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The value of family

As part of an occasional series, Families in Business chairs a roundtable discussion at Campden's Families in Business Conference on the importance of values in family business

Roundtable panel

Patrick Peyton is a non-family member who leads Despatch Industries' family office as well as their operating companies. The family firm is based in Minneapolis, Minnesota and has been in existence for 140 years.

Marjo Raitavuo is a second-generation family member and chairman of Ensto Oy. The company specialises in electrical systems and products and is based in Finland. Marjo has been involved in the family business for 17 years.

Philip Mackeown
is a fifth-generation family member and director designate of Musgrave Group, Ireland's largest grocery and food distributor. The business has over 100 family members, none of whom work in the business.

Prasad Kumar is a family business advisor with GMR Group in India. The family business advisory industry is ­fledgling in this part of the world and Prasat works with several family ­businesses in India.

Peter Leach is chairman of the BDO Centre for Family Business in London. The Centre was the UK's first organisation dedicated to serving the needs of the family business community. Peter has been working in this area for 25 years.

Juliette Johnson
is a senior manager at the BDO Centre for Family Business in London. She is a family business consultant, specialising in the area of next generation issues, and has been practising in this arena for 5 years.

Do you find that values play a large role in your family business?

Patrick Peyton (PP) Values do play an important role, for a couple of different reasons. The company I work for is owned by a family from Minnesota, and Minnesotans have incredible work ethics. They place their values very high. So, values are incorporated into our mission statement for both the family office and the operating company itself. When I joined this family company 11 years ago, values became an important theme. I found this out firsthand when we discussed my compensation package. In my annual incentive plan, 25% of the payout is a subjective review by family members, when they would ask whether I had led the business in a manner that reflects the values of the family. It's been surprising what things have been raised as an issue. While it was maybe the right business decision, it wasn't the way they thought it should have been handled from an employee standpoint, or from a public disclosure standpoint. So, it's interesting to incorporate those values in the way I do my job.

Philip Mackeown (PM) We've identified five core values (for the business), but we have values for the family as well. There is a large overlap, but not total overlap. When I came back from working outside and looked at the list of values, they all made sense to me. Our family is no longer working in the business but values are still important. If you mean to continue as a family-owned business then you need to let people know what your expectations are.

Do you know if these values are something that evolved over time or has the family always acted in this manner?

PP I think they always acted in this manner, but prior to me, the patriarch was chairman and CEO of all the entities. He set those values and he has tried to pass them down to the second and third generations. As far as the investment company goes, I have a limited choice in the investment decisions and portfolio acquisitions I make. There are certain industries I cannot invest in because those industries do not fit their values. So values have played a very large role in the way that this family office has been run and the way the operating companies have been run. Also, the company makes large industrial ovens. These ovens can blow up and people can get hurt. So we take values very seriously. We also treat our employees well – the average tenure of our employee is 24 years. That's important to us. Every week, I go down on the plant floor and thank someone for 30, 35 years of service. That's because of our values. We treat our employees as part of the family – they are our ­greatest asset.

Do you think values need to be written down?

Marjo Raitavuo (MR) I think values are important even if they aren't written down. As each generation changes, you have to discuss the values in detail to see if the next generation has the same values. Our company didn't have written values under my father (who started the company) and we decided we wanted to write them down. I talked to my father about it and he said to give him one day and call back tomorrow – and he wrote up the values of the company. We modified them a bit, then the family reviewed them and later we asked our managing director to review them. We had a process and it worked well.

PM
I think values don't actually have to be codified or written down. The danger in writing them down is that once you trip up, everybody points a finger. The key thing then is how quickly you resolve the issues.

How do you let family members know what the values are if they are not involved in the day-to-day business?

PM It's the management of the company that has to understand the values. A lot of the values would be codified by the executive management in the business, and probably guided by senior family members. Where we've seen values in action in our business has been with our employees. I was speaking with one of the men who manages one of the warehouses and they brought the values into the actual depots: all of the employees got together in groups and interpreted what the values meant to them. The other area is in the actual selection of staff. It's hard to always get it right, but you find over time people understand what the values mean in the business. The difficulty is the people who are getting the numbers but not the values. Looking ahead I see how vital this is and that it will be important to interpret the values for foreign markets.

Can anyone else illustrate values in action?

Peter Leach (PL) I dealt with a group 12 years ago and this was really the first time I had thought about how values influence behaviour. The company was involved in manufacturing and also owned real estate. They had taken a loan from the bank and because they had a lot of properties in their portfolio, the loan became a higher figure than the value of the property due to the real estate downturn in the early 1990s. The management team came up with a plan to dispose of the real estate and leave the bank holding about £1.5 million of debt to write off. The managing director of the group went to the family council with this plan and said, "We've lost money on the property, but don't worry about the bank, they can afford it". To his surprise, the family said, "Sorry, one of our values is our good name and protecting it" and told him to go to the bank and write them a cheque and tell them that the family is paying them back because those are our values. And the manager said, "What about my bonus? What about my incentive plan, and my P&L?" The family said that honesty and integrity were values they held very dear to them, along with their good name. They also told the manager that his incentive package was based on normal performance so it wasn't affected – they'd be true to him as well. So, they paid off the bank and the bank was a little surprised because it had already provided against it.

Some time later the bank wanted to exit one of its businesses as they had a change of strategic intent. The first people they approached to buy the business was this family. So the family bought the company from the bank, which has become part of their core business, and is now worth a fortune – all as a result of upholding their core values.

It sounds like values really tie into the whole long-term strategy for family businesses?

PP In many respects, I've always said I have the easiest job because there is no question as to how we should run the business. If there's ever a case of do we stand behind a job or behind a customer and lose money, I know I'll never be criticised for losing the money because it's unquestioned.

Prasad Kumar (PK) In India, most family businesses are 100 years old at best. The concept of long-term is different. One of the families I work with has tried to work out from their own behaviour what their values are, rather than compose or invent them. The families have found it very useful in managing different systems. I know one partriarch of a very large indian business who was toying with the idea of using these values to decide who succeeds him. Values also seem to form a very important foundation in the case of media and the exposure to media and to how the family responds to media. Values certainly affect the business, but they also affect the family – both their cohesion, and their sense of belonging.

What about the younger generation, do you find that they have different values?

Juliette Johnson (JJ)
When I first started working with Peter (Leach), he told me over and over again that one of the main things that differentiates a family business from a non-family business is its values. But not coming from a family business myself, it's quite difficult to get your head around how much effect they have in a business. The more I work in this area, the more I see that when the values aren't there, that's when the conflict starts and when relationships break down. With the younger generation, where you have groups of cousins in their 20s or 30s who have all grown up in different households, there is a common thread running through the different branches of the family. Quite often there is the concern in the family that, because people have grown up in different households with different parents, they may have different values and eventually the business could come between them. But that doesn't often happen, as long as they work together and talk together. They need to get to know each other and spend time building a team together – only then can they move the business forward.

What other effects do values have on your business?

PP We often find that our value statement is very helpful in attracting and retaining top employees. Particularly in the US with what public companies have gone through recently. I see the pendulum swinging back. Before, employees wanted the public stock and the options. What's happening now is that values are coming back. There's this feeling that you're privately held, you're owned by a family, so there's a sense of security with that value statement. That brings some people back from the public companies into the private world.

PL
I have found the Indian culture incredibly strong. And the family values of respecting your elders is very strong. If you're the eldest son of the eldest son, there's a certain expectation of you. Children do not talk against their parents, it's just not done. They can think what they like, but the words are not spoken.

PK
Yes, and we're trying very hard to change that.

PL So, that can be a strength, but also a disadvantage. I've worked with a very large Indian group where they presented all sorts of issues, which were difficult issues. But when you peeled off all the layers of the onion and pared it down, there was really only one issue: the person who was going to take over as the next business leader was the eldest son of the eldest son. He didn't want to be the successor and his 11 cousins didn't want him to do it either. But he didn't have the guts to tell his father. His uncles, his father's younger brothers, were also aware of the son's reluctance. But nobody had the temerity to say to the father that his son shouldn't, and didn't want to, take over the company. Eventually, after a week of meetings, he plucked up the courage to say to his father that he wanted to go against tradition and not succeed him. The father objected to the idea and it took almost a year for the son to be extricated from the business. He wanted to run an art gallery, not a business with 7,000 employees. It was a difficult time and illustrates how values and culture can play such a strong role. But there are great elements to those types of values – for example, respect and tradition.

What about the issue of in-laws in the company. Outsiders who are family. They haven't grown up with these values, so how do you impart these values and bring them up to speed and on-board 100%? Or perhaps it doesn't matter if they're not on-board 100%?

MR I think there is no wrong or right method – it depends on the situation, on the values, on everything.

PL If I'm working with, say, three brothers, and the brothers are talking about values, they often ignore the in-laws. The wives are often the in-laws, and the wives are the ones at home with the children and they are the ones inculcating the values. You've got to be inclusive otherwise the children, which will become the cousin syndicate, will not fit in. If the wives are not part of the discussion, they have very little chance of communicating the values to the next generation.

PK With one of the families I work with, they have a non-business family forum. It is just for spouses of working members of the family and they get together to discuss values and see how they can foster them.

PM The level of involving in-laws in the business depends on your governance system. In the early stages, it probably makes sense to make some sort of plan on whether it is going to only be bloodline or not. We have family assemblies where spouses come along. I think you have to try and explain the issues to those involved. The difficult situation is when someone comes along, is given a share, doesn't understand the values and the business, and creates blue murder.

Do families need a structured programme to share and educate others on values, especially the younger generation?

MR We only have four people in our family and we meet all the time. Once a year, we all go on holiday together which is fun. We go to the Alps to ski and we eat and meet in the evening and everybody talks – but then we're a small group.

PM We get together bi-annually with a family assembly, where we work through these issues. Our values are really driven into the business. We have one set of values for the business and another for the family and there is a lot of overlap. But I do wonder how you successfully impart the values onto the next generation, particularly when they're not working in the business – that's difficult.

JJ
With the younger generation you really have to go back to basics and teach them what the older generation take for granted. The younger generation may not know what it means to be a shareholder and the associated responsibilities. You have to go back to the basics and find a way to build up some interest. Sometimes it's a business the next generation may not be interested in, so you have to find other ways of connecting them. If a group of the younger generation sit around and want to learn together, build a team together, it takes effort and committment from everyone.

PP There's always an advantage when you have a family business to display the values in the literature and the history. We always had success in communicating the family's values and involvement to the business. Also, if the younger generation attend company events they can see their family's values embedded in the walls and it builds up an interest.

PM
We are looking at that as well. We have a fundraising triathalon coming up soon. We're hoping to get a group of family members involved and I think the plan, over the long-term, is to raise opportunities for people to connect with the business. We want people to understand why we're doing it and what the expectations are.

MR
In Scandanavian countries, the younger people start to work in the business quite early – they may take summer work at 15, starting at a lower level. It's important that they really see what kind of business it is and there is always someone who's worked there 20-30 years who takes them under their wing and tells them about the business. My father is 76, and and is proud to show the younger generation what he has done.

What are some of your values?

MR
Trust capital is important to us. My father wrote a book called Trust Capital. You have to have excellent performance, too. It's not enough just to be good, you have to be excellent. Then there are partnerships and encouraging creativity. You have to have partnerships inside the company, between people, between business units, but then you have to have partnerships outside the company also, with the stakeholders. Values are sometimes only discussed within the company, but we also ask our customers if they see our values as we do. They may see our performance differently to us.

PP In our mission statement, we talk about innovation, measured risk-taking, but the core is that the needs, wants and expectations of the employees and shareholders are always balanced.

PL
These values sound more corporate than family. Often from the family perspective, you hear values such as unity, charity, community, mutual support – slightly more personal issues.

MR Perhaps you can use different words, but for me it's all still the same. For instance, a partnership is both corporate and family.

PL Isn't the word quality more of a corporate mission than a value?

MR But what about quality of life?

PL It needs to be qualified. Words alone can be open to misinterpretation.

MR That's why it's so important to get together to discuss and communicate, communicate, communicate.

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