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01 December 2014

UK family businesses suffer through lack of governance, according to research

90% of UK family businesses operate with no formal family governance structures in place, stunting their potential productivity and growth, according to research published by Charles Russell Speechlys and Family Business Place.

With 55% of family businesses saying succession is a barrier to future success and 62% who would consider selling up owing to difficulties handing on the business to children or relatives, they face some tricky challenges and need help to ensure their hard work and investment pays off.

While two thirds of family-owned businesses have a board of directors, only 25% have non-family board members and only 20% operate with non executive directors to provide independent insight and advice according to the research.

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 (55%) say succession is a barrier to future success, with almost two thirds (62%) admitting they would be prepared to sell up owing to difficulties handing on the business to children or relatives.

The two trends are linked, according to family business experts at Charles Russell Speechlys, with a lack of formal governance leading to struggles with succession, complacency within the business, family disputes, and even damage to growth.

Other findings include:

  • Family businesses report similar issues when it comes to planning for the future, with concerns centering on intergenerational conflict (24%), succession problems and/or younger family members not wanting to join the business (29%), dividend policies and remuneration of family members (10%) and sibling rivalry (7%). 27% of respondents cited ‘other’ issues, including long hours, recruitment, and disputes around the overall direction or purpose of the family business (ie growth and innovation vs using the business to support an comfortable lifestyle) as barriers to future success.
  • Widespread reluctance to broaden share ownership and responsibilities - family members own more than 75% of shares in nearly all family businesses surveyed (87%).
  • Family businesses are largely domestically oriented, with only 8% having offices or subsidiaries outside the UK.
  • 64% of family businesses are involved with philanthropy or charitable giving.
  • There is a widespread aversion to relying on banks and debt, with many businesses preferring to rely on self-funding expansion and investment, which may curb growth.
  • 90% of those surveyed have spent time working outside the family business, seen as critically important to develop a rounded perspective
  • Major success factors identified by family business owners include good communication between family members, and between family members and employees; sustaining some work life balance; and not being afraid to promote talented and loyal non-family members within the business.
  • Of the family businesses surveyed 19% were in the professional services sector, followed by 16% in retail and 14% in manufacturing. Other sectors represented included construction (10%), food and drink (8%), and health and beauty (5%).

A copy of the full report can be downloaded here.

Sally Ashford, Partner at Charles Russell Speechlys, commented:

"It’s no coincidence that family businesses are revealing both a lack of formal governance and concerns or problems with succession - the two often conspire to stunt business growth.

"As they develop and mature - often across several generations - it’s essential that family businesses put the right professional, management and governance structures in place to ensure they stay on the right track. Without them, complacency, stagnation, and even major family disputes can result.

"Family charters, manifestos, or councils can help get family members behind a shared vision or set of objectives, smooth negotiation and avoid arguments, and keep younger family members engaged by allowing them a voice in the future of the business.

"All companies, no matter their size or specialism, can benefit from scrutiny and challenge. A good non executive director can be incredibly valuable in this regard. They can stop a company getting complacent, as well as help to identify and head off potential problems or disputes before they start."

This is an updated version of the news article originally published in December 2014; information in this version of the article is correct as of July 2015.