Earn The Trust
Listen to this episode here: Earn The Trust
Welcome to our blog for TALKING NUMBERS with Paul Jansz. In this article, we share our conversation with Glen Frost, a Partner at PwC Australia, based in Sydney. Glen has been with PwC for more than 30 years now, and he shares his experience of working with family businesses in this episode.
The Journey So Far
Glen started his career working as a trainee at Coopers and Lybrand straight out of university. It was a fantastic opportunity to learn a bit about everything. He began with accounting, corporate tax and auditing. Later, he learned more about personal tax and working with families helping with trusts and structures. After many years of working with business owners and families, he moved from the Tax Division to the Private Clients team. He is now running the Family Office practice for PwC on a national basis.
Glen says this sector is a lot of fun and that they get to solve very interesting issues for their clients. He views it as a privilege to have access to the insights from families. Glen spends most of his time working on tax and giving advice, but more and more he has been working on succession planning and family business plans for the next ten years and beyond.
Trends for Family Business
PwC’s latest report Family Business Survey 2021 is available online. This report is based on interviews with 2800 family businesses across the globe, 120 of them in Australia. Glen points out that one of the really interesting findings was that family businesses in Australia are more competent and optimistic than their peers. 91% of them are expecting growth over the next two years, and they’re prioritising growth over other things. This is a significant increase since the last survey in 2018. Glen believes these growth expectations are based on solid planning, and thinks that it will set Australia up quite positively for the years to come.
Glen also concludes that three key things came out of the survey that people can focus on. First is the focus on technology. According to the survey, only 15% of family businesses feel that they have strong digital capabilities, and they are not as confident as their global peers. Sustainable business practices is another theme gaining importance. 36% of Australian family businesses are leading the way on sustainable business practices as compared to55% globally. Finally, a third of business owners are expecting the next generation to take control within the next five years. But importantly, only 25% of them had a robust, documented, communicated succession plan. Based on Glen’s work, he thinks there’s a need and an opportunity to help many families with succession planning.
Sucession Planning: A Process or an Event?
Glen says, it’s more difficult if families see succession as an event and expect it to be sharp and fast. He further states that if you think of it more as a process that will evolve over time with a lot of structure, communication, and planning around it, you’re setting yourself up to be more successful.
The process of transition is not easy. Glen explains that founders tend to focus more on the people who are taking control, so it’s not easy for them to let go. If the founder thinks that it’s happening very quickly, they’re more likely to resist the process. If founders are moving from CEO or Chairman, and taking a less active role in the operations, the process is more likely to be successful. They become more of a mentor to the key individuals who will be running the business. This means it’s happening over a staged process where they have the chance to adjust.
Two Key Elements that Cause Failure
Glen shares a very well-known study done by Williams and Preisse, who have published a very good book called Preparing Heirs. They found that 70% of the businesses they studied failed in their business or wealth transfer, and it wasn’t because of business or operational risk issues. They found 60% of those businesses that failed was because of a breakdown in trust or communication. 25% of them failed because the next generation just wasn’t equipped properly regarding education, life skills, and experience. The other 15% were a combination of issues. Very few of them fail because of their poor legal or tax advice. Glen shares the two fundamental issues were communication and failure to educate the next generation. Therefore, he suggests building trust and a better communication structure.
Glen says it can be frustrating when families start this process. They often ask for checklists however as there are so many variables, there are no checklists. Also, just because someone is a successful founder, it doesn’t mean they have great people skills. As a general rule, people are worse at communicating with family members than they are with management employees because it’s a different relationship. With every family, it’s different every time.
An Advisor, not the Best Friend
Glen has a framework that he can apply and generally most plans will evolve. They will review the plan, see how it’s working, and choose the time for the founder to release a bit more responsibility. It’s constantly being reviewed, managed and updated.
Glen says as an advisor, it is very important to remember that the families will share a lot of insights and things with you, but you are not there as their best friend. You will develop a strong relationship as an advisor. They may not want to hear some parts of your advice however, the advisor’s role is to challenge them, provide different ideas, and reflect on individuals in the family.
Glen also suggests that family businesses should have dispute resolution mechanisms in place, to help create clearer and better communications.
A Piece of Advice
Glen suggests being honest with founders, and families. Share your thoughts and ideas. The only way to be a trusted advisor is to earn that trust by advising them. Sometimes, they’re not going to like something you said or advised, but you have to say it. If it’s good advice, they’ll always come back to you and thank you for it in the long term.