Grant Gordon is Director General, Institute for Family Business (UK). www.ifb.org.uk
Family businesses are increasingly being forced to look outside the family when recruiting the next generation of management. Grant Gordon discusses the results of a survey from the last IFB conference which reveals that family businesses are still an attractive option
The Institute for Family Business' 5th National Forum Conference was held in London on 11-12 May 2006. With the FBN UK chapter growing fast, the event, which had family business leadership as its theme, was attended by 136 delegates representing 65 family firms that in aggregate employ over 160,000 people. Many sectors of the UK economy were represented covering both the services and manufacturing industries. There were two IFB member families present vying for the title of longest running firm, both belonging to the illustrious Tercentenerians Club of British family firms of over 300 year's standing: C. Hoare & Co, and Berry Bros & Rudd. Keynote speakers included successful family business entrepreneurs Baron David de Rothschild of the banking dynasty and Stephen Rubin OBE, of Pentland Brands, who both presented alongside Professor John Ward.
During the conference there was a delegates survey on the theme of family business leadership. The key finding was that family-run businesses increasingly are being forced to look outside the family when recruiting the next generation of management. The survey, by JPMorgan Private Bank, was created with the help of Professor Nigel Nicholson and Åsa Bjornberg of London Business School. The questionnaire was conducted by outgoing IFB Advisory Council Chairman Tony Bogod.
While non-family managers are increasingly the norm, family values are still seen as crucial for the vast majority of family businesses. The large majority (85%) maintain that it is important for a family member to hold a leadership or senior executive position within the company. In contrast, only one-third believe the family leader needs to be either the chairman or CEO.
However, continuity is under threat as the next generation increasingly is attracted to interests and opportunities outside the family firm. Over half (52%) of family-run businesses believe that outside interests are the greatest obstacle to the next generation working within the family business. A further 21% were thought not to want to work with their parents and relatives. Less than 25% of respondents, however, felt that a lack of management talent was preventing the younger generation from filling their parents' shoes.
Today's youngsters are presented with a multitude of career opportunities and working closely with family members may not seem the most attractive option. But a family firm runs the risk of losing its unique competitive advantage if the family are not directly involved. The challenge, then, is to inspire the next generation with pride and passion for the business, and this process needs to start from an early age.
Non-family members, on the other hand, are eager to reap the rewards and benefits of working within a family-run business. Only one-quarter (27%) of family businesses have experienced difficulty in recruiting top management talent from outside the family while 22% of businesses are now actually led by non-family managers.
Non-family managers are predominately attracted to family firms by the same strong cultures and values which are prized by the family members (53%). Family firms' long-term perspective (26%) and their stakeholders' passion and commitment to the business (21%) are also considered to be significant attractions. Similarly, where difficulties arise, it is the question of cultural fit (21%) and the more expected areas of family interference (27%), lack of ability to get to the top (22%) and lack of share ownership (24%) that are discouraging to outsiders.
In terms of a leadership model, only a minority (37%) currently separate family and business leadership, while a large majority (66%) believe that splitting the roles would be beneficial. Delegates reasons for separating the roles included different skill sets required (29%) and avoiding potential conflict (29%). The main skills for selecting a family leader are: maturity; respect across the family for fairness; and living the family culture and values.
Three-quarters (76%) of family businesses recruited leaders from within the family when the last change was made. Of those, nearly one in ten (9%) appointed the person who was the eldest male member of the family, illustrating that traditional primogeniture is still observed in a small minority of family-run businesses. Encouragingly, though, over half of those surveyed said that the last leadership appointment had been made on merit.
In contrast to non-family firms, family business leaders serve an average of 15 years at the helm. The good news is that family firms are proving attractive to non-family managers and an increasing separation of business issues from family matters can be expected. The key to encouraging recruitment from both within and beyond the family is to uphold the traditions of passion, culture and commitment which are unique to family-run companies.
Demographic factors, such as decreasing birthrates and increasing longevity are altering the challenge of succession. Major consequences include a growing role for non-family executives and taping into the wider pool of family talent with greater openness to female family members becoming leaders of the business.