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UK family businesses - doing it for the kids?

30 September 2015

We’ve been advising family owned businesses on legal issues for many years and interestingly, regardless of location, sector or size of the business, the major issues which impact them tend to be the same. These largely relate to succession, management and control, as well as disagreements relating to the direction or continuation of the business.

Typically, when a family business is set up, the usual policies which non-family owned businesses put in place (such as terms for terminating contracts, shareholder agreements and how disagreements will be dealt with) aren’t really thought about.

Family members trust each other implicitly and focus on growing the business instead of corporate structures. This is all well and good until a dispute arises, often several years down the line, at which point things can get extremely acrimonious.

It’s far easier to iron out these issues and establish policies at a time when everyone is in agreement, however it’s never too late to review policies or put them in place retrospectively, pre-empting issues should they arise.

At the same time it is helpful to consider areas specific to family businesses, such as "At what point can the next generation be involved in decision making?", "How will decisions be made when the patriarch/matriarch is no longer involved with the business?" or "Can family members who are not employees or on the board have a say about the direction of the organisation?"

It’s worth taking the time to discuss and agree the overall vision for the company. Unlike non-family owned businesses, family members often make assumptions that they all share the same vision for the business and find out too late that this is not necessarily the case.

Differences of opinion

Despite an aversion to giving non-family members senior leadership or strategy-setting roles, and a strong desire to keep business ownership within the family, more than half of the respondents in our research (55%) claimed that succession is a barrier to future success with the main issues impacting succession including intergenerational conflict, younger family members not wanting to join the business, and sibling rivalry.

I often meet family members who disagree about the overall direction or purpose of the family business – some wanting to invest and focus on growth and innovation whilst other family members are happy to use the current business model to support a comfortable lifestyle.

The frustrations range from older generations wanting to involve their offspring who aren’t interested, to second or third generations who feel they could really open up new channels for the business but are stifled by resistance to change.

These barriers can all be addressed – often with external guidance and so I was surprised that in our research last year almost two thirds (62 %) of family business owners would be prepared to sell up owing to "difficulties handing on the business to children or relatives", when maybe finding alternative options for the next generation to enter the business would have retained that wealth for the family and possibly given it quite a boost if incoming generations are allowed to explore new revenue streams or business ideas within the existing corporate structure.

Win Wins are always available

We would urge family businesses to set up or review their family charter or constitutions and consider external guidance to help the business to thrive. Getting family members behind a shared vision or set of objectives is key, as is keeping younger family members engaged by allowing them a voice in the future of the business.

In today’s economy, where a job for life has all but vanished, younger generations entering the business will expect to have more variety and say in the development of their careers.

Working in the family business can offer all that and more, but career progression needs to be structured carefully and ambitions must be listened to. Whilst the next generation need to be excited about their potential career path in the family firm, the outgoing leader also needs to plan their own exit in a meaningful way.

For someone who has spent the last 20, 30, or 40 years at the helm of their business, stepping back from it all, handing over the reins and embracing a new role in life can be a daunting prospect.

It’s crucial that their contribution to the business, their hard work and achievements, are recognised and appreciated by the future leadership. They, too, will benefit from training and mentorship to successfully transition into an ambassador for the business and a fountain of knowledge for the next generation.

There are always options for family businesses to explore to protect and grow their investment and wealth but sometimes it takes a different perspective to help them get the best outcome for everyone.

This article was written by Sally Ashford. For more information please contact Sally on +44 (0)1483 252508 or sally.ashford@crsblaw.com