Keeping it in the family

Keeping it in the family

The issue: What key issues do family businesses face in the North East, and how can we support their growth and development to ensure our next generation continues to thrive and contribute to the growth of the North East economy?

UBS Debate AttendeesAidan Dunstan said UBS was not a corporate banker but comprises wealth managers working in regional offices, guided by what goes on in each region. Once a business has been sold, UBS advises how to invest their money. “We’re under-represented in this region by quoted companies,” he said. “I conclude this region relies more on private and family owned businesses. We may understand better after this where UBS might offer insights and advice. We’re all here to grow a business. I see two ways - take market share, not necessarily sustainable long term, and/or try to create new wealth, which is what UBS is all about.”

Toby Bridges: “I’m fourth generation in a family firm 105 years old. Under my watch we’ve three parts to the business: one packages for manufacturers, an office products business acquired last year and the core activity, a sticky tape business. I’ve another company in Scotland. I don’t understand the difference between a family business and a normal one. But we do have internal issues over how to keep or get rid of family members, and about the many staff who’ve worked for us for a long time. My other key passion is the amount we can give back to the community, and have done throughout. We’re only small, turning over £5m. But I see us as a key part of our community.”

Charlie Hoult: “I run a family business in property. I’m fourth generation. We’ve changed the business. Was it John Cleese who wrote How to Survive the Family Business? I see three circles in family circle textbooks: the family business, the ownership and the family, and it’s how those circles fit together. Our family have always been in flux and moving around over the business needs, family needs and what the business owners need.”


Nigel Mills: “I’m probably a third generation of entrepreneurs. My grandfather set up a newsagent’s. My father worked in it until it was sold, then I set up a new business with my father in 1986, called Mills. We built that up then sold to Tesco about two years ago. We also have a portfolio of properties and a hotel shared with investors in the Lake District called The Trout. We had  three hotels at one stage. We’re also helping to build and develop a whisky and gin distillery in the Lake District, aiming it to be a major tourist attraction, and a food and beverage operation. Our first product is a whisky called The One, which will call on Scotland, England, Wales and Ireland in its making. It’s being bottled on Teesside. We’ve had a common thread of retail through our business but have also proved adaptable. I’m also chairman of the Entrepreneurs’ Forum, which represents about 400 entrepreneurs in the North East. Family businesses, If they’re to be sustainable may have to be more efficient,  more adaptable.”

John Adamson: “I’m third generation. Our firm employs about 450 staff and turns overabout £20m. As a family business we’re hands on. My mother, sister, nieces and myself, all help. We’re expanding over 18 months. I’m the only person in the British Isles presently building an 18 hole golf course - Donald Trump was the last one. We hope it’ll be in play next year so we’ll have 36 holes. In January we start on a £10m development with 47 new bedrooms, a new restaurant and a 44,000sq ft health club and spa. Over 15 years national and international hotel chains have opened in Durham and Newcastle. The business plan at one proposed to attack our market. But we’ve increased turnover year on year, despite some difficult years. The last two years have been great. Family businesses can adapt and be flexible if run right. They can fight national and international competition. Our business will be 50 next year. I hope and expect we’ll be around another 50 years.”

Jodie Barwick-Bell: Until recently she led private clients’ tax practice at KPMG in Newcastle, advising entrepreneurial families. She also chairs the Chartered Institute of Taxation in the North East. She found the difference between a multinational and a family business enormous. “A decision can be made by the person sitting next door now instead of being made in London, and family environment is nice to work in. What used to come out for me is that often the patriarch’s the driving force of the business, so how will the next generation transition into running it? How does the patriarch pass over ownership? Will the next generation want
to take it forward?.”


Jonathon Stokes: A first generation business owner and entrepreneur, he had earlier merged his business into Gordon Brown. Nothing like that had previously happened in his family’s background. “One of my responsibilities now is to assist start-ups, small businesses and family businesses, positioning the structures needed. Bar difference in size, I’m not sure there’s a difference between family businesses and other businesses. Most larger businesses resolve internal management of their business early on, with shareholders’ agreement, lines of demarcation. Smaller family businesses don’t have that. Here’s where problems can arise - issues over thought and the process. All businesses can and will survive with a strong leader. Otherwise they’ll struggle because there’s no way to work through problems and find solutions. Could we make generations coming through more responsible within the businesses they’re taking on? My experience in 30 years as a solicitor is that a lot of generations inherit businesses without then adding value. I question whether they value the business as much as if they would having to buy it. In terms of exit strategies for older family members, making the younger ones buy into the business might be practical. It might be interesting to create a funding market around such businesses, enabling the next generation to buy in and ensure it goes forward.”


Would it make a difference if the younger generation are made to work in the business beforehand? Stokes felt they’ve much more mobility, more options now. “Neither of my children was interested in becoming lawyers, whether like me in the civil section or their mum who’s a criminal lawyer. So we hadn’t a family successor we could pass on to. There’ll usually be a commitment if the next in line has worked from the bottom up. I can think of one company where the successor to be went off skydiving and doing all sorts of other things, but his plan was always to come back and commit in his mid-20s, having had the opportunity to be away. Had he entered at 18 he’d have kicked himself later not having done things he wanted to do. If you’re going to keep your business a family business you’ll need a plan that has your following generations coming in and wanting to be there, not feeling they had to.”

Mark Squires: A founder member and chairman of the Institute for Family Business in the North East, and eldest of the third generation now running Benfield Motors
(in business 55 years) got more interested in what family business meant about 11 years ago when the institute was being founded.


It exists to give representation, support and education to family businesses. “We’re up to about 250 members, with about a dozen or so in this region and a lot affiliated. It’s more specific than the like of the CBI or the Chamber of Commerce, and you can join the Entrepreneurs’ Forum if you seem to be more an entrepreneur than a family business person. The biggest sector of commerce in this country are the family firms who get on with their daily business, perhaps unsung heroes of the economy. There seems more focus now on that with the CBI discussing how to focus on medium-size businesses. I guess a family business defines itself by being interested in continuity rather than exit, and wanting to continue from one generation to the next. My interest here lies in how you raise the profile of family businesses and better support them if they have things in mind.”

Stuart Smiles: Second generation in a waste and recycling business his parents set up, he works in partnership. He thinks family business comes down to sustainability and continuity.

“We look for a sale or an exit. We look to continue. We look to overcome whatever challenges arise. The family connection has a degree of care to people, facilities and set-up that’s generally lacking in a more corporate culture. I went away and came back. I went to university doing IT and computery stuff then worked away for 10 years or so. I came back about seven years ago because I had a phone call saying my father had cancer and was in hospital but doing well. It made me think about the conversation that might follow - ‘can you make it to his funeral?’ I didn’t want to be in that environment and not involved. But you must have some demarcation in business between who does what. My brother and I, although we talk about things in each other’s area, generally agree ‘this is something under your bit or my bit’. Without ability to cajole each other on what’s important and required you don’t have an easy relationship. Our ultimate commitment is getting it right. At the end of the day you must live with consequences of any wrong decision. In a corporate you just get sacked. Or moved. I’ve seen corporate environment and think the vision and methods there are different but applicable. We’ve 100 people. Knowing what they do all the time is impossible. Yet you must find a way of making things work when you’re not there. You must engage, have them understand where you’re coming from.”

Andrew Elliott: Always an employee, he’s had many insights into families and their finances, seeing for example who took succession and how difficult that can be, like when people see something they didn’t know was there and have it forced on them. He once worked for a mutual business in London which, on demutualising, brought in university lecturers.

“They got us together to get us better and more effective as managers. They asked us to state the things that mattered to us. Eight of those, we all held. We were then asked about tricky scenarios - ‘you have to get rid of one of those’. So we privately discarded one over time. Then things got more difficult. Finally, just two of us remained to declare the one thing we all held on to. Virtually bar none, it was family.”

Dan Robinson: Second generation, said his firm lost its way and he returned to develop it. It had an established foundation. He said: “It’s frightening listening to you all. It causes me to reflect. I resisted the family business with every ounce of my being for about 16 years. I loved the business and my dad greatly. But I felt I had to prove myself in my own right. I was an RAF fighter pilot for 10 years, against the background of Iraq. I then flew for the United States Air Force. Then I went to business school in the States and in Europe also, intending to come back to the family business. I finished my MBA, returned, and my dad and I had three months where we almost killed each other. I thought ‘this isn’t working very well. I’d better think of something else to do.’ I went out to the States again and worked there for a number of years, getting involved in a private equity fund along the way, leveraging cutting edge technologies. Sadly a year and a half ago I received a call in New York. My father had taken his own life. Andrew (Elliott) was a fabulous help amid all this.

What has been said about how businesses like his add value to a family firm is right. Family business has the power to drive change very quickly. I like to think of myself as a benevolent dictator. I can make something happen very quickly if I want it to. On organisational change, I was faced with difficulty. My life was in the States and I love New York. My business is in Hartlepool. I looked at the 150-strong workforce and, painfully, I had to come back. It was the right thing to do. I think of a family company as being a force for good in society. I believe there needs to be more intelligent thought around corporate social responsibility. The key is recognising the intersection between society and business and that it’s not a zero zone game. I’d like to explore a little more strategic thought around long term corporate social responsibility of a business, and how it fundamentally drives the value of a business on, essentially to do good. We’re there to create wealth but also to give back externally as well.”

UBS Meal

Mark Squires: “A family business without some kind of succession plan will eventually peter out. I transitioned from my father. If my grandfather was the entrepreneur my father was also very entrepreneurial. He grew the business from a corner shop, if you will. We spent considerable time transitioning. And there was a smooth handover.

He recognised he wouldn’t be around forever and that within the family there were other shareholders also. We got to this position for me where I had uncles working in the business who were also substantial shareholders, and who reported to a non-family member who then reported to me in the family structure. Through the IFB we also moved on from the patriarchal model in which information is very tight. We’ve been through a journey over the last 10 or 11 years, starting with a first ever gathering of family shareholders where the question arose of ‘what do you think of the family business and what’s your relationship with it if any, what do you want from it and where would you see it going?’ I was surprised to see how engaged were the family who had never even seen the balance sheet and didn’t realise they had a share certificate that might have meaning. Their ideas also started for us a journey. We’ve sought to educate them as shareholders, getting to understand the difference between a shareholder’s hat and an employee’s hat, and we’ve sought to engage them in the business in various ways. That’s been for the good, and enjoyable. We’ve laid ground rules that seem to work, like a dividend policy and rules around the wealth. I don’t believe family businesses have an exclusive right to giving to community. But from what I see they do play a big part.”

Toby Bridges: “I’m fourth generation when usually there are lots of family members. We’re not. We’ve bought out extraneous members. We’ve changed very well with each generation. To me now it’s about me given a responsibility of wealth management, and it has taken me into my 40s to realise and do something
about that.”

Jonathon Stokes: “The historical perspective of family businesses is that they’re not being driven as businesses, but as a means to an end of supporting a lifestyle. Nigel, on the other hand, points out he’s a third generation entrepreneur. Is every business person an entrepreneur? Are family businesses affected by not all being driven by someone entrepreneurial? Does it affect adversely? I don’t know whether that’s partly where family businesses miss out.”

Charlie Hoult: “I like the accident of genetics - that succession goes to someone you’ve given birth to, or might be related to, but who’s completely different. Many plc businesses seem to fail because the succession is chosen on a ‘people like me’ basis, whereas in our business my dad’s been stuck with me and it’s been quite fiery, but underneath we have done lots of soulsearching about what we have in common. Because we’re a family, despite being very different personalities, we share a lot of values. The soulsearching has been around what we give back to the community, what we want for our workforce, and what opportunities we can give by employing people. I think this more important than just giving cash handouts in charity.”

Dan Robinson: “When my father stepped out of the business he’d had enough. It became apparent the entrepreneurial spirit had essentially disappeared from the business. You could correlafe that to its performance. I ask myself daily: what if I suddenly can’t measure up? You must build a team around you that can fill the gap, at least temporarily. How do you get them to care as much as you do about a family business? You must align incentives, ensure collective efforts are rewarded sufficiently. They have to feel valued, feel an ownership of the business. One issue I’ve come up against is organisational change. Other people in the business just supported a lifestyle to get them through. They didn’t see change was needed. People like that aren’t just hindrances - they’re fundamentally evil agents working against the business, powerful and damaging forces. So you must select your team carefully, and carefully employ the values and principles you hold into the team, incentivise them accordingly, then allow them to pursue a career. I see then a much more motivated workforce.”

A family business can go in two directions. It might not be about sustaining the existing business and passing it on in its current form.

A family business can realise wealth by selling on but then reforming a new family business. The wealth being passed on may manifest itself in one business or it may be a smaller business derived from cashing in the earlier family business. The family business is creating and managing wealth, and the management of that wealth can be passed from generation to generation.

Various views then followed...You have a duty to protect the wealth but also to benefit the community that helped generate it.

Your stakeholders may be not only the family but also the community in which you work.
What is the meaning of a family business in terms of what it gives society?
What you have in a family business is a provider to the family shareholder and the employees. So the business was worth something - that’s the wealth. It’s how you define your stakeholders, and for you your main stockholders were your employees.

A family business is simply a business with a family at the heart of it. The heart is ringed with a community aspect.

The word ‘responsibility’ is the issue. Running the business is basically the management of responsibility or responsible management of stuff and responsibility for its people and the environment, and everyone a stakeholder.

It’s a job you can’t get out of, and you hope you can give it on to another family member in the not too distant future. Meanwhile you’ll be there doing things when sometimes you’d rather be somewhere else, but you’re there because you have to be.
A team built up around the head of a family business 20 years may not be fit for purpose under a succession.

Nigel Mills: “A family business need never be a burden. When I sold Mills group with 2,000 employees they all went to a plc and a pay rise, and with a major plc they have futures. The huge responsibility you have to staff was an issue for me when I considered selling. You also have responsibility to yourself and your family. If a business is killing you, sucking the lifeblood out of you, and you feel you have done all you can with it, look after everyone in it and do other things.”

Steve Plaskitt advises SMEs including family businesses and comes from a family business where he was a third generation member, “a farm I didn’t go into. So there was an exception to the tradition that a farm be passed on from father to son. I moved into professional services. First big mistake, yes! There is that sense that my father, though
he’d never say it, thought it a great move for me. Now I’m starting to regret that family business is no longer with me. I would define a family business as something you can pass on to your son or daughter, something you can mention from the time they’re five years old. The most common issue I see in family businesses is how to value equity coming in. Also you have shareholders or stakeholders who are family and when you want to bring in someone external, people find it hard to get to grips with.”

Asked to define the burning issue for family business, participants suggested:

• Working in a vacuum.
• Succession planning and treating all affected fairly.
• Why me to run it?
• Guardianship and social responsibility to employees and family members.
• Shareholder communication.
• Maintaining sustainability.
• Sustaining the passion.
• Governance.
• Next generation development.
• Responsibility to make it work for everybody.
• Sustaining the enjoyment.
• Signpost loud and clear when you plan to get out and seek help.

A view was shared that, unlike further education overseas, business studies in England do not widely include family business in the curriculum. Lancaster University is an exception, and John Wilson who has just taken over Newcastle University Business School and is keen on family business is engaged in it both in research and in seeking ways to support it.

Mark Squires encountered five big German family firms, all of which had different models from one of a family member always running the enterprise to another saying they would no longer have a family member running the enterprise. This drew a general conclusion that family businesses, though a category, may need different approaches in their administration, succession and eventual disposal.