Family businesses in England and Wales believe succession is their biggest challenge, but figures in a study by UK-based private bank Coutts suggest corporate governance is also proving problematic.
Entitled Governance in Family Business, the report was based on a survey of more than 300 family businesses with revenues between £1 million (€1.2 million) and more than £100 million.
It found that succession was their biggest concern. Family firms told Coutts that “it is particularly important to ensure that development plans, including experience, coaching and support mechanisms, are in place for the next generation”.
According to the survey, large firms often expect the next generation to work outside before joining the family business. This appears to be common worldwide – Adi Godrej, chairman of Indian consumer goods firm Godrej Group, and Bob Rich, head of US food company Rich Products, told CampdenFB that family members are encouraged to gain outside experience after their education.
However, the Coutts study suggests that governance is also an important challenge for family businesses. It found that governance structures varied according to the nature of the business, the degree of family involvement and the size of the family.
While family businesses typically had boards of between one and 22 members, larger firms had on average between six and eight members. However, more than 60% of the large firms had no non-executive directors, while only a quarter had at least two.
“Board positions should be awarded based on competence and merit rather than emotion, to ensure that the people who are appointed are the best for the business,” said Juliette Johnson, executive director of Family Business Services at Coutts.
About 30% of large family businesses had a governance agreement or planned to have one, the report also found. The Wates Group, one of the UK’s largest family-owned construction companies, for example, has a number of formal agreements outlining the roles, rights and responsibilities of family and non-family members.
Andrew Wates, former chairman of the group, said in the report that these arrangements have played an important role in the growth of the business. The company also set up a family council to allow future shareholders to be gradually introduced to the business.
More than half of the companies surveyed separated the roles of chief executive and chairman, with the two positions being often held by different generations of the family. According to the report, this helps prevent potential conflicts.
Other challenges faced by family businesses included balancing personal and business relationships, training the next generation to be responsible owners and leaders, choosing between siblings, treating children fairly but not necessarily equally, and recruiting and incentivising non-family members.