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Sunday, 16 March 2014

Are You Running One of the 3 Million UK Family Firms? Is It a Blessing or a Curse?

There has been a flurry of activity and discussion of late on the networking media about family businesses; are they a blessing or a curse?  There is no doubt that they form a vital part of the economy as is shown by The Institute for Family Business (UK) as follows:Family firms account for two in three private sector enterprises in the UK economy - 3 million firms.
  • Family firms provide jobs to 9.2 million people - two jobs in five in the private sector
  • Family firms make a very large contribution to the UK economy with a £1.1 trillion turnover, almost a quarter of GDP
  • Family firms make up nearly half of all Mid-Sized Businesses (£20m - £500m turnover) in the UK.
 (Source: The UK Family Business Sector, Oxford Economics, November 2011)

Over the years chairing Vistage peer groups I have had several members who would describe themselves as running a family business but it is enlightening to note how very different are the ways in which they operate and how very different are the issues in each case. 

Examination of a few of them might demonstrate the wide range of blessings and curses which they experience on a daily basis. 

Case 1:   The business, a retailer with a manufacturing arm, is now being run by two brothers, the third generation of the family.  Father has retired and has set up a trust for the shares to avoid arguments and to cover against possible marital break-ups. 

He still likes to come in a wander round.  Naturally he comments from time to time on what is going on and people tend to take these comments as directions.  This irritates the brothers because they see it as interference which, in truth, it isn’t. 

Case 2:  A large retail business wholly owned by the CEO who bought the business via a management buy-out and subsequently has built it into a very successful and well regarded retailer. 

He has brought his two sons into the business and has constructed an executive board on which they both sit.  They are very competent and fit well into the whole ethos of the company.  However, the business is still wholly owned by the father and unless some note is taken of how the shares are to be allocated at a later stage, there could well be problems. 

Case 3:  Father, now no longer with us, bought this chemical business and ran it successfully until he decided to let two of his three sons take over.  He decided that the middle son should be Managing Director which immediately caused friction and then compounded the problem by giving each of the sons a one-third share in the business. 

It has taken many years to sort this out and eventually the MD is buying out his brothers. 

These cases are all very different but they all exhibit a remarkable ability to cause problems for those who are now tasked with running the business. 

If a family is dysfunctional (and it does happen from time to time) and then bring a dose of dysfunctionality into the business, how can it be expected to operate effectively? 

It is sensible to say that family issues must be left at the office door but that is easier said than done.  A recent series of programmes about family businesses on BBC TV illustrated the traumas which can engulf families when business issues clash with the varying personal demands of the family. 

All of this is not to say don’t bring the family into the business.  However the Family Business Institute (USA) quotes statistics for succession planning as follows: 

“88% of current family business owners believe the same family or families will control their business in five years, but succession statistics undermine this belief. Only about 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond”
 
These figures are startling and need to be very carefully considered in succession planning.  Every single instance will be different from the others and in the end if it is the right thing to do, then do it. 

The acid test is: what will the atmosphere be like at Christmas Day lunch next year?
 
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