Lessons from Succession: Navigating the future of your family businesses - Boodle Hatfield

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24 Mar 2023

Lessons from Succession: Navigating the future of your family businesses

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The unique dynamics of family-run businesses can be their greatest asset in times of market turbulence, however, as made clear in HBO’s Succession, these dynamics bring equally unique challenges. To ensure they are best set to tackle future challenges, family-run enterprises must tread a careful path, harnessing their legacy as they evolve for shifting markets to come.

Going back to your roots

“The future is real, the past is all made up” quipped Logan Roy when glossing over his mistakes and pointing to better future. But in my experience, family businesses should look to their history. The past can teach important lessons on how a business became successful in the first place. Coping with past economic upheavals and other challenges creates both resilience and insight in how to capture future success. How a business survived the ups and downs of the 70s, 80s or 90s could be of critical importance in managing today’s high inflation, increased borrowing costs and rapid technological advances.

Children are our future

The boardroom does not need to be boring. Creating a board which reflects the family’s values is important. As is introducing outside expertise and the insights of the next gen – both of which can refresh and energise strategy.

Family-run businesses can be sceptical about corporate governance: worried that it eats time, stifles creativity and delivers no added value. But a well-run board can give management the time and space it needs to look at the future and frame the company’s strategy to embrace opportunity and deal with threats. Inviting experienced outsiders into the board room can be of great value and impose some rigour when times are tough. And your next gen can be a valuable talent pool which can give insight into new markets and how to reach them. Wisdom doesn’t always come with grey hair as standard.

Risky business

As a family, are all your eggs sitting in the one basket? Family-run companies evolve and diversify over time. New service lines develop and new markets are tapped. That all sounds terrific. And it is. But even a strong and well-established business can be brought low by a weak spot in its armour. This risk might be mitigated by looking at corporate structure.

It could make sense to ring-fence individual businesses in their own companies and place a family holding company over the top.  Managing a trading company level can help to insulate the family at group level. It is also always worth carrying out a risk analysis of interconnected financing between different companies within the same family group.

In addition to diversification within the business structure, diversification and protection of family wealth remains ever relevant. Over the years, we have found that an increasing number of families have looked to preserve wealth generated by the family business in separate standalone structures, such as trusts or investment companies.

Those trusts and vehicles can further spread risk by investing in a range of asset classes, such as equities or real estate. Clearly, risk cannot be mitigated out of existence, but a more diversified portfolio can help to weather the sort of financial storms that we have seen since 2008.

Do the right thing

We do hear fantastic stories about how family businesses look after their employees and contribute towards their communities, and recently this was particularly true during the Covid-19 lockdowns. Long may this continue, as such intervention is increasingly necessary as society grapples with growing wealth inequality and associated social issues.

When times are tough, family-run companies will naturally focus on their own business, but it remains important that they lift their heads above the parapet and continue to think about how they can also best support others. My experience is that many of them do. Family-run businesses form the bedrock of the UK economy. They are part of the fabric of our society. When dark economic clouds gather, it is heartening that so many of them step up and help out.

The long histories and deep inter-generational expertise of family-run enterprises can be central to ensuring their longevity, but times of unfavourable economic headwinds should act as a reminder to keep looking forward.

This article was first published in eprivateclient on 24 March 2023.

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