‘Family matters: New research looks at the special attributes of family businesses’

When riots hit the UK in August 2011, everyone in the country was shocked to hear that a furniture business in Croydon, London, had been destroyed by fire. The shock was intensified by the knowledge that this was a business that had been built up and nurtured by the Reeves family over five generations. Ordinary people have an instinctive and emotional bond with family business because they value this kind of stewardship.

In “Family Business Stewardship”, a report published in June 2011, the Institute for Family Business (IFB) and Tomorrow’s Company describe the four principles of stewardship and draw on some examples from the UK and beyond to illustrate and analyse the ingredients of successful family business stewardship.

The report concludes with an agenda that family firms could use to assess their stewardship. Tomorrow’s Company defines stewardship as “the active and responsible management of entrustedresources now and in the longer term, so as to hand them in better condition”.
Family businesses inherit key assets or types of capital.

• First, family capital – an attachment to their businesses that goes beyond a mere financial relationship and actually consists of a personal identification between the owners and the business. As a result the business can have a clear identity and personality. As Alex Scott, chairman of Sand Aire, puts it: “This business is me. It is in my guts and it is in my demeanour and I live it and I breathe it and I sleep it.”
• The second is people capital – the strength of knowledge, skills, behaviours, energy, loyalty and commitment that exist within the non-family employees. The people who work in a family business often appear to feel a stronger identification with it, a sense of belonging that can be reinforced by relationships and outlast a single generation. As Jonathan Wild, chairman of Betty’s and Taylors, puts it: “Such is the strength of the culture that sometimes non-family behave more like family than family.”
• Thirdly, there is financial capital – prudence combined with a sense of financial responsibility towards future generations. This can be manifested in dividend restraint or ambitious investment time-scales. Another benefit is a greater freedom of the owners and boards to define success in their own terms. As Peter Gordon, chairman of William Grant & Sons puts it: “Being unquoted allows us to make utterly unique decisions.”

By their stewardship successful businesses also build social capital – the trust and reciprocity embedded in relationships through which is grown a deep and enduring link between the business and all those around it – a link that was so evident in the response from Croydon and beyond to the Reeves fire.

Like all businesses, successful family businesses are distinguished by their leadership, with a clear vision and values, good governance and succession planning. There are four principles of stewardship and from these, IFB and Tomorrow’s Company have developed an agenda to help owners consider the extent to which they act as stewards and identify areas for change.

Stewardship starts with clarity – about why we are here; where we are headed, what we stand for and what the shareholders expect of the directors. That’s why Tomorrow’s Company calls Principle One “Setting the course”. Many family businesses have a charter. Owners define what they expect from the family, the board and the management. We therefore ask family business leaders whether their people are clear on how they should behave.

Next comes the restlessness that marks out all the great athletes. Principle Two is about “Driving performance”. How do family business owners benchmark themselves against the best is a challenging question that steward family business leaders should ask themselves.

Principle Three is called “Sensing and shaping the landscape”. How do they scan and improve the environment around them to the mutual advantage of the business and its key relational stakeholders? Have they built in the rising importance of carbon costs into their model? 

The best businesses manage the present while investing in the future. They think about succession as well as performance management, capital as well as revenue, reputation as well as results. We call Principle Four “Planting for the future”. They put more money into training, infrastructure and marketing.

Family businesses are the first to admit they are not perfect. With families, when things go wrong, they can go painfully wrong. However, that pain can be avoided, allowing firms to make best of what the present generation of owners have inherited – with one eye on the next generation.

For more, visit www.ifb.org.uk and www.tomorrowsstewardship.com