Keeping it in the family
The UK’s family businesses are a crucial part of the nation’s economic backbone. They employ nearly 12 million people, contribute £125 billion in taxes and generate a quarter of the country’s gross domestic product. Yet for many, long-term survival boils down to a problem that has little to do with business acumen: how to ensure close relatives get on with each other.
Justine Peck, Investment Director, Rathbones
Some of the world’s most successful brands are family businesses. Even Walmart, the biggest company on Earth by revenue, has been passed from generation to generation through the decades. It is by no means inevitable that organisations with supranational profiles and multi-billion-pound market values should forget their roots.
In the UK the number of family businesses is thought to be around 4.6 million. Although most are a long way removed from the likes of LEGO, another global empire still overseen by the dynasty that founded it, together they constitute some of the economy’s most important building blocks.
Yet success is no guaranteed antidote to the tensions that tend to characterise so much of family life. Nor, for that matter, is wealth. In many instances the emotional complexity of blood ties is more likely to provide an additional layer of stress and conflict in a business setting — one that can sometimes make or break a company at a stroke.
Several themes are writ large in the unhappy history of the firms and relationships that have fallen prey. They include confusion over the difference between ownership and management, disagreement over succession planning and good old-fashioned fall-outs. These are hurdles many family businesses will almost inevitably have to overcome if they are to continue to form a part of their country’s economic backbone.
Dani Saveker is painfully familiar with the problems that can ultimately destroy family businesses. Her personal experience of them culminated in the closure of a century-old firm bearing her family name and led her to establish a support group in the hope of sparing others the same agonies.
Now, as the founder and CEO of Families in Business, she hosts events around the UK, encouraging people facing similar challenges to share their stories and learn from each other. One such event, held at a country house restaurant, produces a typical array of stories.
At first the conversation is light-hearted, peppered with reminiscences of being roped into helping parents out at weekends or doing summer jobs. “I was doing the payroll at 11!” says one business owner. Soon, though, the tone becomes more sombre.
“My dad and uncle launched the business,” recalls one guest. “When I joined they were determined to show the rest of the employees there was no favouritism, so I was always underpaid and had to work harder than anyone to climb the ranks.
“They said I would benefit in the end when I inherited the business, but when it came for them to retire they decided to sell up. I had to buy them out at the market rate. I nearly killed myself trying to pay down this huge debt. I made myself ill. But I managed it, and we’re growing and much stronger than we were.”
Such a tale offers a classic illustration of what can happen when family members fail to address the ownership/management conundrum. In this case, although the business endured, relationships suffered.
“A few months ago I was having dinner with my mum,” continues the guest. “She said they had just helped my sister to buy her house with a big contribution towards the deposit. Mum said: ‘Well, it’s only fair — we helped you by selling you the business cheap.’ I nearly exploded with fury. I can still barely talk to my family.”
Such a scenario is especially common in larger family businesses that span generations, says Dani. She cites the example of firms where one sibling works while others are merely stakeholders or where one runs the business while others just potter around. Clichéd characters like the ‘playboy brother’ and ‘sponging sister’ emerge. “It can be seriously divisive,” she says.
Often these circumstances arise out of a parent trying to be fair by distributing shares equally upon retirement or death. Another guest tells how she worked alongside her father for years, only to learn after he passed away that he had left the company not just to her but to her sister and mother — neither of whom had ever contributed to it in any way.
“My sister said: ‘I’m going to sell my shares.’ Mum said: ‘Oh, that’s a good idea!’ I said: ‘What?! I’ve lost my dad and now you’re going to make me lose my job as well?’” An independent valuer established a fair price for a buy-out, but external economic pressures soon sent the business’s value plummeting. “Not once did they offer to help. The business survived, but I’m not sure my relationship with my family has.”
“In normal business life you get rid of the rotten apples and try to move on,” says another guest. “But if it’s a brother you’ve fired, your parents still expect you to come for Christmas dinner and give each other presents.”
The Department for Business, Innovation and Skills classifies all single-owner firms as family businesses. Although around 3.1 million of these are sole traders, the Institute for Family Business (IFB) points out that more than one in 10 large companies in the UK belong to families, as do around half of all medium-sized companies.
Warburtons, Clarks, Specsavers, Dyson and Wilko (formerly Wilkinson) are among the most recognisable names. The list also includes Associated British Foods (which owns brands such as Twinings, Patak’s and Ryvita, as well as retailer Primark), the Swire Group (owner of Cathay Pacific) and, in construction and engineering, Laing O’Rourke, JCB and Sir Robert McAlpine.
According to the IFB, a not-for-profit membership organisation that supports the sector, one in 10 family-run small or medium-sized enterprises is likely to be sold or gifted to new owners in the next five years. Many of them are likely to have inadequate plans in place.
“Different generations can have different ideas around the growth plan and management strategy,” says the IFB’s Fiona Graham. “The timing of the succession can create upset, and there can be issues over how current owners and potential transferees perceive the role of non-family members.
“Some may question the skills and interests of those primed to take over, and then there can be straightforward personality clashes. The problems aren’t insurmountable, but they do need to be prepared for.”
“Most family business owners try to do the right thing, but emotions and ties mean they can struggle to have a frank dialogue,” adds Dani. “That means they can sometimes miss what should be glaringly obvious opportunities and solutions.”
The lessons are easy enough to explain but frequently difficult to learn. Maybe Walmart founder Sam Walton, who launched what would become the world’s largest retailer from a single discount store in one of America’s most rugged regions, summed it up best: “We’re all working together,” he said. “That’s the secret.”
Adidas and Puma grew out of a German shoe company launched by two brothers, Adolf and Rudolf Dassler, in the 1920s. Their reputation was established when they persuaded US sprinter Jesse Owens to wear their spiked running shoes in the 1936 Olympics. But a series of family arguments during the stressful years of the Second World War led them to go their separate ways. Adolf launched Adidas (from Adi — a nickname for Adolf — and the first three letters of his surname). Rudolf launched Puma. Both operated in the same town of Herzogenaurach. The two brothers were never reconciled, and their companies remain fierce rivals.
The heavy weight of family heritage
Dani Saveker's story
Savekers was a manufacturing business that produced architectural metalwork and shop fittings. It was founded by my great-grandfather Thomas Saveker in 1903. I joined in 1994.
In 2001 my older cousin Martin Saveker and his parents announced plans to sell their shares. We all realised things needed to change and I knew I wanted to take over and lead that change. Many of the family members had an inflated perception of the company’s value, which meant we couldn’t sell externally and meet their expectations. It was down to me.
I had to restructure the board — Martin resigned as managing director and I reached the difficult decision to make my uncle Mike and his son redundant. It was truly upsetting from a personal stance but absolutely necessary. We bought Mike’s shares — the cost was excessive but we had no choice.
We powered on, making a couple of acquisitions, rebranding the company and investing in new laser equipment. The restructured Savekers was all set to achieve its potential when the 2008 downturn hit — it was like someone had unplugged the phones, it was so dead.
The average age of the workforce was 55 and the average length of service was 12 years — we simply couldn’t afford to make the redundancies necessary to survive.
In February 2009, I realised it was over. I had to fight back the tears as I broke the news to staff and introduced the insolvency practitioner who went through the list of who was to go and who was staying to fulfil existing orders. People were mouthing “Are you OK?” to me. It was all too much. I could feel it all welling up inside.
The heritage was the downfall in so many ways. Everything has a life and companies are no exception. Savekers had been
ill for years. I made mistakes but I think the difficult decisions I made were the right ones.
The ghosts of your predecessors can haunt you in family businesses! My cousin Derek — who’d been in senior management there — said later he was amazed I’d kept it going for as long as I did. He said he’d expected it to die 10 years earlier. Some of the responsibility and guilt drifted away at that point. It felt like having permission to move on.
This article first appeared in Rathbones Review Winter 2016.