Ensuring clans can succeed

Ensuring clans can succeed

The issue: What are the key issues faced by family businesses in Scotland and how can we support their growth and development to ensure our next generation continue to thrive and contribute to the growth of the Scottish economy

Family businesses are omnipresent in Scotland. They are everywhere and in all forms. From the tiniest corner shop to the largest conglomerate. Yet to policy-makers and our politicians, they are largely invisible. Why should this be – and what can be done about it? This was the essence of a lively and fluid discussion at the BQ live debate in Edinburgh, supported by UBS wealth management.

George Stevenson, chairman of the Scottish Family Business Association, set up in 2006, used the debate to call for the appointment of a Scottish minister for family business.
“We have someone running agriculture because it is important – well family businesses in Scotland are important too. Let’s have a minister in the cabinet and we can provide the tools and knowledge to make a difference.”

The BQ live panel included a mix of first, second and third generation family business people who all enjoyed supper and discussion in the Burke and Hare room of the Hotel Du Vin in Edinburgh. In the chair Caroline Theobald introduced the topic and throughout the evening politely prodded and pressed to ensure everyone had their say.

At first there was a definite divide between those who felt more needed to be done to help family businesses with their unique issues of succession planning, while at least three of the gathering felt that family businesses were no different from any other kind of company. That became an interesting sub-topic for the evening, although all were in agreement by the end that more must be done.

Scott Young spoke briefly about UBS’s wealth management and advisory role in Scotland working with successful family businesses, and thanked everyone for attending, then after the introductions it was down to … family business.

Martin Stepek, the chief executive of the Scottish Family Business Association, set out some the context for discussion. “73% of all the businesses in Scotland are a family business. That’s one of the very few statistics that the Government has about family businesses. Most of them are small and that is true because the majority of all businesses are small, but 41 of the top 100 businesses in Scotland are family owned.

When you think of names like William Grant & Son, Tunnocks, Arnold Clark, Baxters Soup and Walker’s shortbread, DC Thomson, you start to get an idea of their significance.”
He said that family businesses in Scotland all face the same kind of issues but it is the number of zeros at the end that are at stake in terms of value. He pointed out that Scotland’s family businesses – that is around 85,000 families - create a staggering 45% of our national GDP in Scotland.

More amazingly, they employ about 50% of the private sector workforce, which is just short of a million Scots. Family business is not purely dominant in Scotland. 25 of the top 100 businesses in Europe are family-owned when you consider the names of Ikea, Siemens, BMW, Fiat, Roche and others. It’s the same in the United States with Mars, Ford and Hilton.

George Stevenson, who was managing director of a substantial family bakery business for 30 years, said: “After 20 years, in the midst of a long drawn out succession, I realised we had none of the skills or knowledge needed to negotiate it successfully. I think that’s common. By the time I had acquired the knowledge and skills it was too late. So I set up the Scottish Family Business Association to help other families do better. I’m still chairman and recruited Martin as chief executive.”

He said the task is to educate, educate and educate, so that within the next generation Scotland will have family businesses and advisers that do understand and are trained to deal with problems in families that have an impact on the business.

Martin Stepek: “The paradox of family businesses is that they are so omnipresent  they are invisible. People don’t think of them as a separate sector or type of business. That is a problem because the economy has been measured by sector or size and family businesses are in every sector and size. That’s a real tragedy because not only are they unique bodies but they have unique issues and a horrific fall-out rate despite the fact that the evidence shows they are very successful forms of business.”

Caroline Theobald: “Looking at some of the policy stuff, what would you like the Scottish Government to do to help this important, yet neglected, part of the economy? What message do you think this group wants to send out to Government?”
It was suggested that if the Government truly understood family businesses and understood how important they were to the economy, they might have an inkling about trying to help and support. It was then suggested that a minister for small business should be appointed.

George Stevenson: “Both the UK and Scottish Governments are fixated with start-ups. They are pouring huge amounts of money into start-up because it is a good thing – because it is easy to measure but we all know that start-ups are highly dodgy things. The survival rate is very poor. Yet we know that the transition from first generation to second generation is critical but no money is being put into this area. It would be much better to provide support to sustain businesses and avoid collapses.

Martin Stepek: “The Government has no mental computation that this 73% signifies quite an important dimension and one that they should be dealing with. We have ignorance built on ignorance. This is why the Scottish Family Business Association came into being. It was George’s idea and we exist as a non-profit organisation to bring best practice and understanding to family businesses in Scotland.”

All around the table it was agreed there had not been enough information given to them about running a family business – and taking over from the founders.

Martin Stepek: “There are all sorts of complications that spill out. Even the issue of who do the owners pass their shares onto when they die? Just the ones who are working in the business? It’s one thing to know the unique issues about being in a family business, it’s another to learn how to deal with them. If we don’t learn to deal with them, the statistics are horrific. Only 30% of family businesses make it to the next generation, despite the fact that they all seem to be good, functioning businesses before the fall-out. It’s the perfect storm made worse by a lack of knowledge.”

Debate Autumn

Iain Mercer said more must be done by the Scottish Government to support family businesses because they are an important engine of the economy.

Paul Grant: “Scottish Enterprise is in a good place at the moment and is extremely well run. There is a sub-division called SMAS, Scottish Manufacturing Advisory Service, with consultants that go in and advise about leaner manufacturing and processes. It’s been very successful. Maybe we should be looking at encouraging Scottish Enterprise to do a similar thing for family businesses? Instead of looking at marketing and all the other functions, they might have family business sessions and building up the business with some specialist consultants who are involved.”

Norman Springford, of Apex Hotels, which owns four hotels in Scotland and four in London, employing 800 employees, is first generation, started in 1996, and now into the second generation, posed an interesting point that was debated. “Why go to the next generation? There is no inherent requirement of the next generation to be either as good or as committed as the first generation. Perhaps the reason only 30% go on is not because there is no appetite, it’s because people are not good enough. Just because it is a family business, it doesn’t have to have the family running the thing.”

George Stevenson: “Selling is clearly an option, if it is done in a planned way. Absolutely, the best decision might be to sell. We would always advocate that you look at that. There is a misconception that advisers are hell-bent on making sure that the business is transferred to the next generation. If it is looked at objectively and in a structured way then the solution might be to sell.”

Norman Springford: “Another option the family might choose rather than selling is for it to continue and be professionally managed with a non-family management team at
the helm.”

George Stevenson: “Yes. There are all sorts of options. There could be a management buy-out, and all sorts of ways to ensure that you don’t lose the value by blundering on until the whole things collapses. But it is about getting organised and doing it in a structured way.”

Paul Grant: “My son is now the managing director of Mackays and I’m the chairman. One of the key issues for us as a first-generation family business is how you maintain control and ownership in the new financial world we live in, and achieve the growth that we need.”

Ronnie Muir: “You have to know your business. You don’t want to pass the responsibility onto any other consultants for that matter. When it comes to succession planning it’s about the founder looking at the kids and asking if they are able and can they do the job. If they are not, do they have the ability to build a core around them who can do the job? Can they delegate and use managers to support? We use a host of different skills sets, you have to have the basic understanding to run the firm. We’ve seen instances where so-called business gurus have come in and had the business bankrupt within a couple of years. They’ve come in, borrowed a load of money, invested it and got hit with a recession. Family firms, by nature, are more risk averse.”

Norman Springford: “There seems to be an impression that we must try to grow family businesses. My view is that it isn’t about growth but risk aversion. The first generation tends to take high risks, it’s only when you get to the second generation and the pot gets bigger, do you risk that pot.

“Drilling down, there is a raft of emotional dynamics involved with family business. Normal business only involves shareholders and management, whereas with family business you have wives, husband, partners, children and grandparents all on the sidelines influencing what goes on in the business.”

Martin Stepek explained his family business was a top 500 Scottish business with seven brothers and two sisters. “We fell apart because of family issues and although we had the chance to buy some of the business back out of administration, we decided not to. We would rather heal the family, than heal the business and lose the family, which was the right decision for us from our point of view.”

Iain Mercer explained he took over his property development company after the death of his father, Wallace Mercer, in 2006.

“I was 28 at the time. Looking back on it now, we had zero succession planning in place. What happened overnight was a big change for me. We then went headlong into one of the deepest property recessions. I feel I’ve been on a steep learning curve and one of my biggest challenges has been one of funding – not something that is unique to family businesses, of course. I also think it is really important to have the support network in place for succession planning.”

In 2006 Jane Wylie-Roberts undertook a management buy-out of her family business which was set up by her father nearly 40 years earlier. Stafffinders is now one of Scotland’s leading recruitment firms and Jane worked with Family Business Solutions to ensure that all family members were happy with the situation.

“Having the knowledge was hugely important because I was trying to keep the business safe and preserve it for future generations. What I’d like to see happening more often is that the next generation coming through can be mentored by other family businesses as well, providing unpaid work experience so that family members can get a flavour of what  family business is like – and why it is different.”

Craig Stevenson: “Until tonight I didn’t realise I was working in a family business. I’ve worked all my life in family business and I was determined not to fall into some previous traps I’ve seen. My daughter does work for the business: at work I’m Craig and at home I’m Dad and none of the two should meet. She does a good job – the same as everyone else. Family business: we are there to survive and people are there to do the job, not because they are relations.”

Ronnie Muir of the construction group which includes Muir Construction and Muir Homes and was set up by his father, highlighted several key issues such as succession planning, exit routes, family issues such as the founder not wanting to give up control, and whether the younger generation have the acumen to take the business forward.

“The key issues facing family businesses in Scotland – or anywhere else – are the same that face other businesses. So what’s different about family businesses?”
He said that pre-tender questionnaires from the public sector are slanted in favour of the multi-national companies, which is much tougher on private businesses, many of whom are family owned. On scoring processes, it means family-run businesses are not given the opportunity to tender for work.

Lewis Dawson is a 22-year-old director of Bookspeed and has been involved with the business for five years. Bookspeed, set up 26 years ago by Lewis’s parents, is a wholesaler in the books and heritage market.

The business has non-family directors, including the managing director, in the senior management team.

“My key point is about the lack of information and education for people facing the hurdles that all family businesses face. That information and knowledge needs to be promoted to universities and incorporated into degree courses and to professional advisers. This included lawyers, bankers, and accountants, so it is great to see UBS supporting something like this. There are thousands working outside in their own little silos not knowing there are others like them out there and there are solutions to similar challenges.”

Debbie Houston: “I’m a third generation family business and this is all new to me. Through

Martin, I’ve been able to get involved with the Family Business Association. Family businesses tend to be full-on, day-to-day, running your business and not even getting to know or meet with other family businesses to share stories and find out where the help is to deal with things like succession planning.”

Jane Wylie-Roberts: “I’m not a great believer in having to go straight into your family business, as happened to me. I think it’s fantastic if you get the chance to work to gain experience working elsewhere. Mentoring is very important.”

Martin Stepek agreed with Debbie and Lewis: “We’ve asked several Scottish universities to look at students doing business, law and accounting degrees. Roughly half come from the next generation of family business, yet there isn’t a single sentence on family businesses in the text-books. Yet they are going to be inheriting a business. So you don’t get taught it, where you should get taught it and the advisers and academics have not been trained in it. I did a commercial law degree and family business wasn’t mentioned in the course. That’s insane. Advisers and academics don’t get taught, and the media only home in when it’s a big fall-out, so nobody is approaching family businesses in the right way.”

Debbie Houston: “Where do you start when bringing in advisers to help with the emotional side of family business? Do the accountants and advisers have the necessary experience to guide us? I didn’t know, until I met Martin, that there was help for family business. There’s been no funding for help particularly because we’re in the retail sector.”

Jane Wylie-Roberts: “When I see the money for technology companies and start-ups it is frightening. As family businesses, we are not getting access to any of it. This is not right. If we are not teaching people coming through the ranks about the important issues that family businesses face then this is not good news. I often describe it like an old country house – do you keep it going or just sell up and get out. These decisions are important and you need time to make them. Children have to understand that it’s not always nice, there is a down-side because the business comes first.”

Debbie Houston: “I think employees need to be part of this too. A lot of people just see it as family business and think it’s all good for the family members and have little understanding of the tensions and personal family issues.”

Craig Stevenson: “I’m thinking – is there any good news out there? I don’t think that I’m in a family business, I’m just in one that is out there to survive. I’m happy with my lot. I don’t care if it takes 100 years, if we’re happy and paying our bills. To me, it’s a business
and we need to run it as a business, although I like the idea of a minister to look after
family businesses.”

Debbie Houston: “If you don’t have all the family thinking along the same lines then there can be problems. If family members can’t make decisions, that can have an impact on growing the business. Yes, it’s a business decision, but still you have to involve the family.”
Norman Springford: “I think we’ve finally got there. Are we talking about family businesses and succession or are we talking about entrepreneurial spirit?”

Martin Stepek: “If we want family businesses to grow and flourish, as we all do, for Scotland’s economy and the wide communities of Scotland, we need to learn how to do family business properly and that requires governance and communication. The two go hand in hand.”

Colin Aitken, of UBS summarised: “I take away from this session that there needs to be much greater communication among family businesses and business in general so they can lean on each other in a supportive manner. It’s important so they don’t have this feeling of isolation and there is an appreciation of what you are and the special dynamics of the business, so you avoid family disputes that spill into public. Risk management matters whether you’re a family business or any other. Around the room there is a sense that there hasn’t been enough education and a pool of knowledge to tap into. Perhaps we don’t teach our children enough about this in school. The question to take away is, how do you become an important group so that politicians see this as a vote-winner. So the minister for family business seems like a good suggestion.”

He ended with a tongue-in-cheek request that they all keep growing their businesses, then sell them and then come to speak to UBS about how this wealth might be properly managed and looked after. “Our business comes from successful business,” he concluded.