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Green light goes on

Scott McCulloch is editor of Families in Business.

Martin Stepek has been deeply committed to green politics most of his adult life. He tells Scott McCulloch about his new challenge and why he is determined to give Scottish family businesses an effective and independent voice

Scottish Family Business Association head honcho Martin Stepek's impressive career in advocacy and green politics  stands him in excellent stead for this demanding post.

FIB Why have you set up this organisation?

MS The founding members felt the need for an independent, members-only organisation to bring together business families and their closest colleagues to help each other better understand the unique problems family businesses face. We felt the need for a common networking and social forum so that people could talk in an open but confidential arena about the often very personal aspirations and obstacles they face.

FIB Is your role as CEO full-time or do you have other commitments?

MS I have other commitments, not least to my own family. My role is part-time, contracted as three days a week, but actually running at around five. Fortunately I have discovered the way to make "eight-day" weeks, so my work-life balance is not too strained.

FIB What other ­commitments do you have?

MS I serve as a non-executive director of Employee-Ownership Scotland Ltd where I advise businesses, social enterprise and charities on vision, values and strategy. I am a tutor of leadership at the Scottish Social Enterprise Academy, and I do occasional research and consultancy work on well-being in the community for local authorities, and teach meditation and theories of eastern philosophies when I have the time.

FIB Does the press misunderstand family businesses?

MS I think family firms are not so much misunderstood as ignored. The media tend to view businesses only in terms of scale – small, medium, large – or ownership, privately-owned or plc. Certainly most media appear not to know those elements of family businesses that make them a very different animal to non-family controlled plcs, and because of this ignorance do not see family businesses as distinct.

FIB What is your long-term vision for the organisation?

MS I want us to achieve mass membership first and foremost, because we can help individuals and families in business gain more from their lives, whether inside or outside the business, and regardless of whether the business flourishes or not. Individuals in business families need an outside view to clarify what they want to do with their lives, because so much of their upbringing has been unconsciously shaped by the business's existence. If we can help the next generation, and indeed the current leaders and their partners or spouses, to gain clarity and certainty about their direction in life, I'd be delighted.

FIB What do you hope to achieve in the first few years?

MS All of the above visions but each in small achievable steps.

FIB Why has the SFBA chosen to remain independent?

MS We need independence to remain true to our initial vision and values. It is easy as we gather members and start to roll out our benefits and events to lose sight of our original goals, and be swayed by the directions of other potential partners or network organisations. But we're not isolationist. I have already made contact with many family business organisations, professional advisers and consultants, media, academic institutes and wider business organisations, to ensure that we work with others and are complementary and synergistic in our approach.

FIB Family businesses are often held up as superior business models. Do you agree?

MS I don't subscribe to generalisations, even though I am apt to make them myself. There are good organisations and not so good ones, and their quality usually but not always revolves around the people at the top. Some family businesses are great at managing their finances; others are not. What appears to be great financial management in 2005 may prove to have been disastrous a decade later.

FIB Do you believe family businesses take a long-term view?

MS I think by and large this is true and it is usually a good thing. There's a downside too. If a business exists to benefit the family that owns it but the wealth remains locked in the business until some yet-to-be-determined nirvana while the whole family grows older without enjoying the tastes of that wealth, then I think that can often be a frustration in family businesses. I'm not speaking as a hedonist or gross materialist, but life is short and some family businesses can overdo sacrifices for the future. Different family members have different perspectives on the use of wealth inherent in the business and this is one of these key issues to be dealt with openly and with respect for others' opinions.

FIB You were once part of a family business. Can you tell me about its history?

MS My father found himself in Scotland by default, having served in the Polish Navy, based in the UK as Poland was occupied by Germany and the Soviet Union. When he was de-mobbed, he had lost his parents, his home and his country. This was in September 1946 and he was 24-years old. He had been one of first people trained in radar and used this to get involved in repairing radios before television became popular. He repaired TVs as well and added the installation of aerials to his repertoire of services. In 1955 he opened a shop selling and renting electrical goods, and quickly devised the strategy of opening multiple branches so that if local competition was too strong in one area, he could always rely on the other shops for an income. Business grew steadily, and he acquired a reputation for honesty, hard work and personal service. By 2000 the company comprised 22 shops and sold furniture too, plus we had eight travel agencies. Turnover peaked at £14 million with 350 employees.

My father retired in 1984 but caused friction by keeping an interest in how the business was run. This was well meant and reflected the fact that the business was his 'baby' but it undermined the independence and confidence of his successor, my eldest brother John. Eventually John, with weak support from me and my brother Paul, had to tell my father he was no longer welcome in the office. It was terrible moment but thankfully my father accepted it well and understood. John found it more traumatic to tell my father than to accept his constant questioning. It is hard for a son who has to tell his father because it is not the natural way of doing things.

John ran the business until he retired in 1998. The business seemed solid and my brother Paul took charge. At that time I was 39 and declined to be considered as MD because I felt I wasn't ready. But as competition dramatically heated up in the electrical retail market, with Dixons and Comet swallowing independents, we took a huge blow. The government changed the insurance premium tax on extended warranties and rental goods, from 55% to the same as VAT, 17.5%. We took a hit of £1 million to our bottom line and never fully recovered. The bank refused to fund our extra cash flow needs to fulfil a new strategy and we had to file for administration in 2002. This was devastating for my family and hundreds of loyal employees.

I arranged a buy-out of a profitable part of the business, in partnership with a business in Birmingham, but I knew I would not enjoy the culture of the new company. So, having done what I had set out to do, save around one-quarter of the jobs, I negotiated an amicable exit, so that I could buy time to refocus my career on what I love doing. Thankfully I managed to do this, as did most of the rest of my family. My father took the loss of his 'baby' well and was great in supporting the decision-making and judgement of the management both before and during the crisis period. It brought out the best in him.

FIB When your family business went into administration, how much could you attribute to unresolved issues between various members of your family?

MS "I think ultimately almost all of the main problems which led to the demise of the business were rooted in family issues. Our cash reserves went into family pension schemes, a large amount of which financed the early retirement of one family member. Although the business seemed stable at the time the decision was made, in retrospect it deprived us of cash flow when business problems struck. We were mired in difficulties over the rights and wrongs of who got pension contributions and how much. We had no dividend scheme so family shareholders who didn't work in the business got nothing whereas those working in the business got generous contributions.

In addition, we did not have equal distribution of shares among the ten children of the founder, my father, but instead for historic reasons these varied from 15% ownership by one person to only 3% owned by another brother.

Both of these problems stemmed from well-meaning and seemingly sound advice from our accountants on how to avoid tax, but eventually they came back to haunt us. We spent an inordinate amount of time trying to reach a fair and legal redistribution, but each sibling now had their own family and interests so it proved difficult to resolve.
Family members were given jobs and promoted to management positions for which they were ill suited. This hurt the business. Finally, all family members had been made nominal directors and only after did we appoint non-family directors to the board.

When we enduring difficult trading conditions, a major change in the law, disputes, inappropriate appointments, and the inability access pension funds to ease our cash flow problems, all of these in hindsight played a part in making us unable to save the business.

FIB Will you take any lessons away from those events to the SFBA?

MS Absolutely. It was my main reason for taking on this exciting new role. I have first-hand experience of both the joys and nightmares of being in a business family and trying to manage family and business issues. I was also deeply schooled in the best practice and academic research and theory of family businesses through the exceptional work of Barbara Murray and others at the then Centre for Family Enterprise at Glasgow's Caledonian University.

FIB How can family businesses improve their chances of surviving?

MS I don't even look at it that way. I ask the question: 'How can members of business families work together to achieve the maximum happiness and fulfilment for all members of the family?' If the business is a resounding success and half the family are miserable or divided, the business is cold comfort. Wealth without family affection is hardly a success. I'd say the members of the family should create an atmosphere of openness, mutual respect, tolerance of different views and life goals, and the courage of each individual to say what they truly want in life. If individuals don't know what they want to be in life – and this is common especially among young adults – they should be given time and encouragement to find a path that suits their character and personality. If a family can achieve this quality of communication, then the business will benefit immensely.

FIB Do family businesses have a competitive advantage over non-family businesses?

MS Good, well-run family businesses have many competitive advantages over equally well-run non-family businesses. The commitment from employees is usually higher because of a more direct connection between employees and owners, especially if one or more of the senior management team is a family member. So productivity and flexibility is usually greater in good family businesses.

FIB What are the most important factors facing family businesses in the UK?

MS I think the continuing trend towards anonymous forms of doing business, such as the internet, mail order, electronic banking, together with increased globalisation of brands and products to some extent undermines the traditional values and competitive advantages of family businesses. However this also creates niche markets for the large minority who reject the trend toward depersonalised business methods.

FIB What do do in your spare time?

MS I am trying to write the history of my father and his Polish family focusing on 1939-1947. At the time, the family was threatened with death by Stalin's Red Army, deported in cattle trucks to the infamous gulags in Siberia, freed and left to make their own way, penniless and hungry, to Iran where my grandmother died of hunger and exhaustion, and finally how the three children survived the remaining years of the war and settled in the UK.

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