Family matters can cause any firm to founder

Published on Saturday 5 September 2009 13:46

WHEN the Gallagher brothers, Noel and Liam, announced the break-up of their band Oasis just before they were due onstage in Paris, they were following a familiar pattern which can afflict a great many enterprises involving members of the same family.

Family firms are big business, particularly in Scotland where seven out of ten owners say they want to pass the concern to the next generation. Family companies make a significant contribution to the economy and account for nearly half of the private sector workforce.

But keeping a business in the family, in the hope that it will continue to run profitably and smoothly, raises thorny issues which can prove very difficult to manage. Consequently, only a third of family firms actually make it to the second generation and just nine per cent manage to continue to the third.

Business spats and disagreements may not be as public or as dramatic as the Gallagher brothers', but deteriorating relationships are often at the root of the problem.

One of the key skills in running any business is to anticipate where things are likely to go wrong and to take steps to mitigate problems. In family-controlled businesses, this is even more important because of the delicate nature of family relationships and the tensions that exist in all families. In Noel Gallagher's words, Don't Look Back In Anger.

While it is generally the case in the corporate world that there is little room for personal sensitivity in taking major decisions about the future of the business, family-run firms can be steeped in emotion. Many owners see themselves as custodians rather than just owners.

Moreover, family businesses generally reflect the values, traditions and culture of the founders. Profitability matters but it is not the be-all-and-end-all. Those in charge can find themselves – admirably, from one perspective – more concerned about long-serving and loyal members of staff than the bottom line.

One of the most difficult issues for the majority of family businesses is succession. Sometimes a very successful generation is slow to allow others to become involved. On other occasions, there is a reluctance to let go of the reins altogether. It is this kind of issue which has seen many a family business founder.

Yet surveys reveal that around half of family businesses have no detailed plans for who should take control and how they should handle the changeover.

Many are perhaps simply unwilling to face up to the prospect and prefer to put off the inevitable as long as they can, while others may hope that the issue will somehow eventually solve itself. Either way, these are the businesses which are most likely to struggle to pass on successfully to the next generation and some may well collapse in the wake of family acrimony.

Successful family organisations look as far ahead as possible, foresee the challenges and have more time to plan for the future and come up with solutions. Effective communication is essential, as the issues can be numerous.

Is there an appetite in the next generation to continue the business? If so, who is best suited to take on the management? Have they had adequate training? Should they spend time out of the family business accumulating skills and experience? Might it be sensible to bring into management a person from outwith the family who can take a dispassionate view for the sake of the future health of the business? How do you tell someone in a family that they might not be up to the job?

Might one member of the family consider buying out the others? How best to achieve fairness among the following generation when some may be actively involved in the business and others just stakeholders?

Families are different and, therefore, each family business is unique. They demand advisers who fully understand the history and nature of the family and who appreciate that a family business is more than just a commercial concern.

Undoubtedly, it will be easier to assist some families to map out the future than others, but in every case the right balance must be struck without creating unnecessary friction.

A fundamental requirement of running any family business is that if it starts to go wrong – or, even better, before that happens – the family must be open and fair in their dealings with each other. It would appear that Noel and Liam Gallagher, who have a history of disagreement, eventually could not settle their differences amicably. No doubt, however, the world of pop music throws up a great many challenges which most businesses will never have to contemplate.

Malcolm Holmes is head of corporate at leading Scots law firm Tods Murray and a member of its Families in Business Group