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.

Strengthening the family business corporate brand

http://www.ifb.org.uk/ Sir Michael Bibby, chief executive of Bibby Line Group was the final breakfast speaker at the Next Generation Forum in 2010. His comments underlined the importance of the family business corporate brand as a magnet to help recruit and retain employees motivated to perform at their best. Sound values at Bibby including a focus on the long-term, quality operations, trust in people and support for communities, is part of what makes people “feel like they work for their own business” as Sir Michael puts it. By promoting a strong sense of goal alignment employees are selected both for their skills and whether they share the values of the business.

These insightful comments echo throughout the family business sector. Each family business works to reinforce the foundations of its corporate brand; underpinned by the origins of the family business, the reputation of the firm is carefully developed and shaped over time. Good stewardship leads to employees being more motivated, with retention increasing as they align withthe underlying sense of mission and values of their organisation.

Developing trust with consumers
Consumers are also savvy and want to know about the organisations behind the products and services they buy; convincing them for example that the business has sustainable and responsible sourcing policies can be a powerful differentiator in favour of the family business corporate brand. UK family business company brands such as C&J Clark, Wates and Bibby Line Group are examples of organisations where a strong corporate culture underpins successful business practices developing trust with their customer base.

In 2011 part of the IFB’s work will be to find out more about how these and other family firms have found a winning formula.