Leadership is vital to ensure family businesses keep thriving

Chartered accountants PKF Francis Clark and legal firm Ashfords hosted a networking dinner last week to recognise and celebrate family businesses in the region

The opportunities and challenges facing family businesses was on the menu at a special dinner in Somerset last week.

Guests gathered at the Mount Somerset Hotel, near Taunton, for the event hosted by chartered accountants PKF Francis Clark and legal firm Ashfords.

Conversation flowed as representatives from a wide range of Somerset-based family businesses networked with a glass of prosecco, before enjoying a sumptuous meal at the Henlade hotel.

Family businesses are the occasionally overlooked bedrock of Britain’s economy and the performance of such businesses is vital for the West’s prosperity and growth, explained Ashfords partner Stuart Mathews as he welcomed guests to the dinner.

In a fun challenge he offered a bottle of champagne to the business present who had the most family members involved in its operation.

Simon and Anne Jeffrey of Taunton Land walked off with the fizz, although with ten members of the family involved in the business they have quite a challenge ahead sharing it equally.

PKF Francis Clark partner Nick Farrant also addressed the dinner, saying how fascinating it was to meet and hear from such a wide range of family businesses.

It is difficult to overstate how important family businesses are. Some two-thirds of UK businesses are family-owned – 4.7 million in total.

They employ more than 12 million people, approaching half of all people employed in the private sector. They generate more than a quarter of UK GDP and in 2015 alone the family business sector paid more than £133 billion in tax.

In Somerset many of the county’s biggest, most historic and most successful firms are family businesses.

Thatchers Cider and Yeo Valley for instance are family businesses that have grown to be nationally significant players in their respective sectors.

Perhaps the most famous and significant of all Somerset family businesses made headlines earlier this week.

Clarks Shoes announced it would be bringing some manufacturing back to its home village of Street, more than a decade after it decided to focus manufacturing in the Far East.

The firm was founded in 1825 and over nearly 200 years of trading it has thrived and been successfully handed down to the next generation.

But that hasn’t happened by accident – and of course it hasn’t all been plain sailing.

Careful planning, innovation, responding to market trends, diversification and implementing tough decisions are among the reasons it has been able to succeed and provide generations of employment to people in Somerset.

It is extremely rare for a family business to have the lasting success of Clarks.

Only 10 per cent of family businesses are passed on to a third generation and some of the leadership pitfalls that potentially prevent firms remaining in family hands were discussed by keynote speaker Caroline Gourlay.

The Bath-based business psychologist is an expert in the dynamics of how family businesses operate and shared some leadership lessons with the businesses present at the dinner, who included hauliers, property developers, manufacturers and retailers.

She talked of the pitfalls of different styles of leadership that can proliferate in some family businesses.

Particular dangers to the future prosperity of family businesses that she raised included bottom-up leadership, where founders who have expertise in the day-to-day operation of the business lose sight of strategic matters.

She touched on the risk of ‘all aboard leadership’ where a family business can be tempted to create roles, perhaps for children, that there aren’t necessarily a critical need for.

Other potential leadership issues that can be a bigger problem for family businesses than other firms is the danger of ‘vaguely agreeing’.

The dynamics of families mean that there is an additional risk of conflict that other businesses don’t face and in a bid to avoid conflict some businesses are tempted to set vague goals that nobody will disagree with.

However she said this can be counter-productive and often family businesses need to have difficult conversations that may determine success.

Family businesses are particularly prone to being run by a ‘super leader’ who struggles to know when to let go – either of the business as a whole or particular areas of leadership.

Those were only some of the key leadership lessons passed on to the business leaders present at the dinner, but what are the key issues facing family businesses in Somerset at the moment?

PKF Francis Clark family business dinner at the Mount Somerset Hotel, Taunton. From left: Martin Lock, Leslie and Michael Dennis, and Stuart Mathews
PKF Francis Clark family business dinner at the Mount Somerset Hotel, Taunton. From left: Martin Lock, Leslie and Michael Dennis, and Stuart Mathews (Image: Andy Styles)

Many of these apply to businesses of all types, but to families whose entire income might be dependent on one business, they can be particularly acute.

One issue repeatedly raised to the Western Daily Press was recruitment and retention of key staff, particularly younger staff. Rural areas such as Somerset face intense competition not only from London, but the attractive and trendy city living of Bristol and Exeter.

One manufacturer confided that he’d lost a future star who was so keen to move to London she’d headed to a job in the capital paying £10,000 per year less than what she was earning in Somerset.

The fall in the value of Sterling was also raised, as was the fear that a Government entirely distracted by Brexit may not focus on the day-to-day needs of the economy.

And few business gatherings ever take place without the odd grumble about the local council, with the saga of Taunton’s much-delayed £22 million Northern Inner Relief Road continuing to cause businesses – especially retailers – considerable indigestion.

All food for thought for policy-makers and business leaders looking to ensure the vital role in the economy played by the West’s family businesses is carefully nurtured.

NICK FARRANT, PARTNER AT PKF FRANCIS CLARK IN TAUNTON

If you run a family owned business, you need to ask yourself some simple, but important questions.

When did you last have a family meeting? Have you agreed how the business will be governed? Do all the family members involved in the business have the same vision for the future as you? Have you thought about how you plan to hand the business on and how you will manage that transition?

Too many owner managers are so focussed on the day to day running of the business that they fail to plan ahead and this is perhaps one of the main reasons that while 70 per cent of businesses in the UK are family owned, only 10 per cent of them make it to a third generation.

What seems like a straightforward process is often just the opposite. If you haven’t established a formal protocol of decision-making that will set standards and provide a means of conflict resolution, disagreements and tensions within the business have nowhere to go but grow.

Different generations have different desires, aspirations and motivations. Understanding this helps to distinguish the dynamics of selling a family business to a family member or disposing of it to a third party.

Equally, it is important to establish rules of governance that apply to everyone – family members and paid employees alike, and this includes documented expectations, rates of remuneration, grievance procedures and success measurements. Where the founding entrepreneur is the only one who knows the minutiae of the business finances and operations, sudden changes in circumstances can badly affect the business.

These scenarios can all be mitigated if owner/managers take time to plan; and if they are worried about the complexities of succession or exit strategies, help is at hand. Establishing a family constitution provides a framework of rules which governs behaviour as a family. It should also address how communication should be dealt with, conflict resolved and provide a clear policy for the training and employment criteria for members of the family joining the business.

Each family and family business differs, but there are common themes that should be included in such a constitution including the vision of the business, measures of success, subsequent ownership (succession or sale), governance, provision for retirement and family employment policy. The best chance of a successful succession is where the new leaders, particularly from within the family, are appropriately trained well in advance of taking over their roles. Whilst the statistics are stacked against a family business continuing through successive generations, with the right planning, particularly with the support of a strong family constitution, there is no reason why more family businesses should not continue to grow and to flourish.

STUART MATHEWS, PARTNER AT ASHFORDS IN TAUNTON

As family-owned businesses grow and become more successful, they often need to think about bringing in senior people from outside the family, to help add to the skills and experience base and take the business to a new level.

Robert Ruffell-Hazel and Stuart Mathews
Robert Ruffell-Hazel and Stuart Mathews (Image: Andy Styles)

The possibility of bringing in a senior person from outside can create conflict within the family, as it can be hard to give up control of part of your business to someone who has not grown up with it.

The first step to take is to have an open discussion within the family about what bringing in a new person will mean, in terms of:

Changing roles;

Sharing responsibilities and decision-making, at least at the operational level;

Commitment; and

How the family will make sure that the relationship with the new manager or director will work.

Some family members will understandably feel uncomfortable about bringing in an outsider to help run the family business, so it is best to deal with those concerns well in advance of the new person coming in.

From our experience of helping family-owned businesses bring in external people, we recommend that you:

Have a clearly-defined role for the new manager. This may mean re-shaping and clarifying the roles of family members in the business;

Negotiate a detailed Employment Contract for the new manager. It is also a great time to put Contracts in place for other family employees to make sure that the new manager is not treated differently;

Arrange regular management meetings, with agendas and minutes which are focussed entirely on the business, and do not stray into family issues; and Think carefully about how you will integrate the new manager into the business – and how you will keep them motivated and involved in the decision making process. The new manager will find it hard to be the only non-family member of the management team.

Bringing in someone from outside the family to help run the business has pitfalls for all concerned, and can be expensive if it goes wrong – but careful planning and preparation should help mean that the relationship works.

 

 

Source > http://www.somersetlive.co.uk/news/business/leadership-vital-ensure-family-businesses-198436

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