Keeping it in the family

2003

Three-quarters of family businesses are run by boards almost entirely made up of family members and more than nine out of ten have a relative as chairman, according to a new report.

'Leadership in Family Business', conducted by the London Business School in association with the BDO Centre for Family Business and the Institute for Family Business (IFB), shows that family businesses are still operating under fairly insular structures.

The 150 families surveyed own an average of 93 per cent of the equity in their businesses and six out of ten do not have a non-executive director (NED) on their boards.

The insular cultures of many family firms is further highlighted by the finding that four out of ten of the companies had Boards wholly consisting of family members while a similar proportion had no more than two non-family board members.

Firms with fewer than 25 staff are most likely to keep things 'in the family', with six out of ten shunning non-family members on their boards.

Larger companies are more open to outside influence, with only three out of ten firms with between 51 and 150 staff keep board positions exclusively for family members.

And where firms do appoint an outsider to a senior management position, 'loyalty' is ranked as the quality most in demand, with educational background and knowledge of other industries the least important.

Professor Nigel Nicholson, author of the report, says that family businesses are a major force in every world economy, including the UK - accounting for around three quarters of all UK firms - and suggests that there is no sign that they are diminishing in number.

"Family firms are Britain's big success," he said. "All the firms in our sample had seen sales growth of between 40 and 50 per cent in the past five years, with increased efficiencies, too.

"'But family companies are often insular and impermeable. They hire outsiders, but involving them in the boardroom and giving them a stake is a different matter," he continued.

"Those that are able to master these have uniquely powerful advantages, underpinned by their cultures, which have strengthened to bear the burden."

One critical finding of the research is that while family business owners said that family and governance issues were their least demanding future leadership challenges, family conflict was cited as the main area of past debate amongst family businesses.

According to Professor Nicholson, this suggest that many family firms are failing to recognise and tackle their biggest challenges, choosing instead to focus on fundamentals from operations, to strategy and management.

And significantly, two-thirds of the firms that had some form of Family Constitution in place - a mere 12 per cent - said that they were effective in staving off family conflicts.

The real danger for family businesses, said Tony Bogod, chief executive, BDO Centre for Family Business, is that they get consumed by what makes them so special - their 'familiness'

"Today's family business is still potentially a very strong entity, with family ownership and culture giving them a distinct competitive advantage." He said.

"But family businesses risk their growth potential if they fail to recruit from outside, re-evaluate governance structures and face up to difficult issues - such as succession - before they become potential areas for family unrest."

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