Can family businesses flourish?

The business world is littered with examples of relatives working together successfully, but how do family members avoid unfair favouritism while also preventing parental power struggles and keeping sibling rivalry out of the boardroom? GrowthBusiness talks to the leaders of growing family businesses to find out.

Nepotism is sometimes considered a dirty word and is a practice generally frowned upon, originating as it does from the Middle Ages when some Catholic popes and bishops, who had taken vows of chastity, raised their illegitimate sons as nephews and gave them preferences. Working with relatives, however, introduces even more complication to a family relationship than mere favouritism. Lines of responsibility are hard enough to draw in situations where business owners employ junior family members, but become trickier still when both relatives hold senior management positions or share ownership of the business. There’s a world of difference between, say, employing a younger son for a day’s casual labour, and a mother and daughter jointly founding an empire.

You might expect the blurring of business and personal life in a company’s higher echelons to be bad for business. Yet many of the world’s most successful firms began life as family businesses. Saatchi & Saatchi, Warner Bros, Wal-Mart – they’ve all been run by relatives and become iconic brands. But while much has been written about key challenges facing family firms, such as how to handle continuity and succession planning, little investigation has been done into one of the key factors that determines the success or failure of such strategies – leadership.

Leading by example

Typically, the relationship between the leaders of any company is crucial to its success, so it stands to reason that if the bond between these directors has been forged at birth, the company will be one step ahead from the outset. It’s likely to mean there is implicit trust, an inherent understanding, and less office politics or hidden agendas than there might be between non-family members. But one of the major downsides to shared responsibility between relatives is what happens if something goes wrong. If the relationship breaks down, can the company survive? After all, it’s much harder to fire a relative!

One solution seems to be that relatives on a company’s management board identify each other’s core skills and, based on that, establish clear spheres of responsibility – and stick to them no matter what. Should one of the family members not be fulfilling their role, it is therefore much easier to identify, quantify and, hopefully, rectify before matters escalate.

See also: Control and succession in family businesses – Keeping it in the family

Take father and son management duo Roger and Mark Shashoua. They are famed for building up and selling exhibition organiser ITE, where sales grew from £8 million to £36 million between 1994 and 1998. Family and management eventually realised more than £65 million on the sale of their shares.

Roger and Mark are now chairman and chief executive respectively of Expomedia, a thriving and fast-growing exhibitions and conferences company focused on emerging markets such as Russia and India.

‘Dad’s strength is very much as the visionary,’ explains Mark. ‘He is well known in the industry as one of the first to find new markets, as a pioneer of new niches, and he is also a fantastic person to bounce ideas off. He really enjoys the first three to five years of building a company – going into a new country, smelling an opportunity, finding business partners. All these things are what he loves to do, and are what he’ll concentrate on once he moves to non-executive chairman at the end of the year. I am more of the business builder. I go in, I find the right people, I drive things forwards and really carry out the day-to-day running.’

‘We’ve been working together for almost 15 years now,‘ continues Mark, ‘so, as you can imagine, our relationship has dramatically evolved in that time – and is still evolving.’

ITE was very much Roger’s baby in the early days. ‘Dad was the visionary and the energy behind the business. For me, it was a learning curve, as I started completely raw from college. I had no choice but to learn, and he taught me right up to the point where I was running much of the day-to-day of ITE. Expomedia, on the other hand, is a company that we started together, very much as equals (between us we own 40 per cent of the shares). That’s a very different kettle of fish.

‘I guess there’s always a point where the father has to look upon the son as a business partner and equal, more than just a son, and that is never easy in any business. But one of my father’s great strengths is his remarkable lack of ego, and in the end, Expomedia is very much a partnership so we find a way to work things out.’

Teamwork is key

Another approach is to bring in non-family members to prevent the family business from becoming too inward-looking. The latest National Forum Conference Survey by the Institute For Family Business Research Fellowship at London Business School asked a spectrum of leaders of family-owned firms for their comments on the issues facing relatives in business together. Thirty-five per cent believed teamwork between parents and their children is the most difficult to achieve, closely followed by intergenerational teams of siblings and cousins, which 31 per cent believe is the most difficult.

By contrast, teamwork between family and non-family members was seen in a much better light, with only 12 per cent considering it the most difficult and almost half (43 per cent) seeing it as the most effective. In fact, two-thirds (67 per cent) felt that involvement by external parties (non-executive directors or professional advisers) was the most useful in building unity and teamwork within their business. This positive team dynamic between family and non-family members says a lot for the objectivity and professional distance that non-family members can bring to the issues that might otherwise disrupt both the family and its business.

Perhaps the key to success in a family firm is, therefore, not to rely solely on relatives to run the business. An impartial perspective and independent contribution can be invaluable, and when added to the mix, will usually influence the direction and growth of any business for the better.

Case Study 1 – Going through the books

Running a family business can sometimes be a dramatic and traumatic experience, as Christopher Foyle can testify. Six years ago, the former tax consultant turned-aviation entrepreneur, who founded the AIR Foyle cargo flier in 1978, found himself pitchforked into the world of bookselling when his aunt Christina died.

Foyles, the celebrated bookshop in London’s Charing Cross Road, was founded in 1903 by two brothers. When William and Gilbert Foyle failed their Civil Service examinations, they decided to sell their textbooks. Such was the response to their advert that they could have sold them many times over, so they started a bookshop. In 1928, aged 17, Christina joined her father and uncle in the running of Foyles. Her long stint as its undisputed leader after the Second World War saw her deploy a very idiosyncratic style of leadership (not to mention business model). It may have been feted in intellectual circles for its literary lunches, but it was more infamous still for the inability of its ill-paid staff to speak English. The bookshop therefore presented Christopher Foyle with a formidable challenge, if not his worst nightmare.

Uncovering fraud

Characteristically, Christina had made her nephew a director – the only other one apart from herself – only six days before she died. Exchanging the world of battle tank-transporting and charter flights for a different milieu, Christopher Foyle recalls, ‘I found myself presiding over a bookshop in a state of terminal decline.’

Turnover was falling, losses were mounting, cash flow was dwindling, financial management was absent and staff morale was, unsurprisingly, low. Even worse, by the time Christopher had brought his brother and cousin onto the board and set about a wide-ranging long-term plan of improvement, he says, ‘we discovered the company had been riven by a 20-year period of major frauds.’

Foyle and his relatives found that senior management had been ripping off the firm in league with outside suppliers and ’we set about unravelling these frauds’. Eventually, armed with High Court orders freezing the assets of 11 defendants, Foyle reached successful out-of-court settlements with most of them, drawing a line under a fraud which Foyle reckons had ‘probably cost the company about £20 million’.

Turning over a new leaf

After this bloodletting, Christopher Foyle and his board were able to make the positive changes for which the business was crying out. As he puts it, ‘by 2002 a range of improvements, including computerisation of stock, improved treatment, training and motivation of staff and a wholesale refurbishment of the physical premises had been in train for two years’.

The aim was to achieve profitability as soon as possible. These days, Foyles offers all the modern facilities customers expect in a bookshop, including online services, as well as a wide range of traditional book titles.

Case Study 2 – All wrapped up

Now in its fourth year Wrapology, the wrapping and packing business founded by Annika Bosanquet, has already begun to establish something of a reputation for itself by providing business customers with the materials necessary to make their goods stand out on delivery. Wrapology sells everything from bags and boxes through to wrapping paper and ribbons and boasts a growing stable of clients, which includes leading sportswear brands and shopping channels among others.

Though still the driving force behind the firm, Bosanquet has little doubt about how important her younger brother Tom has been to the company’s success. Still only 21, Tom Bosanquet joined the cause in 2003, when, after finishing his A-levels he decided university wasn’t for him. Just 31 herself, Annika concedes, ‘it was quite hard for him to impose himself initially, but the business only really took off six months after Tom joined.’

These days they run the group together and the key to their working relationship, Annika adds, is that they appreciate each other’s strengths. ‘We work really well in the roles we have.

‘Tom is great with people and the logistical side of the business and I know I’m not as strong in those respects though I am good at the long-term strategic planning.’

That said, there can be drawbacks to working with your sibling and though Annika admits ‘we sit next to each other in the office,’ she does point out that, ‘culturally you have to work very hard at keeping things professional.

‘You have to realise that it’s not like those days when you could just throw pillows at each other and you must be conscious of how your relationship affects the people you work with. Between the hours of nine and five we aren’t brother and sister.’

For now their dynamic certainly appears to be working. Revenues in 2004 topped £350,000 and sales are expected to more than double this year. Add to that the snaring of an Enterprising Young Brits award in late 2004 and this particular family business seems set for a bright future.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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