SUCCESSION CRISIS MAY BE LOOMING FOR FAMILY BUSINESSES, SHOWS FIRST-EVER MAJOR STUDY.

CHICAGO--(BUSINESS WIRE)--Aug. 30, 1995--A significant number of family-business owners nearing retirement lack designated successors or clearly communicated strategic business plans -- and that means uncertainty for some companies despite an otherwise positive outlook, shows a major study sponsored by the Arthur Andersen Center for Family Business and conducted in June, 1995, with Kennesaw State College and Loyola Universi ty Chicago. Lack of strategic planning, as well as concerns about economic and regulatory conditions, contradict the otherwise rosy forecast shown by the study, the largest ever of its kind.

``Family-owned businesses are the bedrock of our economy. This is the first study that is large and comprehensive enough to create a truly representative snapshot of this group,'' said Ross W. Nager, director of the Arthur Andersen Center for Family Business in Houston. ``The optimism or pessimism of this important group has implications for the economy as a whole.''

Nearly 91 percent of the family-owned businesses anticipate increased revenues during the next five years, while 64 percent expect to increase hiring. According to the survey, the top three challenges to family-business survival are competition, government regulation and the cost of labor. With regard to government regulations, corporate and individual income taxes, environmental regulations and OSHA regulations are considered to be the greatest burdens to family-business owners.

``While generally optimistic about their prospects, family-business owners are clearly frustrated with government regulations and taxes that make it much more difficult to maintain a competitive edge,'' said Nager. ``Furthermore, a lack of succession and strategic planning makes it harder to anticipate quickly changing circumstances.''

Significantly, the study finds trouble may be brewing because many family-owned businessses either do not communicate long-term plans for the company or simply lack plans altogether. For example, 51 percent of family-business owners have strategic plans for their companies, but nearly 38 percent of these owners do not share their long-term plans with company managers.

In addition, a large number of CEOs are planning to step back relatively soon, but they apparently are not communicating specific plans for the future of their businesses. According to the survey, one-in-four of the chief executives currently at the helm plan to retire in the next five years, while 23 percent plan to semi-retire. Yet 40 percent of these stepping-back executives have not yet designated a successor.

``The survey's findings on strategic planning and retirement could indicate a fundamental crisis looming in the economy,'' advised Nager. ``These problems won't go away as businesses struggle with inadequately planned management and ownership succession throughout the next decade.''

For instance, family businesses must plan for the tax consequences that accompany the death of the senior generation. Yet the study shows that 38 percent of family businesses have little to no understanding of the amount of estate tax that might be due or where the capital will come from.

``Who will continue leading these companies and in what direction?,'' asks Nager. ``In many family businesses, the strategic pl an exists only in the owner's head, and the secrecy sabotages whatever successor plan that may be developed. Managers are expected to execute the strategic plan, without being aware of the owner's intentions.''

On the upside, the study shows that family-business owners are highly progressive, with an overwhelming majority agreeing that information technology will play a major part in the future of their businesses. Almost one-third, 31 percent, are going global, although only 1 in 10 family businesses generate more than 10 percent of revenues from international operations.

The study involved nearly 3,900 American family-owned businesses with annual revenues exceeding $1 million. According to the survey, these businesses have a median age of 43 years in business, employ a median number of 50 employees each and command median revenues of $9.5 million each. Industries represented in the survey include manufacturing (26 percent of survey participants), wholesale distribution (17 percent), retail (15 percent) and construction (13 percent).

EDITOR'S NOTE: The Arthur Andersen Center for Family Business has served the special needs of successful family-owned businesses for over 30 years, and is dedicated to assisting families in business address and resolve their unique succession, management, ownership and strategic issues.

Arthur Andersen provides creative solutions for its clients through audit, tax, business advisory and specialty consulting services. Its professionals combine extensive technical competence and industry experience with innovative and progressive thought, enabling Arthur Andersen to exceed client expectations. Arthur Andersen is a part of The Arthur Andersen Worldwide Organization (AAWO), the world's largest professional services provider. With more than 73,000 personnel in more than 70 countries, its global practice is conducted by member firms in 358 locations. Arthur Andersen & Co, SC is the coordinating entity of the AAWO.

Survey Highlights

--Nearly 91 percent of family-business owners expect revenues to increase during the next five years and 64 percent expect to increase hiring during the same time.

--The three top challenges to the survival of the family business are competition, government regulation and labor costs.

--The government regulations that pose the greatest burden to family businesses are corporate/individual taxes, environmental regulations and OSHA regulations.

--1 in 4 of the current CEOs plan to retire in the next five years and 23 percent plan to semi-retire. However, 40 percent of the CEOs who plan to retire or semi-retire have no designated successor. --51 percent of family-business owners have strategic plans, but nearly 38 percent of those have not shared strategic plans with company managers.

--38 percent of family businesses have little or no understanding of the amount of estate tax due upon the death of senior family executives running the business.

--31 percent derive revenues from outside the United States and 1 in 10 generate more than 10 percent of company revenue from sales abroad.

--An overwhelming majority say that information technology will play a major part in the future of the business.

--44 percent say their most trusted business advisor is their accountant, while 19 percent say their attorney is most trusted.

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