The wheel of family fortune

Family-run firms account for nearly three-quarters of all companies, but very few of them evolve into legendary business dynasties such as Cadbury's or Sainsbury. Business Europe explores the pros and cons of filling the boardroom with members of the same family.

Family businesses still account for around 75% of all companies, but in an increasingly hostile and competitive market, do business acumen and experience outweigh family ties? According to recent research conducted for the Family Business Network (FBN), almost half of all family business owners believe that in the future their firms will be run by an outsider. With the younger generation increasingly choosing to pursue other careers, the days when family values were enough to build up powerhouses such as Cadbury's, Littlewoods and Harrods may be over.

And even if they are interested, succession is a complicated and sensitive issue. Ian Young, Chairman of the Stoy Family Business Centre in the south coast region, explains: Family business is a niche area of consultancy that is about to explode. Owner-managers want to hand the business down but need considerable help with succession. We provide the competences and support to give it a chance of succeeding.

With the average comapny succession taking up to five years to complete, Young says it is never too soon for family business owners to start planning the handover to their children. Other issues often arise as soon as the chosen successor takes over, he adds.

In a lot of cases owners can be quite tyrannical - so what management style should the successor take? If they are more relaxed they run the risk of being criticised when they get home. In many cases employees get used to the way that a business is run. Once old ways are established any change can be threatening.

Consultancies such as Stoy offer services to help families go through what is often a tense period. It also aims to help resolve personal issues between employees, and draw up company constitutions so that the parameters between personal and professional lives are clearer.

We will talk to family members on an individual basis, then broker agreements. A constitution will lie out the guidelines for resolving disputes as well as underlining methods for promotions and appointing people outside of the family. This way problems are diffused before they arise, says Young.

In today's climate, family businesses increasingly employ outside managers. Research undertaken by the Manchester Business School on behalf of the FBN found that four out of ten participating businesses had non-executive directors recruited from outside the founding family. Also, half the businesses surveyed said they require all family members working for the business to obtain appropriate qualifications in order to avoid outright nepotism.

Colin Barrow, a business author and head of the Enterprise Group at Cranfield University School of Management, says: Running a family business can have its limitations. Generally to build the most successful business you need the best people for the job. This is when outside managers are brought in to family businesses.

The key to success is openness, he continues. If there are no other opportunities within the business, and promotion is out of the question unless they are prepared to marry a daughter, this should be made clear.

Traditionally, fast-growing businesses benefit more from the family unit. Family business owners know that their relatives will be loyal to the family cause as they can only benefit from its success. It can also help cut down on the ever-growing regulatory burden faced by small businesses.

Colin Barrows explains: Family members are excluded from all the new employment legislation. If they realise that they are working for the greater good of the business they will not mind working for less than the minimum wage or longer than normal working week.

Family businesses often also have an advantage in terms of strategy and continuity of vision. Non-family businesses today are mostly driven by the quarterly return, and tend not to think about a longer cycle. However, a five year strategic plan can be key to success.

The general message is that there is no reason why a family business cannot succeed and prosper as long as personal issues between its leaders are addressed.

On the other hand, perhaps a degree of creative conflict in the boardroom is the ultimate catalyst for success. Guccio Gucci opened his first boutique in 1921 in Florence, and the business is now worth an estimated £830 million despite continuous litigation between Guccio's descendants, culminating in 1993 in an assassination attempt.