By Peter Leach and Alexandra Sharpe, Partners at Peter Leach LLP
Peter Leach
In the current challenging economic climate, times are tough for the majority of Businesses out there. The outlook appears gloomy. However, taking a look at the family business sector, which creates an estimated 70% to 90% of global GDP annually, you might find a different story. A recent study by Campden FB revealed some insights into the top 50 fastest growing family businesses around the world and indicates the sector is booming. In the UK for example, Wilmott Dixon, the construction group, saw its revenues grow from €0.68bn in 2008 to €1.1bn in 2010. In France, Hermes’ revenues grew from €1.8bn in 2008 to €2.4bn in 2010. To us, this isn’t surprising. Working with family businesses every day has taught us that they are special.
This special quality emerges from the fact that a family firm is the realisation of the integration of two very different systems with two very different aims, the Family system and the Business system. A Family system tends to be orientated around emotions whereas a Business system tends to focus on profit and efficiency. When viewed in this way, family businesses seem a bit of a paradox and indeed it is our belief that many of the problems family businesses face are down to an inability to manage the conflicting demands of the seemingly oxymoronic family and business systems. However, when managed effectively, family firms can far outperform their non family owned counterparts; think IKEA, think Wal-Mart, think Clarks Shoes. Here, we set out some of the qualities of family businesses that can make them very special indeed:
A Long Term View
Family Businesses tend to have a longer term view than other business models. This is because families often have a horizon for success which is a generation or more. The objective is to create value for the family as opposed to short term income or profits for executives or shareholders. This perspective means that family firms often have patient capital behind them, enabling them to invest in projects which are more strategic in nature.
Quality Time
Successful business owning families tend to spend time together. Family firms which are successful, whatever the size of the family and business, tend to have a family behind it which is aligned behind a common vision and set of values. This is easier to achieve when the family consists of a single nuclear unit as its members tend to be from the same household. However, as the business and family extend, priorities shift and active steps are needed to ensure that the family’s values are preserved and there is clarity between family members on their objectives for the business. Devoting quality time to creating and maintaining this common understanding pays huge dividends as it results in a business with a clear direction, backed by a committed group of shareholders.
Good Governance
Those family businesses that we see that are really special, understand the importance of good family governance and not only that, they work at it. They work together to agree and write down policies and procedures that formalise the relationship between the business and the family. These policies on issues like family meetings, family employment and decision making are often codified in a written charter or constitution. Creating a family charter and agreeing policies that will effectively moderate the relationship between the family and the business can take a considerable amount of time and energy; the upside however is greater trust between family members and between the family and the business, a lower risk of disputes derailing progress and real clarity around who should be doing what and when!
Self Awareness
Family Businesses who are successful are also self aware. They understand their strengths and weaknesses and are open to new ideas. This is something that we see less successful family businesses struggle with – they can be too introverted and sometimes too focused on the past. The really successful ones on the other hand realise that there is a delicate balance to be struck between what brought them success to date and what is likely to bring them continued success in the future. Successful family businesses recognise what they don’t know and they go out to plug in the gaps – this involves understanding when non family members are better suited than family members to take on specific roles and ensuring the next generation of owners are well equipped to be informed and responsible shareholders.
All Family Businesses are special in different ways. If you are interested in learning more, you can click here to access some of our publications on the subject.
Peter is speaking at a Unique Family Business Event on 18th April – for more details and to apply to attend, please contact Elizabeth Stuart-Bennett, tel 07703 581249, email Elizabeth.s-b@chiefexecutive.com
About the Authors:
Peter Leach
Peter Leach is the Founder and Chairman of Peter Leach LLP, a boutique advisory firm set up to support and advise entrepreneurial families. With over 30 years of experience as a business advisor, teacher and facilitator working with family business owners internationally, he is seen as the “founding father” of family business thinking in the UK.
Peter is author of Family Businesses: The Essentials, published by Profile Books and has written a number of other books on the subject, some of which have been published in several languages.
More about Peter here.
Alexandra Sharpe
Alexandra Sharpe is a partner at Peter Leach LLP, a boutique advisory firm that supports and advises entrepreneurial families. Alex joined Peter Leach LLP at its inception in 2008 as a consultant and advisor, specialising in working with business families to strengthen their governance and communication.
More about Alexandra here.