Succession planning in family firms - spreading best practice

http://www.ifb.org.uk/ The press has recently highlighted criticism of family firms by Professor John van Reenen, of the London School of Economics in a Department for Business, Innovation & Skills (BIS) sponsored report on UK Management Practices, who has blamed poor succession choices in some family firms (p34) for dragging down the sector’s overall performance. Perhaps not surprisingly his research highlights that family firms whose management is chosen on a merit-based policy, have higher productivity than if recruitment of a CEO is restricted to the family gene pool.

It has therefore been pleasing to see that as a direct result of IFB lobbying the Government announced that it will work with business schools to enhance the family business management content in their MBA programmes, so that future family firm leaders are better able to deal with issues such as succession planning.

Indeed getting succession management right is critical to ensure the ongoing success of the organisation. For family firms it is especially important – to help owners the association has published a Family Business Perspectives guide on the subject and succession planning will continue to be a core theme at IFB Forum events.

We are also working with BIS to deliver additional resources to family firms, particularly mid-sized businesses, including more web based information and a new series of seminars on governance and succession planning. This call has been endorsed by Lord Heseltine (pictured), an IFB member, who advocates a stronger role for trade bodies, as is the case in Germany, by ‘spreading best practice and improving performance’.

Family business champions look to export markets

http://www.ifb.org.uk/ It was good to see family businesses taking centre-stage at the CBI national conference this week. Fiat, CEO Sergio Marchionne, and IFB members JCB represented by Corporate Development Officer David Bell and Kilfrost CEO Gary Lydiate took turns to share their success stories of business internationalisation.

They were addressing the conference theme as set out in the CBI report Winning Overseas which examines how the UK can boost its declining export performance. It was a subject also discussed by Jim O’Neill, Chairman of Goldman Sachs Asset Management who told delegates that the opportunities for growth were huge for firms focused on BRIC – a term O’Neill himself coined - and other emerging economic powerhouses including the Next Eleven.

Each of the family businesses dwelt on common themes; having a clear strategic vision underpinning the company’s export goals; training and developing the talent to deliver the plan; making investment commitments that can stretch out to long-term horizons; using wide ranging marketing tools - as simple as hosting client events in British Embassies; developing know-how and intellectual property; taking a strong ethical stance on bribery; and reaching decisions based on values – perhaps sacrificing short-term profit.

Gary Lydiate, CEO of Kilfrost, (pictured right) said he had gone “cold calling” for business in China five years ago. His advice was that “you must go and visit these places; understand the culture.”

Each of these family businesses have larger competitors, but through carefully developing and deploying their resources they all enjoy strong competitive positions and are all definitely family business champions.

Entrepreneurship in the family office

http://www.ifb.org.uk/ Family offices, perhaps driven by the need to support an expanding shareholder base, are turning more to entrepreneurship. This theme emerged at the recent IFB 7th Annual Family Office Forum Roundtable chaired by Family Office expert Daniel Goldstein.

While entrepreneurial activities are inherently risky a ‘stay rich’ approach will not usually generate big enough returns to create significant new pools of family wealth. Family offices face other pitfalls, such as a lack of new ideas or over investing, sometimes leading to stagnation or decline.

There is also the risk that family members become over dependent on dividends and are lulled into complacency and a false sense of financial security. Balancing a traditional financial investing strategy with an entrepreneurial approach can therefore play a central role in giving the family office a new lease of life.

A good starting point is setting out the family’s values - particularly making explicit the family’s appetite for risk taking. Keynote speaker and family adviser Francois de Visscher (pictured left) encouraged families to reach beyond ‘outer wealth’ such as assets and find ‘inner wealth’ embodied in the family’s values and legacy.

When successful families put family office entrepreneurship into practice they encourage those next generation family members, who have the passion, knowledge and drive, by lending them moral support and resources.

Once embarked on its entrepreneurial strategy the family office must stay focused: one boss, one team, one board for every project or investment is the answer according to one successful family. Failure should be expected, but as long as lessons are learnt it is not the end.

By each family office discovering its own entrepreneurial strategy not only can wealth be created, but family values will be sustained potentially paying rich rewards over the long-run.

Four ways to gain the best non-family executive talent

http://www.ifb.org.uk/ A recent survey by the global executive search firm Egon Zehnder International puts the spotlight on strategies for family firms to compete for top talent. Perhaps not surprisingly some of the main tips include: creating greater separation between owner and company interests, making decision making paths more comprehensible and offering stronger career prospects – with less glass ceilings. For family owners this should mean one thing - placing greater emphasis on governance to help focus on achieving these outcomes.

 

The survey has positive messages too about the family business model and how a long-term approach to stewardship helps support innovation. But conflict too often gets in the way, according to respondents, principally because of questions arising over the merit of family members working in the business. Lack of career prospects is also a major factor for those senior executives who might otherwise contemplate working in a family business. The best firms address these issues by

• improving family and corporate governance
• raising their profile promoting their corporate brand
• recruiting not only on skills, but also taking values into account
• having formal processes for integrating non-family managers

The next IFB Governance Forum in London, on 29 November, will continue this debate looking at the role of the non-executive director in upping the game in family boardrooms.

UK family businesses as world class exemplars

http://www.ifb.org.uk/ At the PwC Private Business Awards many of the Britain’s 'hidden champions' were on parade and family firms gave a powerful show of strength by clinching the main award. The awards demonstrated that the UK’s private business sector is not short of world-class exemplars. The firms competing are committed to growing and want to raise their brand profile to attract better talent to help win the race.


UK home appliances brand Dyson was lauded as the Private Business of the Year. The company, which is transitioning into the second generation, has become a market leader by focusing on design and innovation. Dyson recognise they play an important role in the rural Wiltshire community where they are based, and their values have helped keep employee turnover relatively low.

The Family Business Award, presented by the IFB was won by Samworth Brothers which has values that revolve around a constant respect for people, quality and profit. Supported by a commitment to training they have created a performance culture that has driven their success.

And recognising the importance of exemplary leadership Paul Drechsler, Chairman and CEO of another family firm, Wates, was awarded CEO of the Year. Paul is passionate not only about the business, but also the family, people and communities that the business supports and depends on.

Other exemplars awarded include Monsoon, the International Business of the Year, where Peter Simon has led his family business back into private ownership, regaining full control over their destiny. Performance has been outstanding since the company regained independence. Their Accessorize brand has been powering international sales which have grown strongly across 68 countries where they trade.

Family businesses rise to the challenge of the UK riots

http://www.ifb.org.uk/ The UK summer has been blighted by riots in London and other cities across the country. David Cameron has lamented the nation’s ‘broken society’. In some quarters citizens appear to no longer respect the importance of good neighbourly relationships. And in the midst of all this family businesses have also been in the spotlight.


The House of Reeves in Croydon was torched by rioters. Just a few hours later, this father and sons firm with 144 years of history was back in business, ordering new furniture from China to keep customers happy. The Reeves family, who are great exemplars of resilience, have been inundated with expressions of support and have set up a special fund to help to regenerate the area that was vandalised.

Carpetright, another retail organisation with over 500 stores in the UK and Europe had their Tottenham store destroyed by rioters in attacks that affected the tenants living above the store. The company Chairman Lord Harris of Peckham, reacted immediately by offering a helping hand to the tenants, even though he is not their landlord. He took the view that they had suffered unfairly because his store had been the target of the vandals attack.

Both these cases are prime examples of how the values of family businesses and their owners can help plug a nation’s social capital deficit. For these family businesses their communities are vital; the community and the business work hand in hand to mutual benefit. So when adversity strikes solidarity kicks in. The Harris and the Reeves stories are powerful examples of family business capitalism at its best and should receive our praise and support.

To donate to the House of Reeves see www.houseofreeves.com/fire-at-house-of-reeves/i60

Murdoch lessons: Business before family

http://www.ifb.org.uk/ Family business has been at the top of the news for the wrong reasons recently with the News International scandal. The events surrounding the despicable phone hacking practices at the News of the World demonstrate that any organisation that does not embed their values throughout the organisation can face the loss of the whole or part of their business as soon as trust breaks down. A look at the News Corporation website lists pages of compliance policies in box ticking fashion, but fundamentally values are about people’s behaviour that rules alone can’t dictate. The responsibility of leaders, such as Rupert Murdoch and his son James, is to set the example through their actions that others will follow.

The questioning in the media about leadership in this family controlled business will go on. Responsible owners put the success of the organisation ahead of their own personal interests, and it is understandable that there are calls for a new CEO at News Corporation and that the board revisit the family’s role in management. This could be a good time for the Murdoch family as owners, to make a bold move and change their roles, leaving strategic management in the hands of their team of professionals, to become cultural ambassadors for the business. The family’s principle role would be to take responsibility for embedding strong values throughout the organisation in order to rebuild the trust of all stakeholders.

The enterprising family office

http://www.ifb.org.uk/ London is becoming home for an increasing number of family offices. A family office generally refers to a private company that manages investments for a single wealthy family. The company's financial capital is the family's wealth, often accumulated over many generations.

At a recent gathering of the IFB Family Office Forum owners were privileged to hear from author and consultant Mark Daniell who wrote Strategy for the Wealthy Family and other acclaimed books. One of Daniell’s themes is why only one of the 30 wealthiest families in the first edition of the Forbes “Rich List”, the Rockefellers, is listed today whereas the other 29 families have dropped away.

At the heart of growing the family’s wealth, and not just preserving it in the family office, is the need to maintain the entrepreneurial zeal and appetite to innovate and grow in each generation. Keeping this flame burning begins by instilling behaviours into the next generation that will encourage them to take entrepreneurial risks and make their own mark. The best family offices foster core values in the family such as dignity, accomplishment and responsibility.

Whether family office investments are made up of operating, or financial assets, the key to longevity is the positive engagement of the next generation. If the family business has been sold there could, of course, be a loss of identity so agreeing common values among owners and a shared mission becomes critical in order to retain unity and a sense of purpose. Recent IFB Next Generation Forum speaker Ben Goldsmith, who now chairs his family office, also highlighted the importance of strong leadership as another vital ingredient.

On September 28th when the IFB hosts its annual Family Office Forum Roundtable families will share their own experiences on how enterprising businesses manage to keep the entrepreneurial flame burning and grow their wealth. The debate goes on….

Family business: The Freedom to Lead

The debate over the demise of Cadbury which was once a great British institution has not died out in the news. Another family business brand Timberland was also sold this week by a family who decided that they were no longer the best stewards of the business.

Family firms who have stood the test of time and fought against the odds, require a unique and sturdy set of genes to survive. They need a clear purpose, strong values and great leadership supported by good governance. If that was not difficult enough they also have to manage the process of generational transitions. Strong leadership establishes clarity of vision and values; this is arguably the starting point for effective stewardship as we set out in the IFB's new report Family Business Stewardship.

Most successful family business owners say time and time again how the freedom to decide is one of the key attributes in achieving success. They can use their independence to make decisions to invest and innovate, where the returns may not be visible in the next quarter.

Of course, shareholder loyalty should never be unquestioning; the best stewards stand back and take a dispassionate view of their organisations. With a board supported by a small group of challenging non-executive directors the right questions can be asked.

The best of family firms are working day in day out to ensure that their owners are well educated for the long journey ahead, with the knowledge and questioning skills that are required to be good stewards of their organisations. To succeed, where others such as the Cadbury and Timberland gave up the fight, is highly demanding. The reward can be great when measured in pride in seeing the name above the door of a successful business where the owners retain their independence and freedom to lead.

Taking the long view

http://www.ifb.org.uk/ Recent press comment in the Financial Times by Sir Richard Lambert laments the myopia of the UK stock market’s obsession with short-term performance. He cites Rolls Royce as a special case that was sheltered from market predators by the UK Government’s golden share. It allowed the firm the freedom to make investments that would take years, if not decades, to yield returns in terms of a strong cash flow. Shielded from mergers and acquisitions style short-term behaviour and a policy of robust investment in R&D, people and capital equipment, Rolls Royce has gone from strength the strength to become a world leader in its field.

Similarly family firms often eschew the public markets to retain the independence that enables them to take bold investment decisions that might not yield strong results in the short-term. Danny Miller and Isabelle Le Breton-Miller argue in Managing for the Long Run that family businesses that pursue a long-term agenda derive competitive advantage. However there is a real danger in this debate that we lose sight of the need to achieve a balanced focus on the short, the medium and the long-term. Near-sighted goals are vital in any organisation. People in modern organisations are appraised regularly and held accountable for goals that stretch over different time horizons. Each business sets its own pace, but like athletes in a long-distance race the runner who wins is able to release effort in a calculated manner with short bursts of speed balanced with stamina.

In successful family businesses there will be short-term aims and objectives sitting alongside a well articulated long-term strategy, where owners strike a balance between short-term return and a willingness to apply their financial capital with patience. It's a subject that we address in further detail in the IFB Family Business Stewardship report, in partnership with Tomorrow's Company, which will be published on 9 June at our 10th National Conference.

Social Enterprise and family business

http://www.ifb.org.uk/ The world is witnessing the emergence of new business models where entrepreneurs with a social conscience are creating an impact while making their venture financially sustainable. The growing emergence of this form of business, known as social enterprise, is an area where the UK sets the pace.

For family business owners awareness of these new models is highly relevant; for example in terms of how social enterprise can form part of the business’s supply chain or indeed how next generation family members could see social enterprise as part of their career development.

The IFB Women’s Forum recently visited the acclaimed School for Social Entrepreneurs (SSE) in east London. This organisation helps develop business projects and provides training and opportunities for people to use their abilities more fully for social benefit. One of the enterprises SSE supports is Bikeworks, based in Tower Hamlets, which provides cycling for all, encouraging the health and wellbeing of everybody in their community. In three years of trading the co-founders have built a business making significant social impact with revenues approaching £1M, and now poised to expand their brand across London.

In another example social entrepreneur and former scientist Sheenagh Day was inspired to establish Maison Bengal a fair trade company, producing high quality home and gift accessories, whose philosophy aims to improve the lives of communities in Bangladesh by developing a sustainable market for their products. The business sells its products through retailers such as Heals and the White Company and has helped thousands of women and their dependents.

These successful companies show how blending strategies from the for-profit world with the social aims of Non-governmental organisations and charities can deliver a sustainable positive impact.

Related articles

• Wates takes social enterprise seriously (telegraph.co.uk)

Business leaders and good stewardship

Cover via Amazon

www.ifb.org.uk Ken Costa, Gresham College Professor and Chairman of Lazard International, addressed an IFB Forum this week on the need for business leaders to act in a morally, spiritually and financially responsible fashion. Leaders who act as good stewards develop the people they are chosen to lead—the opposite of old-fashioned coercive leadership.

Speaking at a meeting hosted by Saunderson House in London, Costa, who is also author of God at Work, emphasised the importance of values and how leading up to the financial crisis society had arguably been sidetracked by self serving principles. Adam Smith’s system flourishes best where it focuses on delivering profitable enterprises, long-term sustainability and retains a strong regard for impact on communities. To remain healthy capitalism has to remain a servant and not become the master.

Capitalism however requires checks and balances to help to regulate the behaviour of the human actors involved.  The rebuilding of trust is an important factor in emerging from the crisis – indeed you can’t operate the capitalist system without a strong degree of trust.

Family firms have a strong role to play and the best of them have avoided the traps of the crisis by not chasing short term gains. A minority were lead astray by leaders who borrowed heavily following the fashion of the times. On the other hand many of the best family businesses are largely detached from both the debt and equity markets and take the long term view.

Costa sees a strong confluence of emotional and patient capital at work in business families, citing Harrods as an example. Successful family businesses are able to leverage their emotional and financial capital and deliver a robust performance.

BBC's 'Can't take it with you' programme and succession planning

http://www.ifb.org.uk/ In the latest episode of BBC2’s 'Can't Take It with You' the seasoned business guru Sir Gerry Robinson and Withers partner, Sue Medder, encounter two family businesses and the problems that can arise for the senior generation when considering succession.

When dealing with generational transition in family business, it is important to consider carefully how best it should be passed on to the next generation, taking care to ensure that an acceptable balance is struck between the interests of those family members who work in the business and those who do not, whilst also trying to ensure the continuation of the business as a going concern.

The two cases in the TV programme highlighted the most frequent problem facing family firms, and particularly those with ageing owners: a void in succession planning. Surveys of owners demonstrate time and time again that they put their heads into the sand sidestepping sometimes painful conversations with key stakeholders - particularly with their own children.

Communication is the key to unlocking the way forward, including a mix of one-to-one discussions and bringing all the parties together around one table. The programme also usefully demonstrated how external intervention by a moderator can play a vital role in bringing objectivity to an emotional situation and addressing tough questions that may have been swept under the carpet.

Drawing up a will plays an important part in such a process as it sets out how ownership and management of the family business will be dealt with when the seniors have passed away. Such a document becomes much easier once there has been open dialogue and engagement with the key stakeholders to try to understand everyone’s goals and how individual family members can find ways to work together.



Related articles

• Family businesses 'fail to plan' (telegraph.co.uk)
• Parents passing businesses on to children quicker to ease adviser fees (telegraph.co.uk)

Family business entrepreneurs: the pros and cons of family support

http://www.ifb.org.uk/ The recent sell-out IFB Next Generation International Convention on entrepreneurship was a tremendous success as 185 young delegates from 25 nations listened to inspiring speakers on starting up companies, intrapreneurship in an existing business and emerging social enterprise models. The consensus seemed to be that today’s young family business members want to make their own mark in the early stages of their careers, either by working in a non-family company, or increasingly by setting up their own business. Choosing the entrepreneurship route is becoming more popular; it gives the young person more independence and is a great way to prove yourself, at a stage in life when there is often little to lose.

One of the most active questions discussed was the pros and cons of having “family support” when starting a new business. Advantages include access to capital, ready-made networks, other support that the family (and perhaps its business) can provide and the pressure to succeed. On the downside many felt that using family resources including funding could lead to a lack of independence and thus a loss of freedom for the entrepreneur.

Lara Morgan, founder of toiletries success story Pacific Direct, told the story of how she broke away from her father’s firm at 23 and never looked back eventually selling her business for £20M. She argued strongly in favour of having full control over one’s destiny without anyone looking over your shoulders. Others argued that family entrepreneurs should welcome family support. If a family member starts a new venture family capital and networks can be invaluable; but if the family are investors care needs to be given to the governance system that should give the entrepreneur the freedom to manage, with a good board in support.

Family Business Stewardship - a model for business success

http://www.ifb.org.uk/ The debate on the principles of good ownership very much came to life at the height of the recent financial crisis. Corporate failures, such as Lehman Brothers, raised questions about the health of capitalism and whether it was always working for the benefit of society as a whole. Politicians and the media called on owners to be more accountable and to ensure that their companies treated stakeholders fairly and acted as responsible corporate citizens.

Tomorrow’s Company, a think-tank that aims to reduce the gap between business and society, stepped in to the debate with the publication of a report “Tomorrow’s Owners - Defining, Differentiating and Rewarding Stewardship”. The report, to which the IFB contributed, defined stewardship as the active and responsible management of entrusted resources now and in the longer term, so as to hand them on in better condition. The report set out four principles for corporate stewardship, and related behaviours:

• Principle 1. Setting the course: attention to clarity of purpose

• Principle 2. Driving performance: attention to performance and improvement

• Principle 3. Part of the landscape: attention to the wider world

• Principle 4. Planting for the future: coherence over time

Throughout this recession the family business sector has been held up by observers, such as the CBI, as a source of stability. Although the trading environment has been very difficult family firms have generally held a steady course. Arguably one of the reasons for the success of family firms during tough times is their adherence to the four stewardship principles.

A leading example of family business stewardship in action is Wates Group who place respect for communities and people at the heart of their business. This approach has earned them the prize of Major Contractor of the Year for a second consecutive year at Building Magazine’s awards.

The IFB Research Foundation has partnered with Tomorrow’s Company to examine empirically how family businesses function in terms of the stewardship and to find out if this is a model for business success. If you would like to participate in the debate about family business stewardship please leave a comment here or email your views to info@ifb.org.uk .You can also request a copy of the IFB Family Business Stewardship Report that will be published in June 2011.