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Pedder: Why short-term pain won’t affect long-term gain

Family businesses have what it takes to weather the current economic storm, according to Roger Pedder, former chairman of Clarks Shoes, one of the UK's largest private family companies.

"Family businesses are the bedrock of the economy and will be placed in better stead throughout these tough economic times, which were, in truth, bought about by the type of short-term business and investment behaviour prevalent in most quoted and many private equity-owned companies today," said Pedder in an exclusive interview with Campden FB.

Pedder has been involved in family business for most of his career and chairs the Coutts Prize for Family Business judging panel. The annual awards scheme looks to honour exceptionally managed family businesses in England and Wales.

"Whereas many companies in many different industries are adding to the ranks of worldwide redundancies, family businesses in general are seeing how they can share the pain and weather the present storm," he says. "This is typical of their nature and long-term outlook. Family businesses talk in terms of true longevity. They think in terms of sustainability over time rather than over-reacting to the pressures of the day."

Juliette Johnson, senior family business advisor at Coutts agrees: "Many family businesses are feeling well-prepared to weather this current climate. They tend to work with a much longer timeframe, thinking more in terms of generations rather than short-term returns. This makes them slightly more conservative, giving them the ability to be flexible and react quickly to changing circumstances."

As part of the evaluation process, short-listed nominees benefit from the opportunity to benchmark their company's performance against the criteria that Coutts uses to assess what constitutes a well-run family business. Having been part of the judging process of the Coutts Prize for a number of years, Pedder says time and again this tendency for longer-term thinking rings true and is a significant factor for success.

Much of the judging criteria for the Coutts Prize is concerned with those characteristics that make a family business unique from other types of commercial organisations. Specifically, businesses must be able to demonstrate high standards of both family and corporate governance.

Pedder says these characteristics were best exemplified by one of last year's winners, CareTech Holdings Plc, which is run by two brothers, Haroon and Farouq Sheikh and manages residential care homes across the South of England.

"As a successful second-generation business, the evaluation committee members were impressed by characteristics such as the emphasis on culture and values, the well-organised family governance, and its long-term financial success," he said.

Businesses in the running also need to occupy a competitive market position and demonstrate consistent financial performance over time. A great indicator of this over the past year has been the relative resilience of private family companies in general because of their low gearing and continuity of investment out of retained earnings which is in stark contrast to the habits and practices of many quoted and private equity-backed businesses.

"There are a whole range of businesses and business models concerned with private equity at the moment," said Pedder. "For some of them, private equity investment is quite benign and sensitively managed; however, others are extremely leveraged and the investors are only interested in the greatest and most rapid return – they don't care at all about the business itself."

As a chairman and non executive member of various boards, Pedder says he has been in a range of different private equity situations and that the most comfortable and effective place to be is working with private equity partners that truly understand the business, add resources and valid experience to management, and financial engineering does not dominate their thinking: "Of course the reason they are involved is to make a profit on the sale of the business, but the emphasis needs to be on creating value."

Regional winners for this year's Coutts Prize will be revealed in March this year, with the national prize being awarded in a ceremony in London in June.

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