A question of succession for Scottish family firms

There are times when fact can give fiction a run for its money.
There are times when fact can give fiction a run for its money.
Share this article
Promoted by Murray Beith Murray

Family businesses contribute hugely to the economy and communities across Scotland, but keeping them in the family is often a challenge

There may seem to be quite a distance between the multi-million-dollar, high-stakes wheeling and dealing of a fictional Manhattan-based media conglomerate and one of Scotland’s many family-run businesses.

After all, Sky Atlantic’s Succession is a stylish drama that follows the chaos surrounding the Roy family as they squabble over who might take the reins from the ailing patriarch. Surely the sibling rivalry, tension and general family chaos is simply a story?

And yet, as Peter Shand, partner at leading Scottish private client law firm Murray Beith Murray, explains, there are times when fact can give fiction a run for its money.

“Within the story are things we are dealing with all of the time: ill health, death, sibling rivalry, family politics and dysfunctional relationships,” he says.

The series – which has been likened to a modern version of King Lear with its ageing ruler and the desperate offspring vying to be picked as his successor – follows a Manhattan media family, each anxious for the money, power and status afforded by leading the global business.

While the outrageous scale of their fictional disputes could never be matched by a humble Scottish family firm, there are certain real-life parallels, says Shand.

For while family businesses are the backbone of the economy, an increasing number can face a raft of challenges when the time comes for the head of the business to step aside.

“A typical issue can be that the business owner is reluctant to let go of the reins. In the case of Succession, the business owner is 85 and yet still in charge,” explains Shand.

“Sometimes it’s only when ill health or an outside force like a change in the market means things go wrong, that the family is forced to deal with it.”

According to a 2017 study by Family Business United Scotland, the top-100 family firms in Scotland collectively generate £1.1 billion in profits and support more than 103,000 jobs.

They also account for 11 per cent of the country’s onshore gross domestic product and have a combined turnover of £16.6bn.

But while family-run businesses make up some 70 per cent of Scotland’s private sector, it’s been estimated that 43 per cent across the UK have no succession plan in place. As a result, it’s been suggested that just 12 per cent go on to make it to the third generation and only 3 per cent to the fourth generation.

Issues surrounding the succession of a business can stretch across every and any sector. However, land ownership and rural businesses could well be the most affected.

Steeped in traditions of handing the business down from one generation to the next, uncertainty over the future of the sector and greater career choices for young people are throwing the futures of some into doubt.

“We have had plenty of examples where the farming business is focused on one sibling who doesn’t necessarily want to take it on,” Shand says.

“The issue with the farm, like the family company, is that the business is not easily split in parts. That leaves the family struggling to find a way of treating everyone fairly, without them potentially falling out over it. Sometimes it’s very difficult to find a solution, too hard to have the difficult conversation with children and the business demands may be so pressing that succession planning gets pushed further down the agenda.

“In the majority of these cases, the business owners end up being in control for at least ten years longer than they would [like to be] or should,” he adds.

In the past, the task of helping businesses of all kinds navigate what can be particularly choppy waters – sometimes fuelled by deep-rooted family divisions – would fall to a collection of lawyers, accountants and other advisers.

With so many forces pulling in a multitude of directions, the outcome – a bit like an episode of Succession – wasn’t always pretty.

Now, however, Shand is one of those lawyers who promote a fresh “joined-up” method involving family business advisers, such as Mairi Mickel, who can take an independent approach to unravel sometimes complex relationships, working with the family, their professional advisers, workforce and other stakeholders, is increasingly helping firms steer a course to a successful conclusion.

Mickel is no stranger to how family businesses operate: she is a fourth-generation member of the Mactaggart & Mickel Group – a business that has held strong for almost a century – and has ten years of boardroom experience.

“Family businesses play a special role, they bring employment to local economies, they end up being very integrated in the community, they exist for consumers, suppliers, sub-contractors. They have a lot of impact at regional and national levels,” she says. “And they are embedded in Scottish society. They’re important.”

Mickel’s passion for seeing family businesses thrive, her deep understanding of their mechanisms and her position as an outsider with no direct interest in who gets what and how, means she can dive deeper than others.

“I take a systematic approach,” she adds. “I spend time getting to know the family business and the owners. I don’t come back with a 10-point plan saying ‘this is what you must do’. Instead, I work with them and then their other advisers – wealth planners, accountants, pensions experts, lawyers and so on – and make sure we work as a team for the benefit of the client.”

There are times when emotions can run high. It’s not been unheard of for mediators to be brought in to aid communication between warring siblings who simply refuse to speak.

“When emotions interact with money it can become very complex,” adds Mickel. “There are blood loyalty, honour and pride as well as money and business.”

She continues: “It’s also a very private matter. People can take a long time to reach out for help.”

In some cases, the best option for a family business might be a complete reorganisation, partial sale, new governance arrangements or a new agreement among remaining family to operate the business in a certain manner.

A “family constitution”, which outlines responsibilities, rules and even routes of communication so that everyone is clear as to where they stand within the business, is rising in popularity.

In some cases, says Mickel, the ironing out of the succession process can be unintentionally therapeutic, and even help heal deep family wounds on the way.

She refers to one recent note of thanks which touched on the “sense of relief from recent tension and renewed togetherness” that resulted from finally resolving a succession issue.

While television’s warring Roy family may well tear each other apart for our entertainment, at least in the real world there appears to be a chance of a happy ending.

This article first appeared in Vision magazine. For more information visit Murray Beith Murray.