How to make a family business workable

For Martin Stepek, the chief executive of the Scottish Family Business Association (SFBA), educating people on the unique dynamics – as well as the skills required to promote and support family businesses – has become something of a crusade.

Stepek was a scion and a senior director of a once-successful business – J Stepek, founded by his Polish migr father, Jan Stepek. This family's Lanarkshire-based electronics-to-travel-to-home-furnishings business once provided a family of 12 with a more than comfortable living, while it also employed 350. It collapsed into administration in 2003. The final blow was a change in tax legislation, but if the company hadn't been riven with inter-family rivalry and unclear succession planning, it might yet have survived.

Tomorrow, the SFBA hosts a conference, focusing on the unique needs of family businesses. Stepek hopes his experience can help others.

"Our purpose is to do two things. To raise awareness across the country of how important family businesses are and to make them aware there are key best practices," says Stepek.

Not all family businesses are cornershops or one-man bands. One of the biggest companies in the world, Walmart, is still family-owned. In Scotland, some of the country's most famous and important companies are still controlled by founding families – William Grant & Sons, DC Thomson, Miller Group, to name but a few.

While family businesses can engender bonds of trust and values more compelling than a more conventional corporate culture, it can also be more emotionally complex.

"It is not easy to work," says Stepek. "I had to get rid of my brother from the business. That is an immense decision to have to make.

"I also had to tell my father not to come into the business any longer even though he founded it. That is a governance issue. If the ex-chairman of ICI kept coming into work in the morning there would be no problem. They would say sorry this is no longer your job.

"But when it is your father and he's the founder of the business, it is a much harder thing to do."

The crusade is aimed at not only the family businesses themselves, but also their advisers and the backers.

"A relationship with a family business is different from a relationship with a plc," says Stepek.

The reason why it is so important to Stepek has much to do with how his family lost it all.

At its height, the company ran 22 electrical retail shops, eight travel agencies as well as shops selling furniture and carpets. The company also held a property portfolio and offered leasing arrangements.

Initially, its problems stemmed from advice given. Stepek Sr and his wife had taken steps to ensure the business was divided equally between the ten children, while tax-efficient pension schemes were also arranged. Ten years later it turned out the structure of the arrangements were inadequate.

"In a nutshell the shares were skewed," says Stepek.

At the same time, the family was involved with trying to modernise the pay structures and the management of the business.

This meant that, by the time the government changed tax rules on the leasing of white goods and electronics, the business was in no shape to respond.

"The issue floored us," says Stepek. "We were in danger of having 20,000 TVs and videos lumbered back on us. It had been a cash-flow lifeblood of the business.

"We decided we had to swallow it. That was 1.5 million off the bottom line in a company that was 12 to 14m turnover and made a 600,000 profit the year before. We went from 600,000 profit to 900,000 loss."

Yet the company soldiered on until their bank pulled their overdraft, forcing the family to call in the administrators.

He recently met that bank's head of corporate at an event.

"He said if they knew then what they knew now about family business, they would never had pulled the plug," says Stepek. There's a wry note in his voice when he adds: "There's no grudges."

"We went through all that because our previous lawyers and accountants hadn't given the best advice for a family business, but it was good advice for a normal business. And partly it was because we didn't know well enough about the recruitment and the promotion of our family members. The rest was being in the wrong place in the wrong time."

For Stepek the collapse of the business was both a tragedy and a liberation. "It is much freer."

And, he is glad to report, the family has largely recovered from the experience, except for the stresses and strains that usually crop up among ten siblings and their own families.

"In one sense I lost a business but I kept my family," he said.

"And if you had asked which I'd want to keep it would always be that choice."