Skip to content

Keeping the business in the family?

Family businesses have formed the backbone of our economy for centuries, but how is that changing today?  As the younger generation are looking for more diverse and portfolio careers what is the attraction to them of entering the family's business?  Is it possible to marry the entrepreneurial and free-thinking approach of Generation Y with the patriarch's ambitions for the business and often his desire for the business to continue to be run as he has created it.   Can family businesses adapt or are they more likely to be sold in the future as it proves increasingly difficult to secure the succession?

A lively group of family business professionals gathered at the Savoy this week to mark the publication of the "STEP Business Families & Family Businesses book" and to debate these issues.

Strong governance and communication are key

Family businesses generally start life as small endeavours where family-related decisions are typically made "around the kitchen table".  As they grow, the owner is generally fully occupied by growing the business and does not have enough time to devote to governance.  However, there always comes a time when succession and governance can no longer be ignored. Often this process is triggered by some sort of surprise event which pushes succession up the list of priorities.  Typical examples seen by the participants were the shock of the untimely death of a close friend; a divorce which threatens to split the business, a disputed Will or a desire to leave a legacy either through the business or by some philanthropic legacy.   As Mr Prest in Prest v Prest found to his cost, a family business without proper corporate governance is not a good situation for the owner when faced with the divorce courts as it is harder to defend a 50/50 split of the business assets.

Every family is different but all that the key to success is strong communication and a determination to commit to working together as a family even if there are areas of disagreement.  There was also consensus that families continue to look to professionals for help in addressing the challenge. For some that might be as simple as asking for a 'reading list' to inform a discussion they will run themselves amongst family members; others prefer to take a more formal approach and engage with a group of professional advisers to guide them through the emotional and sensitive discussions a family has to face.  

How many people are seeing signed documents such as Family Charters?

The question was posed, "how many people are seeing signed documents such as Family Charters?".   Some participants have seen them being used very effectively particularly when the Charter remains a live document which the family uses to guide its discussions and to engage with the younger generation and their spouses.  Others suggested that the very discussion around the Charter or Articles may be the useful trigger required to get the family to the next stage of agreement, particularly when there are multiple generations and branches of the family.  A discussion leading to an interim document to confirm agreement on a small step forward might also be a good way to proceed and gain trust and understanding with family members so they are better able to move towards the bigger decisions.  Whatever the situation it is important to keep the document 'live' and not leave it in the drawer until a difficult situation arises.

Expectations of the 'next generation' can be exceedingly high when taking on the business, which adds to the challenge of securing their willingness to get involved.  The very drive, control and ambition which has made the patriarch a success can affect his ability to appoint the right successor whether an external appointment or a family member. It is not unusual to see 'yes men' appointed or to see family members paralysed by the unreasonable demands and expectations of the patriarch.   Education around working in family businesses can be a good way to address this and provide the confidence and knowledge required.  And, of course, the aspirations of the next generation today are often very different from that of their parents and they are often attracted by the flexibility and excitement of a portfolio career, or the desire to set up their own company or work in the third sector. 

A sale can be best

Of course some family businesses decide that the right thing to do is to sell.  Some owners see this as part of the journey and are eager to invest in a new business idea. For others it can be a difficult and emotional experience and they are often very prescriptive about who they will sell to and how that business will run.  Some families find that the business was the 'glue' that held them together and they need to think about how they keep family ties going post-sale.

All in all, the challenges to family businesses remain, but the consensus was that the family business market continues to thrive and will continue to provide exciting and entrepreneurial value to our economy for many years to come and can be a very powerful glue to bind the families themselves.  

Simon Rylatt, Consulting Editor of the STEP Business Families & Family Businesses book, led the discussion, with support from other Boodle Hatfield partners:  Geoffrey Todd, Jane Ireland, Emily Brand, Mark Lindley and Amanda O'Keeffe.  Other attendees included professionals from leading private banks, accountants, investment companies, corporate finance boutiques, mediators and NEDs.

The STEP Business Families & Family Businesses book can be purchased here

 

October 2018

How to find us:
London Bankside

Bankside Office

240 Blackfriars Road
London
SE1 8NW
DX 53 Chancery Lane

Telephone: +44 (0)20 7629 7411
Fax: +44 (0)20 7629 2621
Email: bh@boodlehatfield.com

London Mayfair

Mayfair Office

6 Grosvenor Street
London
W1K 4PZ

Telephone: +44 (0)20 7629 7411
Fax: +44 (0)20 7629 2621
Email: bh@boodlehatfield.com

Oxford

Oxford Office

6 Worcester Street
Oxford
OX1 2BX

Telephone: +44 (0)20 7629 7411
Fax: +44 (0)20 7629 2621
Email: bh@boodlehatfield.com

Bankside Office

240 Blackfriars Road
London
SE1 8NW
DX 53 Chancery Lane

Telephone: +44 (0)20 7629 7411
Fax: +44 (0)20 7629 2621
Email: bh@boodlehatfield.com

Get directions

Contact us