Networks - helping drive the UK’s Future Champions

The Government wants to see the power of the UK’s medium-sized businesses (MSB) further unleashed to grow. Policy change can play a key role as John Cridland, the CBI leader, highlighted in the Times. He offers some recommendations that Government should consider to pep up this vital sector of our economy and support our nation’s Future Champions.

The key answer however arguably lies with the MSBs themselves. What can owners do to drive stronger performance? FT journalist Chris Bryant offered a list of success factors that are commonly found in German Mittelstand organisations, acknowledging that the hardest challenge may be to imitate these values.

Being able to act swiftly and decisively is a value that MSBs commonly harness to advantage. Maintaining independence and a long-term focus in another core value plus avoiding debt. Of course, innovation is critical and MSBs are often specialists with strong intellectual property and brands focused on premium markets. The best of these companies generally avoid reliance on a single market and many concentrate on exporting and internationalisation.

Another less recognised but powerful advantage point for Germany’s MSBs is harnessing networks- leveraging their social capital. This can be anything from interacting through groups such as trade associations as well as meeting via informal networks sharing intelligence. FBN International, and its UK chapter the IFB, offer popular meeting points for successful family MSBs. In October over 750 owners and members of the FBN network will gather in London for the 23rd FBN Global Summit to debate the key drivers for “extraordinary performance” sharing knowledge and best practice.

Avoiding the exit route

http://www.ifb.org.uk/How does Germany retain its global market share in manufacturing while other European rivals such as the UK, France and Italy have gradually been losing ground to China and others.  Obvious answers include a consistent focus on achieving productivity gains through investment in equipment and human capital, as well as keeping ahead in product development through R&D and innovation. Successful Mittelstand companies prioritise the continued existence of the company- making necessary investments.

This approach starts with owners who put business growth and continuity as top priority. Eschewing cashing in on their achievements they chose to remain privately owned. These owners provide consistency of purpose and stability; making relatively small liquidity demands on the company they send a signal through their boards that the company comes first. Freudenberg Group is a typical example of this approach; where family shareholders prefer to keep their assets tied up in their successful Eur6bn firm putting family ownership as a high priority rather than letting other people manage their money.

The UK Government’s new focus on mid-sized business expressed through various reviews including the latest one led by Lord Heseltine is a sign that the UK is increasingly recognising the importance of our own Hidden Champions. As in Germany family firms are the most common form of ownership in this sector of the market- their success is thus one of the key planks for driving national growth. To win back a strong position the UK will require a new generation of owners who put the success of their companies above making short term gains through managing a quick exit.

Buffett on keeping businesses for the long-term

http://www.ifb.org.uk/ As a guest at the 2012 Berkshire Hathaway Annual Shareholder Meeting, in Omaha, USA, popularly dubbed a Capitalist Weekend, all eyes are focused on CEO Warren Buffett sharing his 50 years plus experience as the world’s most renowned investor. For starters he spoke of goal clarity; investing in wonderful businesses - his eighty-eight-year-old partner Charlie Munger who was also on the podium, nodded in agreement. Buffett invokes going beyond private equity, with the exit no longer a goal. What could be more ‘beautiful’ he extols than investing to keep businesses for the long-run – in my view a parallel of the family business model.

As a controlling shareholder in many of their investee companies, Berkshire has the freedom to ignore the will
of the market and to focus on making decisions that favour long-term stewardship – another idea Buffett likes. That means committing to support investments that grow steadily in value over time.

Success is measured by a strong recurring cash flow, and an organisation with solid values where employees at all levels do the ‘right thing'. Where mistakes have been made Buffett accepts personal responsibility. If it goes wrong it’s generally not the fault of management as he sees it, but his misjudgement
on the competitive position of an acquired company.

On Board philosophy he invokes directors to think like owners. The main task of the Board; and here he is forceful, is to hire the right CEO avoiding mediocre leaders. Compensation packages for senior executives should lean to being “low” but with a high “stake” in the upside value. He lavishes praise on Berkshire managers who are revered via a song in the company annual video.

But one unanswered question is the Berkshire CEO succession plan; Buffett, 81, is still firmly in the driving seat and is expected to keep going for some time to come. He won’t comment publicly on who the Board might have earmarked to be his successor. But the media speculates that one of his divisional managers Ajit Jain, 60, who has made billions for Berkshire building its reinsurance business is Buffett’s heir apparent. But with applause ringing to the answers Buffett gives to the questions from the floor– he is still clearly loved by shareholders- and deserves to be!

Renewing entrepreneurship across the generations

http://www.ifb.org.uk/ One of the main competitive advantages a family firm can create is developing a powerful entrepreneurial culture, where measured risk taking and innovation are part of the corporate DNA. It’s a theme the IFB has seen crop up again and again during the IFB Family Business Challenges seminars that are currently running across the UK. Owners are concerned about how to maintain innovation and entrepreneurship as a core value across generations. The evidence is when a family business fails to innovate and adapt it often loses its way.

Two examples, one from each side of the Atlantic, demonstrate how family business renewal is achievable.

One well known UK family firm where entrepreneurship was put back into the business is £175m turnover Timpson Group. Only a generation ago its core activity was shoe retailing and the owners had a 'steady-Eddie' approach to business. The incoming generation was more restless and sensed that to be good stewards they had to up the ante in terms of innovation and risk-taking. The business model today thrives on the father-and-son team of John and James Timpson and their ‘upside down’ empowered management culture. The business no longer sells shoes - a decision was taken in the late 80’s to exit this business - throwing up the question what next. Now they offer customers valuable services such as watch repairs, key cutting and dry cleaning.

Third generation US family business Radio Flyer, makers of children’s bicycles and scooters,was faced with a business that was stagnating. To transform the situation Robert and Paul Pasin reconnected with grandfather Antonio’s values. By rediscovering his passion for innovation and pleasing the customer they saw the Chicago-based business recover its former glory. Getting the people culture right was challenging however, with many loyal employees leaving the business. But Radio Flyer has been rewarded and is once again revered by America’s children as a favourite toy. Like Timpson, the firm also wins accolades as a great company to work for.

The art of family business- a hand on the tiller

http://www.ifb.org.uk/ The family business sector has been noted for its steady performance and is arguably coming out of the recession with fewer scars than the corporate sector generally. Such seeds of resilience that exist were sown during good times when family firms grew more slowly than their non-family counterparts; this might have cost them ground by not grabbing every new slice of business, but their caution has helped strengthen the sector’s balance sheets.

In an example of this a recent Financial Times article showed how family businesses have gained an advantage in the world shipping industry and this time it’s the Greeks showing the Germans how it’s done.

When business boomed prior to the recent recession, Greek shipowning families set aside funds to build up cash reserves ready to weather any downturn that struck the industry. Their main rivals from Germany, who mainly rely on investing other people’s money, made risky bets borrowing excessively which put many firms on course to sink into insolvency. Greek family business shipowners have therefore strengthened their grip on this industry by the careful stewardship of their resources and by keeping a tight hand on the tiller.

As every business leader knows a cautious approach to finance is not a sufficient platform for success; new research argues that one of the keys to performance is the behaviour of owners. Experts are beginning to say that the correct governance approach in firms involves the active engagement of owners - this applies particularly to family firms.

Professor Ajay Bhalla, of the Cass Business School, puts down much of the success of the leading German family firm Merck KG, now in its 11th generation, to the family’s hands-on approach. Prof Bhalla also cites other firms (see video) who have gone off track when the family has retreated from active involvement in setting strategic goals and monitoring performance.

Ownership matters

http://www.ifb.org.uk/ It was good to see the report of the Ownership Commission chaired by Will Hutton, which was published yesterday, argue for plurality of ownership models in order to strengthen the economy.

But the Commission does not see any panaceas - no one model is perfect. The economy benefits from diverse ownership types co-existing together, each with its strengths and weaknesses. Within the mix, that includes Plcs, family business, private equity, co-operatives and employee-owned firms, the report highlights the important role that family firms play in promoting corporate plurality, seeing many of the positive attributes of responsible capitalism in family businesses.

The Commission also calls for better stewardship where owners exercise a duty of care in relation to the assets they control. This is a characteristic that the IFB has already highlighted as an important performance lever in the IFB Family Business Stewardship report (2011).

Allied to this the Ownership Commission calls for greater corporate engagement by shareholders as a cornerstone for building responsible ownership, and cites the behaviours of good owners as noted in the Perspectives on Responsible Ownership guide (2007). Active and engaged family business owners challenge the status quo helping to fight the risk of a culture that kills off innovation.

The report emphasises the preponderance of family firms among the UK’s Mid-Sized Businesses (MSB) and calls for the expansion of the MSB sector. The Government has already identified MSBs as an engine for growth to potentially rival the German Mittelstand.

Boosting the performance of the UK’s MSBs however calls for better tools, including a more diverse range of sources of finance and enhanced skills at all levels in the organisation. The Ownership Commission recommends that the Government develops policies that tackle these two issues, supporting the arguments that IFB Representation has long been making on the sector’s behalf.

The Tyranny of the Quarter

http://www.ifb.org.uk/ There are some interesting comments made by John Kay (pictured), one of the UK’s leading economists, in the interim report on the Government’s review of UK Equity Markets and Long-Term Decision-Making.

Nailing his colours to the mast Kay commented in the FT on “the tyranny of quarterly earnings” encouraging investors to treat such reporting with caution and drawing parallels with junk mail.

So what’s the relevance of this debate to family firms? Last year the IFB published its white paper Family Business Stewardship that explored some of the drivers for success in a family business. We found that the best family firms are not only focused on the long-term – usually armed with a clear sense of purpose – but they also vigorously manage the short-term.

Family firms are generally no different than their non-family peers when it comes to managing the business, however where the family business can gain an advantage is by avoiding being a slave to excessive management reporting. Businesses increasingly recognise that there is a cost to reporting- transparency is good- but a surfeit of data is often unproductive.

Owners and their boards can judge performance in the short, medium and long-term supported by the right amount of information - neither too much nor too little, and measure success over the timescale of any particular investment project. Family business owners may also ask ‘where will our business be in 20 years time’ with a reasonable certainty that they will be there two decades later to take responsibility for their forecasts.

Entrepreneurship – ‘If it isn’t broke, break it’

http://www.ifb.org.uk/ How do owners come to terms with selling a successful business? At a dinner co-hosted by Mike Southon, FT entrepreneurship correspondent and Beermat Entrepreneur co-author, the issue was debated by a group of enterprising business people. One of these explained how he was still struggling to come to terms with the void in his professional life following the successful sale of his business a few years ago.

When any family firm faces the same situation how does the family cope with the emotional stresses of deciding a sale, possibly after generations of ownership? Is the family prepared to sell the best business they will possibly ever own? When the family name is above the door the shadow of all who have toiled to build the business looms over their shoulders.

In any family business there can also be a magic glue present –shared values that bind the family owners together. All these factors can create a compelling set of reasons why deciding upon a sale may prove to be the hardest decision the family have ever faced.

Perhaps enterprising families however, should heed the motto of the dinner’s co-host Guy Rigby, an entrepreneurship mentor whose motto in his new book From Vision to Exit is, ‘If it isn’t broke, break it’. Successful family business owners heed this good advice constantly by challenging the status quo, whether they are considering exiting or not. Regularly they ask themselves - why is the family in business together?

Following Rigby’s advice, even if a sale is not on the cards, it is vital in today's hyper-competititve markets to ensure that there is a culture in your firm that embraces change. Finally when struggling to reach consensus on a big decision, such as selling the business, you will need experienced independent directors on your board to offer dispassionate advice.

Responsible capitalism: a contradiction in terms?

http://www.ifb.org.uk/ I was an invited guest at the Prime Minister David Cameron’s speech on the market economy where he invoked a wish to see the rise of popular capitalism with a social conscience. His speech followed close on the heels of Vince Cable, Ed Milliband and Nick Clegg, all of whom have been calling for a commitment to responsible capitalism.

Nailing his colours to the capitalist mast the PM acknowledged that the pursuit of enterprise and opportunity are what lies at the heart of a thriving economy, where the most capable are rewarded for success. At the same time he wants to promote an economy where more people have a stake in the success of their business- this could be by way of share ownership, or as being part of a mutual co-operative. Deputy PM Clegg has talked in a similar fashion wanting to support more of a John Lewis style economy with employees participating in ownership.

But are the market and a social conscience compatible bedfellows? The general media frenzy around pay echoes a popular view that big business has tarnished its reputation, driven by unjustified bonuses and pay differentials and excesses that lead to the financial crisis.

Maybe the key to success lies less in whether employees have shares in their employer, but more about how companies are driven by the right set of values, creating great workplaces.

It won’t surprise readers to hear that family businesses are often the winners in terms of employee engagement and commitment - because the best firms stand out for their clarity of purpose and values. Recent research showed that family businesses inspire greater worker loyalty, and feelings of greater job security and inclusivity than all other employers in the public or private sector.

Patient capital - the elephant in the room

http://www.ifb.org.uk/ I was part of a delegation of family business owners that met with Mark Prisk MP, the Business Minister, on Monday, together with other mid-sized business (MSB) leaders for a roundtable discussion on growing the MSB sector. In the recent Government report on MSB firms (turnover £25 - £500M) family businesses accounted for nearly half, (5,000 firms) making them critical to the success of the sector. The report also highlighted the strength of many of these companies as engines for growth, but also the challenges competing with countries such as Germany with its Mittelstand of mid-sized companies.

One of the lesser known values of MSBs is their belief in the benefits of “patient capital”. At the meeting John Cridland, Director-General of the CBI, which has published Future Champions - its own report on MSBs - described the issue of ‘patient capital’ as the elephant in the room. By mobilising this capital the CBI estimates that there is the potential for MSBs to contribute an additional £20bn to the economy by 2020 creating new ‘national champions’.

Critics could argue that a speed-dating culture has emerged in business where short-termism predominates - entrepreneurs start up ventures, grow them and exit at the earliest opportunity. Quoted Plcs have also been accused of taking short-term decisions driven by the stock market’s focus on quarterly results. Short-termism has become embedded in our DNA.

On the other hand the values associated with stewardship and long-termism have been less fashionable. Successful MSB family businesses often embody ‘patient capital’ values supported by stable ownership that prioritises long-term investment, progressive employee relations and a culture of continuous improvement within their businesses. The MSB Growth review is focusing Government’s attention on this vital part of the economy – and family buisnesses will be at the forefront of this drive for growth.

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.