey Highlights (continued)

Comparison of New Zealand New Zealand Australian& Australian Family Business (%) (%)Management Practices

Regular use of outside advisers 71 64

Business Objectives givenhighest priority 83 73

Formal Performance appraisals for nonfamily members 60 47

Written job specifications formanagement team 66 48

Written formal managementstructure 59 49

Benchmarking againstNational Best Practice 66 50

Benchmarking againstWorld Best Practice 28 17

Succession plans coverunforeseen events 52 44


• A greater number of NZ family business owners (86%)

indicate that their retirement programs are adequately

funded than their Australian counterparts (72%).

Moreover, the retirement programs of fewer family

business owners in NZ (14%) depend on superannuation

than those of their Australian counterparts (50%).

However, a greater number of NZ family business owners

(48%) believe that their retirement programs depend on

the use of business assets than Australian owners (35%).

• When asked to select their three most important sources

of capital, New Zealand and Australian family business

owners provided markedly different responses, as the

following Table indicates:

Some Interesting Differences in Responsesacross Generation of Ownership• There are a number of interesting differences in responses

to key questions based on the relevant generation of the

responding family business, as the items listed in the

following Table illustrate:

Sources of Capital for NZ Family Australianfamilies in business Firms (%) Family Firms (%)

Cash flow 60.1 55.7

Equity finance 47.5 12.3

Shareholders' funds 46.2 26.8

Leasing 44.9 22.6

Family loans 26.6 18.3

Bank overdrafts 12.7 31.9

Bank loans 5.7 25.1

Retained profits 2.5 55.3

Other 2.5 4.7

Differences in responses 1st 2nd 3rd-5thbetween generations of Generation Generation Generation businesses (%) (%) (%)

Do NOT insist on family

member having outside

experience before joining

the business 61 47 44

Have concerns about the

future of the business 33 50 67

Have concern about selecting

a successor 7 9 23

Likely to sell the business

because of lack of successor 11 25 42

Involvement of spouse in day

to day business operations 59 33 33

Involvement of brother in day

to day business operations - 5 17


Snapshot: New Zealand versus Australian Family Businesses

2007 2006NZ % Australia %

1. Proportion of firms that are Family Businesses 70 67

First generation 57 69Second generation 30 23Third to fifth generations 13 8

2. Profile of Owner

Average age 57 years 55 yearsFemale 4 4Married 90 90Average Tenure (years) 22 22

3. CEOs (Non-owners)

Average age 51 years 51 yearsFemale CEO 3 5Tenure 12 17

4. Profile of Business

Industry– Manufacturing 33 26– Wholesale/Retail 23 33– Construction 10 13– Finance, Property, Business Services 5 9– Primary Industry 4 3– Transport & Storage 5 13

Gross Sales in 2006– < $1m 11 8– $1m - $5m 57 41– $6m - $19m 27 35– $20m - $49m 3 5– >$50m 1 12

Estimate of average current market value of business Median/(Mean $m) NZ $3m AUD $3m($5.6m) ($7.7m)

Legal Structure– Private Company 93 73– Family Trusts 4 19– Partnership 2 3

Average age of firm 31 years 28 yearsSize

– Number of Employees Mean/(Median) 31 (20) 39 (15)– Have multiple locations 30 33– Have locations overseas 8 8

5. Governance & Control

– Relinquishing future management control 48 48– NO process for handling conflicting family & business issues 58 60



Governance & Control cont.

– In case of conflict, business objectives given priority 82 7– Do NOT have formal performance appraisal for family members 74 79– Do NOT have formal performance appraisal system for non-family members 40 53– Do NOT insist on family members having outside experience before 57 55

joining the family business– Family members employed only if their skills and experience 76 75

fit a particular opening in the business– Family members found a position in the business 24 25

6. Remuneration of family members (including benefits)

– Paid below market rates 6 10– Paid at market rates 77 64– Paid above market rates 17 26

7. Business Objectives

– Accumulate wealth 28 34– Increase value of business 20 20– Grow the business 25 19– Sell the business 3 8– Employ family members 4 4– Pass on to next generation 5 6

8. Business Growth

– Proportion dissatisfied with rate of growth 41 33– Proportion dissatisfied with size 39 31– Not planning to grow the business 3 9– Not planning to become a major player in the industry 43 47

9. Achieving Business Growth

Ways of achieving growth– Increasing sales 54 45– Increasing profit margins 19 20– Joint ventures 3 3– New products/process development 12 12

10. Management Planning

– Do NOT have written business plan(s) 49 53– Do NOT have formal strategic plan(s) 52 55– Do NOT have written job specifications for management 34 52– Do NOT have written management structure 41 51

11. Family Involvement in Day-to-Day Running of the Business

– Spouse 48 53– Son(s) 32 30– Daughter(s) 6 5– Brother 3 3


Snapshot: New Zealand versus Australian Family Businesses (continued)


12. Management Incentives

– Cash payment 60 57– Based on owner’s discretion 55 62– Based on formula 45 38– Share of Profit 19 18

13. Financial Strategies

– Would consider offering part ownership to secure funding for growth 34 28

14. Benchmarking

Against industry 66 50Against world best practice 28 17

15. Future Business Ownership Transfers

Selling the business– Would seriously consider selling business, if approached 69 75– Plan to sell the business now or later 54 53– Have been approached by a potential buyer within last 5 years 57 46

Of those that plan to sell business, it is because:– Wish to retire 29 31– Original intention 19 17– Sale price exceeds expectations 16 17– Lack of family successor 17 15– Have concerns for the future 12 9

Policy regarding future ownership of the business– Definitely wish to remain a family business 24 23– Continued family ownership has first preference 37 33– Continued family ownership is NOT important 28 27– No specific policy 12 17

Have considered expanding ownership to non-family members 53 42Future management responsibilities

– To decrease 31 27– Remain at present level 56 50– Increase 13 10

16. Succession Planning

Regard succession planning as important 84 79Believe the business to be exit & succession ready 47 50Would like the business to be exit & succession ready 78 84In relation to succession planning, would consult:

– Accountant 42 39– Financial planner 2 9– Lawyer 27 20– Professional business consultant 10 15

Most likely form of transferring equity in the business:– Family succession 46 45– Sale to non-family managers 17 23– Trade sale 30 25



Succession Planning cont.

Equity transfer to family members through– Wills 25 44– Sale 40 28– Gift 26 25

Have NOT differentiated between active and passive family members 44 47Management Succession

– Have documented succession plan 19 20– Relevant members have NOT agreed plans 67 65– Current CEO to be succeeded by non-family manager 53 54

Ownership Succession – Have documented ownership succession plan 25 25– Ownership succession plan implemented 25 24

Younger family members just as interested in the business as the older generation 49 43Current CEO more likely to be succeeded by a family members 47 46Family Successor, in relation to the owner is likely to be:

– Spouse 9 4– Son 60 75– Daughter 11 7

17. Have Concerns for Future 43 45

Specific concerns particularly in relation to:– Particular industry 23 21– Selecting a successor 13 9– Financial performance 21 31

Attitudes to Succession: 9 4– Succession is surrendering power over the business and a first step

toward losing control over life 15 21– Letting go of business control means losing an important part of one’s identity 28 43– Succession involves making hard choices that affect both the business and the

family, and it is preferable to avoid the inevitable conflict involved 37 48

18. Retirement of Owners

– See themselves working in the business beyond 65 years of age 44 44– Have something to retire ‘to’ as against ‘from’ 82 77– Believe that other family members sufficiently aware of owners needs

regarding exiting the business 72 71– Anticipate that adjustments to lifestyle and relationship with spouse will

be required after they exit the business 64 68– Have NOT sought advice on succession options and strategies 44 52– Do NOT propose to seek such advice in foreseeable future 63 52– Have NOT sought professional assistance for retirement planning 55 44– Have reservations about their retirement 10 17– Look forward to their retirement 29 25

19. Retirement & Superannuation

Retirement program– Do NOT have adequately funded retirement program 14 28


Snapshot: New Zealand versus Australian Family Businesses (continued)


19. Retirement & Superannuation cont.

– Dependent on Superannuation 14 50– Requires continued business ownership 22 19– Relies on use of business assets 48 35– Requires sale of business 34 31– Superannuation is adequate 48 75

20. Insurance

– Do NOT have life assurance to minimize financial loss from death of CEO 41 44– Do NOT have life assurance to minimize financial loss from death of

key family members 62 60– Succession plans do NOT cover unforeseen events 48 56

21. Banking

– Believe that banks should become more involved in funding succession plans 38 31– Prepared to use business assets to secure succession funding 71 62

22. Regular use of outside advisors 71 64


2 Definition of Family Business

Since the early 1990s, Professor Smyrnios and colleagues

have undertaken the six major national Surveys of family

businesses in Australia (Smyrnios & Romano, 1994, 1997,

1999; Romano, Smyrnios, & Dana, 2000; Smyrnios &

Walker, 2003; Smyrnios & Dana 2006). Professor Smyrnios

was invited by MGI to replicate a National Survey of

Family and Private Businesses in New Zealand using the

same questionnaire as that employed in the 2006 Australian

Survey Smyrnios & Dana 2006). Accordingly, this Survey

not only provides an overview of family and private

businesses in New Zealand, but also compares findings with

those of the Australian Survey, identifying both similarities

and differences.

The Central Role Played by FamilyBusinesses in the Economies of the WorldFamily enterprises account for a substantial proportion of

worldwide businesses (Gersick et al., 1997). This New

Zealand national Study identifies that approximately 70%

of privately owned firms are family businesses, and is in

accord with our Australian Surveys. (In this and our

Australian Surveys owners identified their businesses as family or

otherwise.)

There is still no widely accepted definition of family

business. Recently, Klein, Astrachan, and Smyrnios (2002,

2005) proposed a radical shift in the way in which family

firms should be regarded. Rather than dichotomising

enterprises, these academics ask: What makes a business a

family business? Their answer is the ascendancy of the

owning and or managing family. For Goehler (1993),

family influence constitutes the family business.At the most

basic level, what differentiates a family business from other

profit seeking organisations is the family’s influence on the

decision making and operations of their firm (Chrisman,

Chua, & Zahra, 2003).

1 Introduction


Sampling Frame On the basis of region, industry, number of employees, and

sales turnover, APN Infomedia randomly selected 5000

companies in the proportions found in the New Zealand

population of employing small-to-medium enterprises

(SMEs). Responses were received from a relatively

representative sample of about 6% of proprietors.

According to Statistics NZ Government data

(http://www.stats.govt.nz/default.htm) there are N =

346,091 registered enterprises. Public sector, micro

businesses, and non-employing firms and companies

whose turnovers were less than $1 million were excluded.

The New Zealand Family & Private BusinessQuestionnaire This national study involved a 206 item questionnaire

developed by a team of experts including academic

researchers and family business consultants. There are 10

sections: Background on Business; Management of

Business; Family Business Issues; Succession; Retirement

and Superannuation; Banking, Insurance and Advice;

Planning the Growth of the Business; Alternative

Investment in Family Business; International Operations;

and Background of the Owner.

Procedure Questionnaires were sent with a covering letter explainingthe purpose of this study and were returned in stamped,self-addressed envelopes. As a way of dealing withcommon methods bias, participants were given theoption of completing the Survey on-line(http://ww2.rmit.edu.au/planning/businesssurvey). Datawere analyzed using SPSS for Windows (Norusis, 2005).

(Please note that in the body of this Report, except in Tables

and where the context makes it clear, statistics for nonfamily

business owners are included in parentheses.)

3 Methodology 4 Profile of Owners

Background of the Owner The average age of family business owners is 57 years (52

years). A substantial proportion of owners are not only

actively involved in their enterprises, but also reluctant to

relinquish control, if not retire to non-business activities

with 44% indicating that they see themselves working

beyond age 65 years.

Country of Origin and First Language With regard to country of origin, 91% of owners were born

in New Zealand, 5% in the UK and Europe, 1% in Asia, and

the remaining respondents are from other countries (e.g.,

USA,Australia).All report that English is their first language.

EducationOver 43% (53.7%) of owners have tertiary/post secondary

qualifications compared with 54% (43%) that have

secondary-level education.

GenderApproximately 96% (90%) of owners are male and 4%

(10%) female .

Marital Status The majority of owners, 90% (81%) are married, 4% (3%)

are separated / divorced, and 2% (6%) are single.


5 Profile of Family Firms

Number and Type of Business Locations Over 63% of firms have only one business operation, ranging

up to 28 national locations; with 30% having more than one

location, and 8% reporting having overseas locations. Only

9% (14%) of family business owners indicate having seriously

considered moving their business operations (or part)

offshore. These findings confirm that small-to-medium

family firms rarely choose to internationalise their

organisations (Fernandez & Nieto, 2005).

Legal Structure Over 90% of NZ family businesses have adopted a private

company structure, with only 4.4% adopting a family trust

structure, and 1.9% trading as partnerships.

Ownership Structure Figure 5.2 shows that almost 81% note that 100%ownership is through one family, 11.4% indicate that morethat 50% but less than 100% of ownership is through onefamily, 6.4% through a group consisting of more than onefamily, and 0.7% report that the family has control orprovides management to the business (see also Table 16.1).

Over half of family business owners report having consideredexpanding business ownership to non-family managers.However,only a small proportion of them indicate that equityin the business is held by nonfamily members, with 9.2%indicating that equity is held by nonfamily managers/employees- average amount of equity = 23.4% (Median 21%); and3.3% reporting that equity is held by nonfamily investors -average amount of equity = 15.5% (Median 17.5%).

Single FamilyOwnership

(100%)

Single FamilyOwnership

(>50%)

Multiple FamilyOwnership

(>50%)

Family has Control

100%

80%

60%

40%

20%

0%

Figure 5.2

Figure 5.2 Ownership Structure

35%

30%

25%

20%

15%

10%

5%

0%

Figure 5.1

NZ BusinessesFamily Businesses

Note. Industry classifications are defined by the following activitiesand/or categories: Finance includes property and business services;Primary includes mining and agriculture;Technology includescommunication services; Recreational includes hotels, restaurants, foodand catering; and Multiple Industries encompasses businesses that areinvolved in more than one industry.

Figure 5.1 Industry Type

Manufa

cturin

g

Retail

& Whol

esale

Transp

ort & St

orage

Finan

ce

Recre

ational

Perso

nal &

Other S

ervice

s

Techno

logy

Primary

Indu

stry

Cons

tructi

onOthe

r

Type of Industries Figure 5.1 shows a breakdown of businesses into 10 of the 17

ANZSIC industry categories. Over 30% of owners are in

manufacturing, 23% are in retail trade and wholesale

distribution, 10% are in construction, and 5% are in transport

and storage. While every attempt was made to obtain a

representative random sample; participants appear to be over

represented in the sectors of manufacturing, and wholesale

and retail trade; but under represented in finance, property,

and business services, and in recreation services.

Establishment of Business On average, family businesses in New Zealand have been

established for 31 (25) years.

40%

As shown in Figure 7.1, for the 2006 financial year, 11.4%

of proprietors report sales of less than $1m; with 57%

noting sales between $1m and $5m, 27.2% sales between

$6-19m, 3.2% between $20-49m. Just over 1% report sales

in excess of $100m.

The average percentage growth in net profit before tax (as

a proportion of gross sales) over the last 3 years has been

14% (14%).

Page 14 MGI New Zealand Family& Private Business Survey

6 Employees

6-20Employees

21-100Employees

101-200Employees

200+Employees

50%

40%

30%

20%

10%

0%

Figure 6.1

Figure 6.1 Number of Full Time Employees

1st Generation2nd Generation3rd-5th Generation

7 Gross Sales

60%

<$1m $1m-$5m $6m-$19m $20m-$49m $50m-$99m >$100m

60%

50%

40%

30%

20%

10%

0%

Figure 7.1

Figure 7.1 Gross Sales by Year

200420052006

70%

The median number of equivalent fulltime employees in

family businesses is 20 (23) employees. Figure 6.1 shows

the distribution of personnel across generations of

ownership.


8 Business Growth

How Firms Plan to Achieve Growth Family Firms Nonfamily Firms(%) (%)

Increasing sales 53.7 65.2

Increasing profit margins 19.0 13.6

New product/process development 11.6 13.6

Acquisitions 4.1 1.5

NOT planning to grow the business 2.7 4.5

Table 8.1 shows that the average rate of growth in sales overthe previous three years is about 15% (Median 10%). Morethan one third of owners state that they are NOT satisfiedeither with the rates of growth, or the current size, of theirbusinesses. Within this context, Zahra (2005) reported thatfamily involvement in the business can promoteentrepreneurship,whereas long tenure of CEO founders tendsto stifle entrepreneurial flair geared towards growth.

Family versus Nonfamily FirmsA range of organisational characteristics (e.g., businessplanning; family organisation & governance) and ownershipfactors (e.g. business objectives; culture) have been found toinfluence organisational performance in both family andnonfamily firms (Aronoff, 2004). Although a number ofinvestigations of organisational performance reportnonsignificant differences between rates of growth of familyversus nonfamily firms, the present investigation reveals someinteresting findings. In comparison to nonfamily enterprises:

• A higher percentage of family firms are satisfied with theirsize – 61.1% (54.7%) and growth rate – 59.4% (40.7%).However, fewer family firms, 56.8% (70.3%) wish tobecome major players in their industry.

• A higher proportion of family firms plan to achievegrowth by increasing profit margins - 19% (13.6%).

• Nearly twice as many family firms plan to achieve growththrough joint ventures – 2.7% (1.5%).

For both family and nonfamily enterprises, the three primestrategies for achieving growth are through increasing sales,increasing profit margins, and via new product/processdevelopment. Almost 3% (5%) of family enterprises areNOT planning to grow (Table 8.2).

Table 8.2

Table 8.2 How Family & Nonfamily Firms Plan to Achieve Growth

Growth in Sales 1st 2nd 3rd to 5th Nonfamily& Profit Results Generation Generation Generation Firms

(%) (%) (%) (%) (%)

Average % rate

of growth in

sales per annum

over previous

3 years (15.2) 20.5 8.2 11.6 12.0

Average % net

profit before tax

as a proportion

of gross sales

over last 3 years (13.9) 14.5 11.3 15.3 14.0

Table 8.1

Note. Proportions in parentheses are overall values on that dimension.

Table 8.1 Average Sales Growth and Profit Results


9 Sources of Capital 10 Governance: Board of Directors

Sources of FundingSources of funding are governed by Pecking Orderprinciples as indicated in Table 9.1. This Table also showsthat New Zealand family business owners are mostfavorably disposed towards the use of cash flow; equityfinance; shareholders’ funds and leasing as sources ofcapital. The Table also highlights the different responsesprovided by New Zealand and Australian family businesses.

Over half of family business proprietors 56.8% (70.3%)wish to become major players in their industry, and over athird of family proprietors (38.5%) indicate that theywould consider offering part of the ownership of theirbusiness to secure funding for growth. A number of them,however, have expressed concern whether outsideshareholders might change the way they run theirbusinesses (Grant Thornton, 2002).

Table 9.1 Sources of Capital by Generation of Ownership and byNonfamily Firms

Table 10.1

Board Composition in Family BusinessesAbout 61% of family businesses report having a Board ofDirectors, with the majority comprising two directors.Thevast majority of family business Boards (93%) have twofamily executive Directors; 17% have one family non-executive Director; 11% have one nonfamily executiveDirector; and 11% have one nonfamily non-executiveDirector. Approximately 90% of family business Boards doNOT have nonfamily Directors. Some of the reasons givenfor the absence of nonfamily Directors are set out in Table10.1.

Reasons Given for NOT having Nonfamily Executive Directors on the Board (%)

Family members have all the skills required at Board level 23.4

Desire to retain privacy 17.0

Expense 3.0

Unable to find someone suitable 1.0

Unable to find someone willing to take the position 1.0

Table 10.1 Reasons for Absence of Nonfamily Executive Directors

Board Meetings Approximately 46% of family businesses hold regular Boardmeetings. On average, Boards meet once every three months.

Sources of Capital New Zealand New Zealand Australianfor families in Family Firms Nonfamily Firms Family Firmsbusiness (%) (%) (%)

Cash flow 60.1 59.4 55.7

Equity finance 47.5 52.2 12.3

Shareholders' funds 46.2 34.8 26.8

Leasing 44.9 42.0 22.6

Family loans 26.6 39.1 18.3

Bank overdrafts 12.7 10.1 31.9

Bank loans 5.7 4.3 25.1

Retained profits 2.5 5.8 55.3

Other 2.5 4.3 4.7

Table 9.1


Management by Generation of OwnershipA breakdown by generation managing the family business

indicates that about 57% of owners identify themselves as

first generation family owners, 30% as second, and 13% as

third-to-fifth generation (mostly 3rd generation businesses

11%).

The Management TeamAbout 29% of family firms have management teams

comprising of 100% family membership. Only 1.9% of

family businesses do NOT have family members who are

part of the management team. However, 51% of family

firms have management teams comprising up to 50%

family members. Interestingly, 61% of family business

owners indicate that family membership is NOT

important when considering senior appointments.

Involvement of Family Members in the Day-to-Day Running of the BusinessSpouses are involved in the day-to-day running of 48.4%

of family firms, as well as sons 31.6%, daughters 5.8%, and

other family members 14.2% (Table 11.1). As expected,

more ‘other family members’ are involved in later

generation and more spouses in earlier generation

businesses.

Remuneration Rates for Family MembersWorking in the BusinessAlmost 77% of owners indicate that family members are

paid market rates, with about 17% reporting family are

paid above market rates, and only 6% reporting that family

members are paid below market rates.

Outside Management ExperienceOne of the major issues facing family businesses is how to

bring members of successive generations into the

enterprise. The family business literature invariably

recommends that potential successors acquire outside

work experience before joining the firm. Successors who

have had an opportunity to prove themselves outside the

family business before joining have a greater chance of

feeling that they have received adequate preparation for

their role. Interestingly, 56.7% of family business owners do

NOT make outside experience a prerequisite for family

members to join the business (61% for 1st, 47% for 2nd,

and 44% for 3rd-to-5th generation family businesses).

These results are consistent with findings in our 2000

Succession Matters: The Australian Family Business Survey,

demonstrating that owners do not appear to attach much

importance to outside management experience, ranking it

24th out of a list of 30 critically important successor

characteristics.

11 Governance: Management

Family Members 1st 2nd 3rd-5thInvolved Generation Generation Generation

(%) (%) (%) (%)

Spouse (48.4) 58.5 32.6 33.3

Son (31.6) 26.8 44.2 33.3

Daughter (5.8) 7.3 7.0 -

Brother (3.2) - 4.7 16.7

Sister - - - -

Other (11.0) 7.3 11.6 16.7

Note. Proportions in parentheses are overall values on that dimension.– denotes statistics are unavailable.

Table 11.1 Family members most involved in the family business, inrelation to the owner

Table 11.1


Family Business NepotismNepotism may be frowned upon by the family business

literature, but it does not appear to bother a quarter of

family business respondents who indicate that family

members are found a position in the business. However, the

other three quarters point out that family members are

employed only if their skills and experience fit a particular

opening in the business.

Leadership Profile of the Non-Owner Chief Executive Officer The average age is 51 years for both family and nonfamily

CEOs, with an average tenure of 12 years (9 years) for non-

owning family business CEOs. Almost 97% of non-owning

CEOs are male (94%). For non-owning CEOs, 17.1%

(20.9%) hold tertiary qualifications.

Management Planning Family Firms Nonfamily Firms(%) (%)

Do NOT have business plan in writing and in place 49.0 31.7

Do NOT review their business plan annually 35.8 20.3

Do NOT have formal strategic (long-term) plan 52.4 37.9

Business plan approved by the Board of Directors 60.4 73.5

Business plan approved bythe Management Team 66.1 76.4

Business plan is effective 84.0 81.5

12 Management Planning& Communication

Management PlanningThe descriptive breakdowns in Table 12.1 suggest thatmanagement planning is not a priority for a significantpercentage of New Zealand businesses. As shown in Table12.1, when compared with nonfamily entities, family firmsare less likely to have business plans in writing, approved bythe senior team, and revised annually. Notwithstanding this,more than three quarters of firms regard their plans aseffective.

Table 12.1 Management Planning

Table 12.1

Formal Strategic (Long-Term) Plans Approximately 52% (38%) of family business ownersindicate that they do NOT have formal strategic (long-term) plans to guide their firms through changing businesscycles. In their investigations of success factors ofexceptionally well performing family businesses, Miller andLe Breton Miller (2005) found that long-term strategy wasthe consistent common factor amongst these enterprises.Ward (2005) points out that quality strategic planning startswith family, and that family values and vision shapecompany strategy as much as any extensive market analysis.

11 Governance: Management(continued)


Formal Management Structures Formal management structures are also lacking in familybusinesses, particularly among first generation family firms.Over 40% of family business owners report that they doNOT have formal management structures in writing andimplemented, and 34% of family enterprises do NOT havejob specifications for the management team in writing andin place (Table 12.2).

Performance AppraisalsRegular performance appraisals do NOT appear to be acommon form of communication with family employees(Table 12.2). Only 26.4% of family businesses haveperformance appraisal systems for family members,compared with 60% for nonfamily members. Moreover,42.5% of family businesses do NOT carry outperformance appraisals regularly.

Table 12.2 Management Planning, Involvement, and Communication

Management Planning, Involvement, and Communication Family Firms(%)

Do NOT have management structure in writing & implemented 41.4

Do NOT have job specifications for management in writing 33.6

Do NOT have a performance appraisal system for family members 73.6

Do NOT have performance appraisal system for nonfamily members 40.0

Do NOT carry out regular performance appraisals 42.5

Table 12.2

Management Incentives Of those family business owners who provide performanceincentives, many more do so at their own discretion(62.3%), than based on an agreed formula (37.7%). Table12.3 lists the most favoured performance incentives used.

Benchmarking Against Best Practice Benchmarking against industry or national best practice isundertaken by 65.5% (34.5%) of family businesses. Only28.4% (16%) of family businesses report benchmarkingagainst world best practice.

Table 12.3 Management Incentives

Management Incentives in Family Firms (%)

Cash payment used as incentive 60.3

Profit sharing used as incentive 19.2

Lifestyle improvement used as incentive 4.8

Superannuation contributions used as incentive 2.1

Other 13.7

Table 12.3


Management Meetings On average, 38% of family businesses hold weeklymanagement meetings, while almost 25% hold monthlymanagement meetings.

Managing the Family/Business InterfaceAlmost 60% of owners indicate that they do NOT have aprocess for handling conflicting family and business issues(63% for 1st,57% for 2nd,and 42% for 3rd-to-5th generationfamily businesses). Of the 40% that have such a process, only21.1% have it documented.This low percentage is consistentwith that of our Australian Surveys, further highlightingowners’ inertia or resistance to going through the process ofclarifying family and business related issues.

A majority of owners (82%) indicate that, in the event ofconflict involving family relationships, business objectives aregiven the highest priority, indicating the adoption by them ofa business first policy approach.

13 Business Objectives of Family Enterprise Owners

Family Business 1st 2nd 3rd-5thObjectives Generation Generation Generation

(%) (%) (%) (%)

Accumulate family wealth (28.1) 30.9 21.4 27.8

Grow the business (24.8) 21.0 31.0 22.2

Increase the value of their business (20.3) 23.5 19.0 16.7

Increase profitability (13.1) 11.1 9.5 27.8

Sell the business (3.3) 4.9 - -

Pass on to the next generation (5.2) 6.2 7.1 -

Employ family members (3.9) 2.5 9.5 -

Other (1.3) - 2.4 5.6

Business ObjectivesTable 13.1 shows that the principal objective of 28.1% of

family business owners is to accumulate wealth, followed by:

growing the firm (24.8%), increasing the value of their business

(20.3%), and increasing profitability (13.1%). These

proportions mirror those of our Australian Survey. A small

percentage of owners (3.3%) identify selling their enterprise

as their main objective. Very few owners list passing the

business on to the next generation (5.2%) or employ family

members (3.9%) as their main objective.

Note. Proportions in parentheses are overall values on that dimension.- denotes statistics are unavailable.

Table 13.1 Main Business Objectives of Family Business Owners

Table 13.1

12 Management Planning& Communication (continued)


Family business owners estimate the Median market value

of their business to be $3.0 million (average $5.6m). The

Median market value of first generation businesses is

estimated to be $2.5 million (average $5.1m), $3.0 million

(average $6.1m) for second generation, and $3.0 million

($7.1m) for third to fifth generation firms. By way of

comparison, the Median market value of nonfamily

business is estimated at $3 million (average $5.4m).

Using owners' estimates of the value of their business, and

the most recently available Statistics NZ Government data

(2007) on the number of employing family enterprises (N

= 242,264), the overall wealth of New Zealand family

businesses is estimated to be approximately $654 billion.

On 19 February 2007, the capitalisation of the New

Zealand Stock Exchange was valued at NZ$61 billion (cf.

AUD$1.24 trillion for the ASX).Thus, the overall value of

family business is estimated to be over 10 times the market

capitalisation of companies listed on the NZ exchange. As

shown in Figure 14.1, Median wealth estimates for family

enterprises are:

• First generation businesses, $364 billion(average $744 billion)

• Second generation, $201 billion (average $409 billion), and

• Third to fifth generations, $89 billion (average $212 billion)

Family business owners indicate that 99% of their business

assets are in New Zealand.

2nd Generation$201 billion

31%

3rd-5th Generation$89 billion

14%

1st Generation$364 billion

55%

Figure 14.1

Figure 14.1 Total Estimated Wealth (2007) by Generation

14 Wealth of New Zealand Family Business Sector

Debt to Equity and other Financial RatiosTable 14.2 shows reported gearing (debt to equity) andother related financial ratios for family business as a wholeand across generation of ownership.This table reveals thatthe median level of gearing is approximately 0.40(Average = 0.36) and that owners would consider sellingtheir businesses at a median multiple of 7 (Average =10.0) of operating income.

Approximate 1st 2nd 3rd to 5th NonfamilyFinancial Ratios Generation Generation Generation Firms

(%) (%) (%) (%) (%)

Approximate

debt to (M=0.40) M=0.40 M=0.45 M=0.63 M=0.47

equity ratio (Av.=0.36) Av.=0.37 Av.=0.38 Av.=0.14 Av.=0.43

Operating

income as (M=16.0) M=15.0 M=15.5 M=20.0 M=23.0

a % of sales (Av.=22.5) Av.=23.1 Av.=18.5 Av.=24.7 Av.=25.0

Proportion of

after-tax

income

distributed (M=10.0) M=10.0 M=14.0 M=20.0 M=30.0

as dividends (Av.=29.1) Av.=26.8 Av.=40.0 Av.=26.1 Av.=31.6

Would sell

the business

at the following

multiple of

operating (M=7.0) M=7.0 M=8.0 M=5.5 M=5.0

income (Av.=10.0) Av.=9.6 Av.=8.0 Av.=11.25 Av.=13.0

Table 14.2

Note. Proportions in parentheses are overall values on that dimension.M = Median value

Table 14.2 Approximate Debt to Equity and other Financial Ratios


Sale of Business Family Firms Nonfamily Firms(%) (%)

Would seriously consider selling if approached 69.3 76.6

Actively planning for the future sale of the business 54.4 65.6

– Now 24.2 25.0– Later 30.2 40.6

Never been approached by a potential buyer 35.9 41.8

Approached within the last year 32.0 37.3

Approached within the last 1-5 years 24.8 17.9

Approached longer than in the previous 5 years 7.2 3.0

Considered listing on the stock exchange 4.0 1.6

15 Sale of the Family Business

In relation to policies regarding future ownership of their

business, 23.7% of family business owners state that it is to

remain a family business, 36.6% indicate that continued

family ownership has first preference (i.e. 60% report

favoring continued family ownership of the business),

28.2% indicate that continued family ownership is NOT

important to them, and 11.5% have no specific policy (i.e.,

40% report NOT being committed to family business

continuity) (Table 15.1).

Table 15.2 also shows that only 4% (1.6%) of family business

owners report having considered listing on the stock

exchange.

Reasons Given by Family Business Ownersfor Planning to Sell their BusinessesTable 15.3 outlines the main reasons family business

owners contemplate selling their business, compared with

their nonfamily counterparts.

Policy Regarding Future 1st 2nd 3rd-5thOwnership of Family Generation Generation Generation Business (%) (%) (%) (%)

Definitely remain a family business (23.7) 20.8 33.3 25.0

Continued family ownership has 1st preference (36.6) 33.3 45.5 31.3

Continued family ownershipis NOT important (28.2) 34.7 12.1 31.3

NO specific policy regarding future ownership (11.5) 11.1 9.1 12.5

Note. Proportions in parentheses are overall values on that dimension

Table 15.1 Policy Regarding Future Ownership of the Family Business

Table 15.1

It is noteworthy that 69.3% of family business owners

indicate that they would seriously consider selling their

business, if approached; with 56.8% reporting having been

approached within the last five years. Table 15.2 shows that

approximately 54% of family business owners are actively

planning for the future sale their firms either now (24%) or

later (30%).These percentages translate into 57% of first, 42%

of second, and 53% of third to fifth generation owners

planning the future sale of their businesses.

Table 15.2 Sale of Business: Family versus Nonfamily Firms

Table 15.2

Table 15.3 Factors Influencing a Decision to Sell the Business

Reasons for Sale of Business Family Firms Nonfamily Firms(%) (%)

Wish to retire 29.3 43.5

It was the original intention 18.5 26.1

Lack of family successors 17.4 6.5

Sale price exceeds expectations 16.3 15.2

Concern for the future 12.0 2.2

Failure to find a suitable CEO 2.2 -

Other 4.3 6.5

Table 15.3


Ownership Control 1st 2nd 3rd-5thCharacteristics Generation Generation Generation

(%) (%) (%) (%)

100% ownership (80.7) 81.3 81.1 81.3

51-99% ownership (11.4) 12.0 13.5 6.3

Up to 50% ownership (6.4) 5.3 2.7 12.5

Plan to sell either now or later (54.4) 57.2 41.9 52.9

Wish to relinquish familycontrol (48.4) 47.5 41.9 50.0

Considered expanding ownership to nonfamily (53.3) 49.4 58.1 44.4

16 Family Control

Previous Business Involvement of Family andNonfamily Business OwnersAbout 79.2% (85.4%) of family business owners report

having been involved in previous businesses with 38.6%

(39.1%) having been involved in businesses that were sold,

14.6% (18.8%) that no longer operate, 9.5% (10.1%) in

businesses that were split up, and 9.5% (11.6%) that were

wound up. These figures suggest that a considerable

percentage of family business entrepreneurs can be classified

as serial business owners who are not wedded to a single

business, but exploit each business opportunity to the full,

then sell and reposition their assets in another.

Table 16.1 shows the ownership and control characteristics

of family businesses by generation. (See also Figure 5.2). In

relation to future management responsibilities concerning

the business, 31.4% of owners indicate that they have a

preference for decreased responsibilities. Only 13.1% want

the family’s future management responsibilities relating to

the business to increase, while over 55.6% wish them to

remain at present levels.

Interestingly, 48.4% of family business owners indicate

that they foresee the family relinquishing management

control in the future (48% for 1st; 42% for 2nd; and 50%

for 3rd-to-5th generation family businesses).


Table 16.1 Family Ownership and Control

Table 16.1


Groups of People Aware of Content of Succession Plans (%)

Family members working in the business 52.5

Family members not in the business 22.8

Nonfamily managers or directors 25.3

Other employees 7.6

The Bank 12.7

No one 21.5

Table 17.2

17 Succession Planning

Family business owners do NOT appear to see a need for

a documented succession plan that is agreed by relevant family

members.A significant majority of family business owners

(83.6%) indicate that they regard succession planning as

important. Yet, most of them also report that they have

NOT documented either a succession plan for the future

management of the business (81%) or for the future

ownership of the business (75.2%). Most of those who

report that plans are documented also report that they are

not implemented (Table 17.1).

Table 17.2 shows the extent to which the listed groups of

people are aware of the content of succession plans.

Interestingly, 21.5% indicate that no one (other than the

owner) is aware of the content of the plans.

Ownership & Management 1st 2nd 3rd-5thSuccession Generation Generation Generation

(%) (%) (%) (%)

Regard succession planning as important (83.6) 84.4 84.6 77.8

Do NOT have ownership succession plan in writing (75.2) 73.1 73.8 88.9

Have NOT implemented ownership succession plan (75.0) 70.2 68.0 85.7

Do NOT have written management succession plan (81.0) 81.5 78.6 88.9

Have NOT implemented management succession plan (81.2) 82.6 75.0 92.3

Family has NOT agreed upon succession plans (67.1) 63.8 64.3 83.3


Table 17.1 Ownership & Management Succession Planning

Table 17.1

Table 17.2 Awareness of the Content of Succession Plans by VariousGroups of People

Business TransferFamily succession is the most likely form of transferringequity for 46.1% of family business owners (41% for 1st, 57%for 2nd, and 56% for 3rd-to-5th generation familybusinesses). This type of transfer is followed by trade sale(30.3%) and sale to nonfamily managers (17.1%).

Over 25.2% of family business owners indicate that transferof equity to family members will be through the executionof wills.About 66.4% report likely transfers of equity duringthe owner’s lifetime, with 40.3% wanting the nextgeneration to pay for the equity (i.e. a sale), while 26.1% areprepared to gift the equity to family members. On average,owners indicate that the transfer is likely to take place in 7years. Purchase by the successor from the family, usually atthe full market price, has been reported to be thepredominant way successors acquire family farms in NewZealand (McCrostie & Taylor, 1998).

Management Succession On average, family business CEOs plan to retire in

approximately 6 years. In 53.3% of family businesses, the

current CEO is likely to be succeeded by a nonfamily

member (53.1% for 1st, 42.5% for 2nd, and 52.9% for

3rd-to-5th generation family businesses). In the 46.7% of

family businesses where the current CEO is likely to be

succeeded by a family member, it is most likely to be the

son(s) of the owner.


Concerns for the Future Overall, 42.7% of family business owners report having

concerns for the future of their businesses. Concerns relate

primarily to industry-wide problems (22.9%), and the

financial performance of their businesses (21.4%). As shown

in Table 17.3, a smaller percentage of owners list the

following factors as concerns: lack of family interest (14.3%),

selection of a successor (12.9%), and family turmoil (2.9%).

Sons and DaughtersMore sons are involved in the day-to-day running of

family firms (32%) compared to daughters (6%) (Table

11.1). It would also appear that sons (60%) are much more

likely than daughters (11%) to take over the helm from the

current CEO.

Business Continuity Planning and ExitReadinessIt is noteworthy that 53% of owners believe that their

businesses are NOT exit or succession ready, although 78%

would like them to be.

Younger Generation Family MembersApproximately 51% of family business owners indicate that

younger generation family members are NOT as interested in

the business as the older generation. In our Australian study

of succession matters (Romano, Smyrnios, & Dana, 2000)

we identified that integrity and commitment to the business are

the two successor characteristics most valued by family

business owners and successors.According to Sharma et al.

(2003) both the feasibility (evidenced by the availability of a

willing and trusted successor) and the desirability (as

evidenced by an incumbent’s desire to keep the business in

the family) of succession are critical factors in the

succession process.

Concerns for the Future 1st 2nd 3rd-5thGeneration Generation Generation

(%) (%) (%) (%)

Industry (22.9) 13.8 34.8 23.1

Financial performance of business (21.4) 20.7 30.4 7.7

Lack of family interest (14.3) 20.7 4.3 23.1

Retirement (14.3) 13.8 8.7 23.1

Selecting a successor (12.9) 6.9 8.7 23.1

Lack of funding for growth (5.7) 10.3 4.3 -

Competition (4.3) 10.3 - -

Family turmoil (2.9) - 8.7 -

Other (1.4) 3.4 - -

Note. Proportions in parentheses are overall values on that dimension- denotes statistics are unavailable.

Table 17.3 Concerns for the Future

Table 17.3


18 Estate Planning 19 Retirement

WillsNearly all family business owners (99.3%) have a will which

on average was reviewed within the last 4 years. While

71.3% of family business owners indicate that their

executors have clear instructions, 19.7% have NOT

appointed executors who have business experience, and

20.2% have appointed executors who do NOT know the

owner’s private business. Over a third have appointed a

trustee company as executor and over half of them have

appointed a non-family director as executor.

Active and Passive FamilyShareholders/BeneficiariesCritically, 44.3% of family business owners have NOT

differentiated between active (involved in the management of

the business) and passive (not involved in management)

family members in their wills. Whether the greater

contribution to the business made by active family members

ought to be recognised with larger or controlling ownership

interests in the business can be a confronting challenge for

parents wrestling with fairness and equality issues in

distributing their business assets. Previous research on

choosing successors in New Zealand family farms indicates

that families believe that it is impossible to retain the farm in

the family and also treat children equally, confirming that

one of the tensions in these families is that of equality and

equity (Keating & Little, 1997).

Succession and RetirementApproximately 44% of family business owners see

themselves working in the business beyond 65 years of age.

Table 19.1 lists the main reasons given for working in the

business beyond the traditional retirement age.

Reasons for Working in the Business Beyond 65 years (%)

Good health; Longevity 58.2

A need for more capital because of increase in conventional retirement period 10.4

Identity with, and inability to dissociate from the business 9.0

Ingrained old work ethics 7.5

Lack of other interests 6.0

Concerns about children as potential successors and business leaders 4.5

Fear of aging, retirement, and death 3.0

A belief that existing capital values are potentially at risk in an economic downturn 1.5

Table 19.1

Table 19.1 Reasons for Working beyond Age 65 years

Retirement Plans Although on average CEOs plan to retire within the next 6

years, very few owners are planning for this event, and over

half of them have NOT sought professional assistance in

planning for retirement. This not only confirms previous

Australian findings that one-in-two owners do not have

clearly defined objectives regarding their retirement

(Smyrnios et. al., 1999), but also that succession and

retirement for these family business owners could end up

being an unplanned event rather than a well managed process.


20 Superannuation

Reconciling Retirement Pluses and MinusesEncouragingly, approximately 75% of family business

owners report that the words succession, succession planning,

and retirement are ones they want to hear, and over 82.2%

indicate that in considering their business exit options,

they would have something to retire to (life after the

business) as against simply something to retire from (their

business). These reports paint a reasonably positive picture

for both the succession and retirement prospects of the

majority of family business owners. There are, however,

some significant reservations expressed by sizeable

percentages of owners as shown in Table 19.2.

In relation to retirement funding, 85.8% believe that they

have adequately funded retirement programs; and 47.5%

think that their superannuation is adequate. However, the

retirement programs of family business owners are

reported to be dependent on the use of business assets

(47.5%) or the sale of the business (34.1%), with 21.7% of

these indicating a requirement for continued business

ownership.

Grant Thornton’s 2002 PRIMA Family Business Research

Report highlighted the following as the major concern of

family business owners in New Zealand: All my wealth is in

the business. What happens if it gets into trouble?

Almost 76.9% of family business owners believe that they

have accurately estimated their future retirement needs

with 44.7% of them having sought professional assistance

in planning for retirement (Table 20.1).

Approximately 46% indicate they have confirmed their

anticipated retirement financial needs with an external

adviser, primarily their accountant (47.8%) or their

financial planner (10.6%).

Reservations about Succession & Retirement (%)

Succession involves making hard choices that affect both the business and family, and it is preferable to avoid the inevitable conflicts involved 36.6

Letting go of the business means losing an important part of one’s identity 27.8

Succession is surrendering power over the business & a first step towards losing control over life 15.1

Retirement will be a new challenge within the business 16.0

Retirement will be a new challenge outside the business 21.0

Looking forward to retirement 29.0

Have adequate outside interests 24.0

Have reservations about retirement 10.0

Table 19.2

Table 19.2 Reservations about Succession and Retirement

Since succession and retirement are questions of when and

not if, these factors need to be addressed in a timely

manner by family business owners and their advisers. It is

reassuring to find out that a substantial majority, 71.9%, of

family business owners believe that other family members

are sufficiently sensitive to, and aware of, their needs in

relation to exiting the business. Revealingly, however,

64.0% acknowledge that they will need to make

adjustments to their lifestyle and relationship with their

spouses following exiting the business.

Retirement Funding 1st 2nd 3rd-5th& Superannuation Generation Generation Generation

(%) (%) (%) (%)

Believe that they have an adequately funded retirement program (85.8) 83.3 85.0 94.4

Believe that they have accurately estimated their future financial needs (76.9) 78.6 72.7 75.0

Retirement funding is dependent on the use of superannuation (13.9) 13.8 21.4 11.1

Believe that their superannuation is inadequate (52.5) 58.0 34.6 64.3

Retirement funding is dependent on the use of business assets (47.5) 53.1 40.7 31.3

Retirement will be funded by sale of the business (34.1) 32.4 20.7 38.9

Retirement funding is dependent on the continued business ownership (21.7) 14.5 37.0 31.3


Table 20.1 Retirement Funding and Superannuation

Table 20.1


More than two thirds of family business owners report

regularly consulting outside advisors.

Accountants continue to be the preferred adviser for all but

financing and insurance matters (Table 21.1). Significantly,

43.6% of family business owners indicate that they have

NOT sought outside advice on their succession options and

strategies, and 62.5% do NOT propose to seek such advice

in the foreseeable future. The Table shows that when they

do seek advice on succession and succession planning, family

business owners are more likely to use a diversity of advisers,

including accountants, solicitors, and business consultants.

Surprisingly only 38.1% of family business owners believe

that banks should become more involved in funding

succession plans. Conversely 71% of family business

owners indicate that they would be prepared to use

business assets to secure succession funding.

21 Use of External Advisers

Type of Service Accountant Bank Financial Professional Business Lawyer Insurance Manager Planner Business Broker Agent

Consultant

Business Advice 71.1 - - 14.0 - - -

Business Planning 60.0 - - 21.5 - - -

Personal Insurance - - - - - - 71.3

Business Insurance - - - - - - 73.8

Business Loans 25.4 65.5 - - - - -

Sale of Business 46.9 - - 15.4 17.7 - -

Other Financing 36.5 42.1 - - - - -

Succession 42.2 - - 10.2 - 26.6 -

Estate Planning 32.1 - - - - 48.6 -

Retirement 47.8 - 10.6 - - - -

Note. - Indicates values less than 10%.

Table 21.1 Owners' First Preference for External Advisers & Type of Service

Table 21.1

22 Banking


23 Insurance

Of concern is the finding that 40.6% of family business

owners do NOT have life assurance to minimize financial

loss from death of the founder/CEO. Table 23.1 shows

that use of life assurance for business loss minimization

purposes is NOT the norm.

Of further concern is the finding that 48.2% of family

businesses owners report that their management and

ownership succession plans do NOT cover unforeseen

events (accidents, sudden death of key person/people).

Key Business Personnel NOT Covered by Life Assurance Family Firms(%)

Founder/CEO 40.6

Key family members 61.9

Key nonfamily members 84.5

Business partner 77.6

Table 23.1

Table 23.1 Use of Life Assurance to Minimize Financial Loss fromDeath of Key Personnel


The Study Team

The RMIT University team that developed and conductedthis Survey comprises Professor Kosmas X. Smyrnios andMr. Lucio E. Dana.

The 2007 New Zealand Family Business Survey wouldnot have been possible without the generous support ofMGI, and the valued participation of business owners.Wethank them all sincerely.

Professor Kosmas X. Smyrnios. Kosmas is an internationalexpert in the area of family business.He is Foundation BoardMember of the International Family Enterprise Academy,Associate Editor of the Family Business Review journal, andDirector of Research in the RMIT University, School ofManagement, Melbourne, Australia. He has a demonstratedresearch record with over 100 national and internationalrefereed publications across different disciplines includingbusiness management, marketing, accounting, physics, andpsychology.

Mr. Lucio E. Dana B.A. LL.B. (Hons). Lucio is a specialist familybusiness facilitator and adviser. He is the Managing Directorof Creativity In Business Pty. Ltd. trading as Family BusinessDynamics. He is co-author of Family Business SuccessionPlanning:A 10-Step Guide, 2000 CPD; Succession Matters:TheAustralian Family Business Survey 2000; and The MGIAustralian Family & Private Business Survey 2006. From 1998to 2002, Lucio was consultant and lecturer in FamilyBusiness Programs at the Monash University, Melbourne,Australia.

Doug Wilson. Doug Wilson joined MGI Wilson Eliott in1981, after 10 years in the commercial environment both inNew Zealand and overseas. His client base has developedinto a wide-ranging portfolio of clients from those in theprimary sector with specialized interest in forestry andfarming to others in finance, information technology,merchandising and aviation. Doug has been honored with aFellowship of the Institute of Chartered Accountants of NewZealand in recognition of his study of industrial and laborrelations in New Zealand's deregulated economy.

Grant Raynor. Grant originates from the Waikato and is aPrincipal of MGI Wilson Eliott.His expertise lies in the areasof business development management consultancy -including entrepreneur mentoring and coaching, corporaterecovery, management consultancy services to small-to-medium sized enterprises.

For more information concerning this survey,please contact:

MGI Wilson Eliott Mr Doug Wilson / Mr Grant Raynor

Telephone: +64 9 377 1362

Email: [email protected] / [email protected]

Website: www.mginz.co.nz

RMIT UniversityProfessor Kosmas X. Smyrnios

Telephone: +61 3 9925 1633

Email: [email protected]

Website: www.rmit.edu.au


Bibliography

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Chrisman, J.J., Chua, J.H., and Zahra, S. (2003). Creating wealth infamily firms through managing resources: Comments and extensions.Entrepreneurship Theory and Practice, 27, 359-365.

Fernandez, Z., & Nieto, M.J. (2005). Internationalization Strategy ofSmall and Medium Size Family Businesses: Some Influential Factors.FBR.Vol. XVIII. no.1, 77-89.

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Goehler, A. (1993): Der Erfolg großer Familienunternehmen imfortgeschrittenen Lebenszyklus: dargestellt am Beispiel der deutschenBrauwirtschaft, St. Gallen, Dissertation

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Klein, B. S.,Astrachan, H. J., & Smyrnios, X. K. (2005).The F-PEC scaleof family influence:Construction,Validation, and Further Implication forTheory. Entrepreneurship,Theory & Practice, 29(3), 321-339.

McCrostie Little, H, & Taylor N. (1998) Issues in New Zealand FarmSuccession: A Study of the Intergenerational Transfer of the FamilyFarm. MAF Policy Technical Paper 97/4a

Miller, D. & Le Breton-Miller, I. (2005) Managing for the long run. HBSP.

Norusis, M.J./SPSS Inc. (2001). SPSS for Windows: Base System Users'Guide (Release 6.0). Chicago, Ill.

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Smyrnios, K.X., Romano, C., & Tanewski, G.A. (1997). The Australian& Private Family Business Survey: 1997.

Smyrnios, K.X., & Walker R.H. (2003). The Australian & Private FamilyBusiness: 2003.

Smyrnios, K.X., Romano, C., & Tanewski, G.A., (1999). The 1999Australian Family Business Lifestyle Audit.

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Ward, J. (edit.) (2005) Unconventional Wisdom: Counterintuitive Insights forFamily Business Success. John Wiley and Sons.

Zahra, S.A. (2005) Entrepreneurial Risk-Taking in Family Firms. FBR.Vol. XVIII, no.1, 23-40.

New ZealandMGI Wilson Eliott

Telephone: +64 9 377 1362Website: www.mginz.co.nz

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