Keeping it in the family

It is not a fact that often makes it to the financial press, but 60 to 80 per cent of all businesses in developed economies are family run, while in Asia and the Middle East this figure is 95%.
Family firms account for about half of the UK's private economic activity and employment and have been said, quite rightly, to represent the backbone of the economy.
Yet scepticism is still the overwhelming outside view when a younger member of the family takes control.
Grant Gordon, director general of the Institute for Family Business, says that the fact is that to run a family company, the executive will always need to be twice as good as his peers.
He said; "We have a highly entrenched enterprise culture in the UK. That means we support the meritocracy, a society where people achieve according to their abilities.
"Juxtapose that with a situation where somebody gets the top job just by the merit of birth and you can see why there is cynicism.
"But, there are a number of real and practical benefits to family members working in the business, not least that they bring with them a clear vision of the company and a passion for its values."
A recent and most public example of this challenge was James Murdoch's appointment to run News Corp's Sky TV in November 2003, which caused widespread shareholder unrest and led to a row that reverberated for months.
His father Rupert Murdoch steadfastly ignored the hoots of derision and even the veiled threat of a ‘nuclear option' vote at the Annual General Meeting, to defend his son's quality of leadership. And, James, of course, confounded his doubters by successfully expanding Sky's interests into telephone and Internet services.
Ironically, despite these detractors, most good firms aspire to have a ‘family culture' which is perceived to be a mixture of trust, loyalty and openness that permits honest discussion and quick decision-making without recourse to bureaucracy and formal rules.
Perhaps what the News Corp experience does prove is that the issue of succession is the Achilles heel of every family business.
Family firms bring their own rewards and commercial advantages, but to keep a family company on track generation-after-generation can require a complex juggling act, which balances business strategy with personal relationship skills.
Experts recommend setting out a ‘family charter' which addresses key issues such as leadership, management and board structure; succession planning and management; appointment and involvement of non-executive directors and dispute resolution procedures.
According to Grant Gordon this means setting out at the outset clearly defined roles and not being afraid to accept the help and expertise of outsiders.
After all, says Gordon, in the gene lottery there is no guarantee a family will produce good leaders in every generation.
Divvying up the skills in a family firm means not being afraid to bring in talent from the outside. Indeed a key element in any well-run family business should be an independent voice at board level.
Gordon said; "Very often it can be extremely hard for a parent to be objective when it comes to the issue of who is to lead the company going forward.
"The risk areas for family businesses are obvious and there is the potential for rivalry among siblings, or between generations.
"This is where the role of a non executive director from the outside can come into its own. They can bring an unbiased view to business decisions, with no vested interest.
"As the company grows, he or she can provide an increasingly valuable steering factor.
"You must also allow them autonomy, despite working in a family business and make sure they are remunerated in an equivalent way to family members or resentment will simmer."
David Woodhouse who is chief executive of Hall & Woodhouse, a Dorset-based family run brewery with a turnover in excess of £90 million and more than 1,500 employees, says the company has outsiders to thank for its success.
He said; "We have a number of senior managers and board members who are non-family members. They serve as a great foil for me.
"But, you have to make sure that those who run the business and the objectives that set are aligned to the family's objectives."
At the same time, assigning the key roles in a family company is an area where there can be no compromise.
Grant Gordon again; "The role of managing director or chief executive must be assigned according to skills, experience and qualifications."
Running any firm has its challenges. But, keeping a family firm on track often requires a careful balance of business strategy and personal relationship skills.
Corporate issues such as share ownership and board structure become far more complex and potentially business threatening when it is family members who disagree.
The law only offers the most basic of protection to a limited company or a partnership, which is how the vast majority of family firms operate. The issues need to be addressed, agreed and documented, so if a conflict arises there is a way of dealing with them.
In the worst-case scenario, if a business was owned jointly by two brothers and one died, his shares would go to his widow. Depending on what she decided to do with them, the business could be in serious trouble.
A shareholders agreement would cover such an eventuality by giving existing shareholders the option to buy the shares.
The key is, like with any business, to protect its future and with that its values, purposes and principles. As a business, any family firm is in great company.
The list of major firms controlled or managed by members of a great family that includes Ford, Wal-Mart, Sainsbury, Cadbury, IKEA and BMW make impressive reading and is something to aspire to.
Remember though, many, if not most businesses start out as family enterprises, but the key is keeping the name above the door. The secret to successfully keeping it in the family is to set out the terms from the start.