WHY FAMILY BUSINESSES MUST BE AS RUTHLESS AS THE ROYALS

JOHN McGURK

When I was asked to speak last night at a private business dinner about family businesses, my first reaction was “What do I know about that? to which the answer, of course, was not very much.

In fact, what kept on popping into my head was Ena Baxter and tins of soup but then I realised that I had spent most of my 40 years in newspapers working for… a family business.

My first local newspaper was owned and edited by a family but they were so dysfunctional that the business didn’t last into the second generation mainly because of their desperation for profit without journalistic quality.

In fairness, all these years later, and not much has changed as newspaper owners race to keep their shareholders happy as opposed to their readers.

Back in 1989, I found myself being interviewed by Robert Maxwell who then owned the Daily Mirror and Daily Record. In his deep booming voice I remember him saying: “You realise this is a family business which does things the British way… we look after our people unlike that Australian Murdoch.”

Within the year Maxwell had gone missing with the entire Mirror Group pension fund

But it turns out that the world is full of huge family businesses which are remarkably successful: Volkswagen, Fiat, BMW, Bosch, Heineken, L’Oreal, Samsung, Walmart — they’re all essentially family businesses which help make the world go round.

In the UK, there are three million family businesses generating more than a trillion pounds every year and which employ nine million people.

Yet that is small potatoes compared to Germany, France and Italy while in the USA, 57% of GDP comes from family businesses which employ two-thirds of the American workforce while one third of Fortune 500 companies are family controlled.

Why is it that family business can be so successful?

Well, compared to public companies which worry about shareholders, family companies are flexible and have a shorter chain of command which means decisions can be taken fast.

Family businesses, by their very nature, should be more interested in the long term rather than short term profits so there is more commitment and solidarity in the management structure.

Family businesses are generally leaner and are more interested in looking after their employees.

In short….family businesses are more caring, more passionate and more sustainable.

But even the most successful family business can be thrown into turmoil…because of the family.

Divorce and dealing with the in-laws; sibling rivalry when younger family members want to change direction; conflict over how to apportion money; incompetence when not everyone is as smart as the founding father and lack of interest — who wants to make widgets when you could head off to the south of France and blow the lot on heroin — are the major reasons why succession is the biggest problem facing family businesses.

In the UK, two thirds of family businesses say they are thinking of selling up because they can’t hand over the business but, surprisingly, 73% don’t ask for outside help.

They don’t have non executive directors or any form of independent counsel to help to deal with the emotional difficulties of what’s in the best interest of the business and what’s in the best interest of the family.

It does seem that family businesses should take some lessons from the best examples of family businesses across the world.

The third Bush is vying for the White House, as is the second Clinton, but surely one of the best examples of a successful family business is our own Royal family.

It’s a dynasty which has survived a great many crises particularly war, death, divorce and all round incompetence.

How has the House of Windsor survived for so long?

Well they’ve developed a pretty fool-proof system where those who are likely to inherit the throne are nurtured from birth; taught the ways of the family; instilled with a profound sense of duty; provided with a mentor and brought up to follow a role model.

In the world of the Royals, knowledge is shared and education is paramount although we have evidence which suggests that despite the best schooling, the outcome can be sporadic.

But the most important rule of them all is that breeding is the priority. History tells us that if the first one doesn’t work…make sure there’s another one waiting in the wings.

Naturally…this all requires a certain amount of ruthlessness, determination and forward planning.

But it is one formula for a successful family business to ensure that it will still be around for generations to come.

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