PROSPER MAGAZINE: DIGITAL EDITION
THE FAMILY BUSINESS AND THE NEXT GENERATION
Prosper asked Head of Business Succession Planning and Managing Partner at Higgs and Sons Solicitors, Paul Hunt, why firms should be wary of generalisations when talking about family businesses.
There are many aphorisms that suggest that most family businesses don’t survive three generations, with international variants on a theme dating back centuries – amongst them ‘clogs to clogs’, ‘shirtsleeves to shirtsleeves’ in the US, and in a Spanish proverb ‘first-generation trader, second-generation gentleman, third-generation beggar’. Yet the UK’s oldest single-family business can trace its beginnings to the reign of Henry VIII and many others can count their successful history in hundreds of years.
There is no such thing as a typical family business, just as there is no such thing as a typical business or a typical family. However, it is possible to identify some common characteristics and issues which we see regularly. How the family business responds to those factors may well determine its success, harmony and longevity.
The brand inherent in an established family business can engender trust and confidence in customers. The perceived common values may earn a similar loyalty to that demonstrated by the family to their own business. Where that same level of trust and fairness is strongly felt within the family, foundations tend to be stronger.
Joint vision and values
Where everyone is on the same page, many things fall into place. It would be wrong however to assume that all family members are bought into the same common purpose. What worked for the founder may not work for the wider family or next generation. The founder’s lifetime commitment and sense of duty to the business is not automatically inherited. Everyone needs to understand that attitudes to the business may be different and embrace that.
What does success look like for the family and the business? Is there a shared vision or is there a collection of disparate and competing ideas? Can those differing views and contributions be reconciled?
Resilience or conflict?
There is the potential for the continuity and togetherness of the family business to weather short-term economic or business challenges and to create a sustainable legacy. The family business can demonstrate flexibility and agility, but will truly thrive where there is consensus, and everyone is pulling in the same direction. That may mean the introduction of more formal governance and processes, not to stifle creativity and responsiveness but to ensure clarity and consistency.
Perhaps more than other businesses, there can be an inbuilt perspective beyond the next quarter, based on a shared history and strategy that it is built to last for the enduring benefit of the family. That often translates into forward planning and investment with an eye to the future. However, the commercial and operational approach to the business is not always replicated in the family's approach to planning for individuals and the family.
Family bonds may produce stronger and more effective working relationships and provide a real competitive advantage. Yet it can be difficult to separate the two. Personal challenges become challenges for the business. Whether the board room conversations continuing at the dinner table is a good thing or not can be affected by personal and commercial difficulties.
The parties also often overlook their relationship with the business. It can be the glue that holds a family together, but not always.
The next generation of business owners often talk about the expectations which are placed upon them, which they may view as more of a burden than an opportunity. There may be an assumption that they see their future in the family business, but increasingly this should not be viewed as an inevitability.
Wearing several hats
The founder of the business who has successfully grown it for decades is wearing several hats, often at the same time and often without realising it. They may be an owner, manager, employee, parent or grandparent.
From the perspective of the next generation, it becomes all the more important to understand the different roles at play, particularly the often-blurred distinction between ownership and management.
The passing of ownership and wealth does not necessarily equate to the need for a future owner to perform all, or indeed any, key management functions in the business. It is critical to examine the needs of the business as against the strengths and perhaps weaknesses of successors.
It's good to talk
All of this leads to the need for honest and open conversations. That will determine whether the essence of the family business can be turned to its advantage or becomes a burden and a distraction. It may take family members into some difficult territory. However, in my experience, the approach of sticking one's head in the sand is rarely an effective strategy.
Unfortunately, we see the problems which arise, perhaps in a time of family conflict or on the death of a major player in the business, where little or no consideration has been given to the important issues where family intersects with business.
We see misunderstandings and wrong assumptions between family members. The next generation may not be born with the same dedication to the business. It may need to be nurtured and developed over time. The key is to harness all that is good about the family connection and make it a differentiator and key commercial advantage. That is only possible if all concerned properly explore and fully understand where those strengths lie and acknowledge and deal with the personal dynamics which may impact future success.
It’s better to plan
Research consistently tells us that family businesses don’t have effective succession plans in place. It goes back into the difficult box, or everyone is too caught up in the day to day doing and default to focussing on the business rather than the family in the business.
It is never too soon to plan, but it can certainly be too late. I advise start-up businesses to have an eye to succession and exit strategies. By posing ‘what if?’ scenarios, we are unable to prompt business owners to consider broader issues regarding everyone's needs and expectations.
This may start with a high-level view of the family’s core values and priorities, which may then flow into what is in the best interests of the business. It creates transparency and may achieve a consensus which would not be possible after the event.
Sometimes, independent facilitation of those discussions can be critical. Again, one size does not fit all, and the approach needs to adapt to and bring the best out of the family and the business.
The family and the business
The best plan will acknowledge the needs, wishes and strengths of the individuals and the strategic requirements of the business. The overlap between the two is key. If they can be aligned, the environment will be in place for the family and the business to flourish for future generations.