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Foreword …………………………………………………………………………………………………………………………………………….3
Are family businesses better prepared than other businesses to compete in the future?” A qualified “Yes” ……….……………………………………...4
Method and sample …………………………………………………………………………………………………………………………………5
You need to think of yourself as a family business to be one ………………………………………………………………………………………….6
Combining the roles of chairman and chief executive works for some ………………………………………………………………………………….8
Encouraging women to break the glass ceiling opens up new opportunities …………………………………………………………………………....10
Non-executive directors can help keep emotions out of the boardroom ……………………………………………………………………………....12
Long-term sustainable growth is what counts ..……………………………...………………………………………………….………………….…..14
Be prepared to take some risk …………………………………………….………………………………………………………………………...16
Look after the people and the profits will take care of themselves ………….………………………………………………………………………...18
Business first, family second ……………………………………………….………………………………………….……………………………...20
A share buy-back may hold the answer …………………………………….…………………………………………………………………..…..…22
Plan for a successor as soon as you start ………………………………….. ………………………………………………….…..………………….24
Know when to let go ………………………………………………………………………….………………………………………………….…..26
Meritocracy matters more than birthright …..………….…………………….……………………………………………………………………….27
Expect conflict and know how to deal with it …………………………...………………………………………………………………….………....29
Enjoy giving your money away as much as making it ………...…………….………………………………………………………………………….31
Increase the impact of your giving ……...………………………………...…………………………………………………………………….….…33
It’s not what you know, it’s how you know it ……………………………….………………………………………………….…….……….…….…35
Private banking for family business owners ……………………………...………………………………………………………...…….………….…37
Contacts ……………………………………………………………….………………………………………………………….……………..…38
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Most surveys on family businessesconcentrate on past performance. But,as we know, past performance is noguarantee of future success. As a result,Coutts is pleased to announce the firstin a series of surveys that look forward.In this survey we compare thepractices of family and non-familybusinesses in areas such as companystructure, planning succession, businessstrategy, and philanthropy. In our nextsurvey we will be exploring whatcompanies are doing to capture futureopportunities.
John Freeman, Association of Family Business AdvisersPeter Leach, BDO Centre for Family BusinessTony Bogod, BDO Centre for Family BusinessJuliette Johnson, BDO Centre for Family BusinessHoward Leigh, Cavendish Corporate FinancePenny Webb, Change PartnershipSarah Grunewald, DirectorbankKen McCracken, Family Business SolutionsBarbara Murray, Family Business SolutionsBill Gordon, Family Business SolutionsHakan Hillerstrom, Hakan HillerstromGrant Gordon, Institute for Family Business (UK)Miles Templeman, Institute of DirectorsJohn Tucker, International Centre for Families In BusinessRobert Hannington, Knight FrankNigel Nicholson, London Business SchoolAsa Bjornberg, London Business SchoolDr Panikkos Poutziouris, Manchester Business SchoolMichael Maslinski, Maslinski & Co LimitedNigel Harris, New Philanthropy CapitalJai Mukherjee, New Philanthropy CapitalCaroline Fiennes, New Philanthropy CapitalColin Mayer, Oxford Said Business SchoolAndrew Drake, Penningtons Solicitors LLP
Mark Evans
Head of Family Business & Strategic Philanthropy
We are particularly grateful to the directorsand shareholders of the family and non-family companies who participated in thesurvey for their personal insights. We hopethat the collective wisdom of theparticipants will be a useful guide for familybusiness owners planning for the future.
In addition to leveraging our own longestablished history of working with familybusinesses, we consulted with twenty highlyrespected family business advisers andacademics to construct the survey andinterpret the findings. Working with somany experienced individuals andorganisations has been an enormousprivilege. Many of their comments areincluded in this report. We would like tothank:
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Mark EvansCouttsWhen starting a family business, theissue of family involvement is oftennot a priority. But as the companyevolves, family involvement can be apowerful plus in creating a culturethat employees, customers, suppliersand the community can all thrive on.Family businesses that can combinegood family and corporate practiceswith a track record of businesssuccess and social responsibility arethe best prepared to compete in thefuture.
Peter Leach and Juliette JohnsonBDO Centre for Family Business
.“…the biggest issues they (familybusinesses) really face (comparedwith non family companies) will bearound their transition from thecurrent to the next generation,particularly in passing from a siblingpartnership to a cousin consortium.Ifthey can get this challenge right, andensure the appropriate processesand structures are in place for boththe family and the business, then theyplace themselves in a very strongposition to compete going
forwards. This transition however is ahuge challenge and shouldn't beunderestimated. Whilst the researchshows that many families recognise thischallenge, it does not mean they areactually going to face it and address it!”Peter Leach and Juliette Johnson,
Sarah GrunewaldDirectorbank
“Are family businesses better preparedto succeed? I very much hope so!”
Michael MaslinskiMaslinski & Co. Ltd Maslinski & Co. Ltd“There seem to be three obvious areasin which family companies could be seenas better equipped than others - staffcontinuity, social responsibility andwomen on the board.”,“Could family businesses be potentiallybetter able to compete in the futurethan other forms of business? I wouldconclude that the answer would be“Yes” John Freeman, Association ofFamily Business Advisers
Nigel Nicholson and Asa BjornbergLondon Business School“Family businesses face unique challengesand have a unique competitive advantagerooted in their ownership, leadership andculture. If family firms recognise thesecomplex issues for what they truly areand pro-actively manage them, they maywell be in a position where they arebetter prepared to compete in thefuture.”
Andrew DrakePenningtons Solicitors“On the general question of whetherfamily businesses are better prepared thanother businesses to compete in thefuture, I suspect that the real answer isyes and no. I believe that they havesome characteristics which make thembetter able to compete and others whichmake them more vulnerable to failure, orindeed conflict. Family businesses whicha) have family members whocommunicate well with each other andwith non-family management andb) follow excellent standards of corporategovernance and c) have planned for thefuture are, in most cases likely to givetheir non-family counterparts a good runfor their money!”
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In order to ensure a representative sampleof businesses, we divided the UnitedKingdom into five geographic regions -North, Central, London, South and Ireland.We chose three sales turnover categories £1– 5 million (small), £5 – 50 million (medium-sized) and £50 million plus (large). We alsoconsolidated industry types under four mainheadings – business services, distributionservices, renewable and heavy industries andpublic services.
Telephone interviews were conducted byDVL Smith on our behalf with directorsand/or shareholders of two hundred andninety-three UK companies. Fifty-onepercent of these are family-owned and forty-nine percent are other businesses, giving usan even split. Fifty-five percent of the samplewas first generation businesses, thirty-twopercent second generation and nine percentthird or more. The survey comprised fortyquestions over a range of topics frombusiness strategy to philanthropy.
Sector
523517£50m+
1507476£5m - £50m
913556£1m - £5m
Turnover
775720BSI (Business services)
882959DIS (Distribution)
1054758RHI (Renewable & Heavy industries)
231112PS (Public sector)
693039Southern
653926London
493019Northern
(n=293)
31
79
TOTAL
n
(n=144)(n=149)TOTAL
1120Ireland
3445Central
Non-Family business
n
Family business
n
Break
Location
Total of 293 CATI interviews were completed as follows
Fieldwork was conducted from 13th June – 5th July 2005
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We askedIn terms of share ownership, does atleast one family member or familygroup (including trusts) own morethan twenty-five percent of the votingshares of the company? Do youconsider yourself to be a ‘familybusiness?’
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This finding supports the notion thatnobody starts a family business. That isto say, when any commercial venture islaunched, the individuals concerned aremost unlikely to be looking ahead to atime when they will pass on what theyhave created to the next generation.
We found Taking the shareholder definitionalone, sixty-seven percent of thecompanies interviewed said thatmore than twenty-five percent of theshares were owned by one familygroup. This rises to seventy-fourpercent in small companies.However, overall, around a quarterof those who might be classified as afamily business on the basis of shareownership, do not considerthemselves to be a family business.
51
62
51
3338
7374
67
0
20
40
60
80
Overall £1m-£5m (91) £50-£50m (150) £50m+ (52)
%
25% Shares
Consider themselvesa family business
Company Turnover Base: All respondents (293)
Coutts commentsThe definition of a family business is thecause of much debate. Some peoplerecognise any business in which the familymembers retain control of a certainpercentage of the voting shares of thecompany. Others put more store onmanagement control, number of familymembers in the firm, and generation.
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Contributor comments
John FreemanAssociation of Family Business Advisers “Is there a perceived marketing benefit indeclaring oneself to be a family business. Ifnot, then the reverse may be perceived.”
Sarah GrunewaldDirectorbank“Why don't more of them make a virtue ofbeing family businesses? I suspect that its aparticularly British problem - there is aperception of the family company as beingold-fashioned, flawed in some way. Weshould do more to celebrate the strengthsof the family company - we need diversitywithin our economy and different patternsof economic ownership are essential, Ibelieve.”
Grant GordonInstitute for Family Business (UK)“One way to think of family businesses isthat their owners have consciously decidedto plan transmitting the firm to the nextgeneration. In other words to create theirfuture dealing with the issue of successionwill be a necessary step to take.”
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We askedAre the positions of Chairman andChief Executive Officer held by thesame person?
`çãÄáåáåÖ=íÜÉ=êçäÉë=çÑ=ÅÜ~áêã~å=~åÇ=ÅÜáÉÑ=ÉñÉÅìíáîÉïçêâë=Ñçê=ëçãÉ
We foundOverall, sixty-seven percent of familybusinesses have the same personperforming the roles of chairman andmanaging director. This rises toseventy-four percent in firstgeneration family businesses. By wayof comparison, only thirty-twopercent of non-family businesseshave the two jobs occupied by thesame person.
32
67
74
64
42
0
20
40
60
80
Family Business(149)
Non-familybusiness (144)
1st Gen (82) 2nd Gen (47) 3rd Gen (19)
%
Business Type Generation
79
62
53
43
35
14
0
20
40
60
80
100
£1m - £5m (56) (35) £5m - £50m (76) (74) £50m+ (17) (35)
Family businessesNon-Family Businesses
Base: All respondents (293) Base: All family businesses (149)
Turnover
Caution: Low cell sizes
Base: All family businesses (149)
Chairman/CEO/MD same person Chairman/CEO/MD same person by turnover
`çìííë=OMMR=c~ãáäó=_ìëáåÉëë=pìêîÉó V
`çãÄáåáåÖ=íÜÉ=êçäÉë=çÑ=ÅÜ~áêã~å=~åÇ=ÅÜáÉÑ=ÉñÉÅìíáîÉïçêâë=Ñçê=ëçãÉ Contributor comments
Peter Leach and Juliette JohnsonBDO Centre for Family Business “It is very common to see family members holding the majority of boardpositions in first and second generation family businesses. Family businessowners see the members of the family as cheaper, more trust worthy, loyaland hardworking than a non-family member would typically be. This isespecially true for the role of CEO and Chairman who effectively control thebusiness.”
Nigel Nicholson and Asa BjornbergLondon Business School.“The larger the firm, the less likely it is to have a family majority on the board.Given demographic trends with declining birth rates, we might be heading fora future where non-family professionals will run family firms to a greaterextent.”
Andrew DrakePenningtons SolicitorsI am not sure it is totally surprising that the roles of Chairman and ChiefExecutive are held by the same person in so many of the family businesses,particularly given that many of those interviewed were first or secondgeneration businesses. As family businesses develop, however, it doesbecome increasingly important that the roles are separated. Sometimes thisseparation will occur naturally as a result of the introduction of anon-family Chief Executive
Colin MayerSaid Business SchoolI was particularly struck by the board composition results and the way in whichthis changes across generations of ownership. There is considerable potentialin this survey to perform both cross-sectional analyses of how boardcomposition varies across firms and how it changesover time between generations.
Coutts comments
The Combined Code for UK listed companies states that thereshould be a clear division of responsibilities at the head of thecompany between the running of the board and the executiveresponsibility for the running of the company's business. TheChairman is responsible for the leadership of the board,ensuring its effectiveness on all aspects of its role and setting itsagenda. He is also responsible for ensuring that the directorsreceive accurate, timely and clear information and for ensuringeffective communication with the shareholders.
Accordingly, the provisions of the Combined Code state thatthe roles of Chairman and Chief Executive should be separatedand the division of responsibilities between them set out inwriting by the board.Whilst the Combined Code is the keysource in respect of corporate governance for UK listedcompanies, there is a view that private companies should alsoendeavour to comply with the obligation to separate the rolesof Chairman and Chief Executive.
Employing outside directors can be one of the best investmentsthat families can make. Family businesses that separateownership and management control often perform better andsurvive longer. The new corporate governance index launchedby the FTSE Group to track the link between corporategovernance and greater shareholder value, gives the heaviestweighting (44%) to structure and independence of the board..
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We askedHow many women are there on theboard of directors? Which of thefollowing positions are held by awoman - chief executive officer,chairman, finance director, non-executive director?
båÅçìê~ÖáåÖ=ïçãÉå=íç=ÄêÉ~â=íÜÉ=Öä~ëë=ÅÉáäáåÖ=çéÉåë=ìéåÉï=çééçêíìåáíáÉë
.
We foundFamily businesses are significantlymore likely to have a femalepresence on the board with the realdifference appearing to be the topjob of chief executive officer
HAVE FEMALE MEMBERS ON THE BOARD
Base: All respondents (293)
12
32
9
21
32
3
8
17
0
5
10
15
20
25
CEO/MD Chairman(Executive)
Chairman(non-
executive)
FinanceDirector
Non-executiveDirector
%
Family business
Non-family bussiness
POSITION HELD BY A FEMALE
Base: All family businesses (149)
62
42
0
20
40
60
80
Family Business Non-family Business
%
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båÅçìê~ÖáåÖ=ïçãÉå=íç=ÄêÉ~â=íÜÉ=Öä~ëë=ÅÉáäáåÖ=çéÉåëìé=åÉï=çééçêíìåáíáÉë
Contributor comments
John FreemanAssociation of Family Business Advisers. “How many females are listed as board member, andhow many actually act as a director attending meetingsand contributing to the direction and running of thebusiness as against being a ‘sleeping’ shareholder?”
Sarah GrunewaldDirectorbank“There seems to be clear evidence that the requirementwithin family businesses to be inclusive of familymembers across gender and generation, and the need tominimise risk of controversy because of the possibleimpact on family relationships, seems to give familybusinesses a discipline and a set of coping skills that theirnon-family competitors lack. For example…the inclusionof females on the Board, even if only as non-executivedirectors”
Coutts comments
For most of industrial history, the founders offamily businesses have tended to be male.However, a recent survey of FTSE 100 companiesshowed that those that follow best practice oncorporate governance are far more likely to havewomen directors than those that do not. In afamily company the sort of issues that can arisemay hinge on how the son may feel working for asister who is younger and better qualified than heis.
Not enough has been written about the uniquecontributions of women in UK family businesses.Studies in the United States suggest that women-owned family businesses are on the rise. The timehas come to explore the invisible role that wivesand daughters have been performing for a longtime now. Anyone inside or outside a familybusiness should be able to apply for the leadershipposition. The fact that 12.0% of family businesseshave female chief executive officers and 21.0%female non-executive directors suggests thatwomen are starting to change the way familybusinesses are managed.
Nigel Nicholson and Asa BjornbergLondon Business School “Family businesses are creating diversity and a broader set ofleadership skills by including women leaders in the top managementteams. The fact that family businesses do this to a greater extent thannon-family firms could be because they have access to talented womenthrough different networks and are not pressurised by publicshareholders to be conventional in terms of board selection. It may alsobe a sign that the traditionally 'invisible' influence of women infamily firms has always been there but is now beginning to take a modernshape: as officially recognised positions of leadership.”
`çìííë=OMMR=c~ãáäó=_ìëáåÉëë=pìêîÉó NO
We asked How many [non-family/independent]directors are there?
kçåJÉñÉÅìíáîÉ=ÇáêÉÅíçêë=Å~å=ÜÉäé=âÉÉé=Éãçíáçåë=çìí=çÑíÜÉ=Äç~êÇêççã
In addition to their normal roles andresponsibilities, independent non-executive directors can help keep familyemotions out of the boardroom, act asa sounding board or sparring partner forthe current generation, evaluate siblings,and act as mentors to potentialsuccessors..
We foundForty-eight percent of familybusinesses do not have any non-executive directors, versus thirty-eight percent of non-familybusinesses. Larger and thirdgeneration family businesses aremuch more likely to have non-family/independent non-executivedirectors.
48
546
21
1415
912
5
15
38
0
10
20
30
40
50
One Two Three Four Five + None
%
Family Businesses
Non-family businesses
Base: All family businesses (149)
Coutts commentsAlthough not everyone agrees with it,the Higgs Report recommends aminimum number of non-executivedirectors in promoting good governanceand business prosperity.
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Contributor comments
Sarah GrunewaldDirectorbankI think there is strong evidence that family businesses aregetting more comfortable with the appointment ofexternal NXDs - this statistic will converge with non-family businesses over time”,
kçåJÉñÉÅìíáîÉ=ÇáêÉÅíçêë=Å~å=ÜÉäé=âÉÉé=Éãçíáçåë=çìí=çÑíÜÉ=Äç~êÇêççã
Grant GordonInstitute for Family Business (UK)“Independent directors can add value bothat the company strategic level as well as atthe family level. In terms of the familyowner dimension their input will dependon a solid appreciation of the familydynamics; and giving them this insightshould not be left to chance.”
Andrew DrakePenningtons SolicitorsIndependent non-family directors can be so important forfamily businesses. Apart from the obvious advantage ofbringing in "outside wisdom", they can, very importantly,provide an impartial view on issues such as managementsuccession and which family member should be taken intoemployment or onto the Board. It can, however, becrucial that they are truly independent andneutral.
`çìííë=OMMR=c~ãáäó=_ìëáåÉëë=pìêîÉó NQ
We askedOver how many years has yourcompany demonstrated continuousgrowth in profits before tax?
içåÖJíÉêã=ëìëí~áå~ÄäÉ=ÖêçïíÜ=áë=ïÜ~í=Åçìåíë
We foundOn average, family businesses reportlonger continuous growth in pre-taxprofits and particularly so amongstthe smaller companies
6.2
7.6
0
2
4
6
8
Non-family Business Family Business
Base: All respondents (293)
1.4
Mean time all businesses
5.76.2
7.97.1
0
2
4
6
8
£1 - £5m £5m-£50m
Base: All family businesses (149)
Mean time family business by turnover
2.2 0.9
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Contributor comments
Peter Leach and Juliette JohnsonBDO Centre for Family Business.“Family businesses do not need to look for short term returnswhich can impact on their longer term growth. In the early days,families tend to draw small salaries (if at all) and low dividends andinstead reinvest profits back into the business in order to help itgrow. This is especially the case for families who see themselves ascustodians for future generations. Their decisions made will bemore long term focused rather than having to concentrateattention on short term decisions to meet the needs anddemands of external shareholders.”,
Grant GordonInstitute for Family Business (UK).“The finding in the Coutts Report that family firms report longercontinuous growth in pre-tax profits helps to substantiate that thefamily business sector is a key driving force in the economic engineroom of the UK economy.”
Michael MaslinskiMaslinski & Co. Ltd“Perhaps the fact that the shareholders are family members ratherthan faceless institutions makes management less likely to takeundue risks with shareholders money. Remember that themanagement of non family companies often have incentives whichencourage excessive risk taking, because their bonuses and shareoption schemes give them upside without commensuratedownside.”
Coutts comments
Various studies across the United States and Europesupport the contention that family businesses outperform non-family businesses over the longer term. Inthe Institute for Family Business Report on the structureand performance of the UK Quoted Family BusinessPLC Economy by Dr Panikkos Poutziouris, ManchesterBusiness School, (January 2005), the quoted family firmsector was found to outperform their non-family FTSEpeers.
The fact that family businesses do not have toconstantly demonstrate profitability, means that theycan focus more on the people who drive financialperformance – the employees, the customers, thesuppliers, the community and the family.
`çìííë=OMMR=c~ãáäó=_ìëáåÉëë=pìêîÉó NS
We askedRespondents wereasked the extent towhich a number ofkey elements formedpart of their strategicgrowth plans
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We foundMedium-sized familybusinesses aregenerally a little moreconservative withninety-two percentfocussing on organicgrowth within the UK.Smaller familybusinesses are morelikely to be focussedon acquisitions withinthe United Kingdom(forty-five percent)
20
11
3734
2926
10
21
0
10
20
30
40
50
%
1-5% 5-10% 10-20% 20%+
Annual UK organic growth targets
Family (122)
Non-family (106)
Base: All UK organic growth (228)
2520
15
40
25
14
26
14
0
10
20
30
40
50
%
1-5% 5-10% 10-20% 20%+
Annual international organic growth targets
Family (53)
Non-family (70)
Base: All international organic growth (123)
74%82%Organic growth UK
58%47%Strategic Alliances
26%12%Acquisitions Internationally
49%36%Organic growth Internationally
47%36%Entering markets outside UK
42%39%Acquisitions in UK
Non-familyBusiness
Family BusinessStrategy
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_É=éêÉé~êÉÇ=íç=í~âÉ=ëçãÉ=êáëâ
Contributor comments
Peter Leach and Juliette JohnsonBDO Centre for Family Business“ A founder typically works out howto run their business as they go alongand tends to be very hands on in doingso. In the earlier days, they are farmore likely to grow locally anddomestically rather than taking on riskyand ambitious projects overseas. Then,as a family business passes down thegenerations, family members feel anobligation to protect what they havebeen given so they can pass it on totheir children and hopefully futuregenerations and so again, theirdecisions might be more risk adverse.”
Panikkos PoutziourisManchester Business School“The majority of family firms are in thebusiness of modest controllablegrowth that will sustain lifestyleeconomics and family ownership-managerial control..”
Michael MaslinskiMaslinski & Co. Ltd“The fashion for acquisitions is oftendriven by the need of CEO's to capturethe headlines and show they aredynamic, rather than focusing on the lessexciting but perhaps more rewardingtask of steadily building the existingbusiness, through continuousimprovement. The fact that familycompanies are more wary ofacquisitions and more focused on thecore business definitely gives them anadvantage.”
Andrew DrakePenningtons Solicitors“The achievement of longer continuousgrowth in pre-tax profits amongst familybusinesses may be a consequence of therather more conservative approach tobuilding a business which is shown bythe other findings.”
`çìííë=OMMR=c~ãáäó=_ìëáåÉëë=pìêîÉó NU
iççâ=~ÑíÉê=íÜÉ=éÉçéäÉ=~åÇ=íÜÉ=éêçÑáíë=ïáää=í~âÉÅ~êÉ=çÑ=íÜÉãëÉäîÉë
We askedRespondents were asked the extent towhich they felt a number of keyelements were indicators of asuccessful business
We foundFamily businesses are marginally lesslikely to see having definedcommercial goals as an indicator ofsuccess. However, they are morelikely to cite low staff turnover,networth and social responsibility.
24
33
31
33
33
34
29
39
47
50
44
53
56
53
60
54
59
61
77
78
0 20 40 60 80
Social responsibility
Market share
Sales turnover
Low staff turnover
Longevity
Net worth
Sound corporate governance
Defined commercial goals
Profit growth
Quality management team
%
Very indicative Differential
+1
+2
-6
-3
+9
+3
+10
+1
+2
+9
Base: All respondents (293)Family
Non-Family
Coutts commentsIdentifying the key performancemetrics is essential for any business.Ensuring they are measurable isanother matter.
Although we talk about familybusinesses taking the long term view,and not being obsessed with profits,family business owners view profitgrowth as the second most importantindicator of a successful business.
`çìííë=OMMR=c~ãáäó=_ìëáåÉëë=pìêîÉó NV
iççâ=~ÑíÉê=íÜÉ=éÉçéäÉ=~åÇ=íÜÉ=éêçÑáíë=ïáää=í~âÉÅ~êÉ=çÑ=íÜÉãëÉäîÉë
Contributor comments
Grant GordonInstitute for Family Business (UK)“A distinguishing feature of family firms istheir values. Foremost among them is oftentheir respect for the individual and thecontribution that people make at all levels inthe organisation..”
Nigel Nicholson and Asa BjornbergLondon Business School“Differences between what family firms seeas integral to their success as opposed tonon-family firms, (family firms are morefocused on community and staff comparedto non-family firms) indicate that they have amore people-oriented view of success.”
Michael MaslinskiMaslinski & Co. Ltd“The continuing focus on the net worthof the business seems to me to be abetter approach, provided the boardreally understand the drivers of value.Many target driven companies, withtransient management, tend to throw outthe baby with the bathwater in theinterests of sweeping modernization.”
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We askedRespondents were asked theimportance of a number of keyelements when deciding businessstrategy
We foundIn forward planning, familybusinesses remain true to theirview of low staff turnover andnetworth as key indicators ofsuccess. Attention is also focusedon quality management andlifestyle issues.
Coutts commentsThere are those that say that it isnot money that fuels a business,but the energy and commitmentof each and every employee
19
32
28
33
33
37
37
39
28
43
48
50
39
54
53
59
69
60
67
68
75
88
0 20 40 60 80 100
Financing Lifestyle
Social responsibility
Market share
Sales turnover
Low staff turnover
Longevity
Net worth
Sound corporate governance
Defined commercial goals
Profit growth
Quality management team
%
Differential
Base: All respondents (293)
Very Important
Family
Non-Family
+13
+1
-9
+6
+15
+2
+15
+2
+4
+5
+13
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Contributors comments
John FreemanAssociation of Family Business Advisers“My experience shows that planning for thefuture through governance is more effectivein family business than in other structureswhen it is carried out.”
Nigel Nicholson and Asa BjornbergLondon Business School“It is interesting to note that family firmsplace more importance on the quality of themanagement team than non-family firms interms of strategy. In family firms, businessstrategy has to be aligned with family needsand emanate from family values. Thus,composition of the management team is avital but more difficult achievement.Family firms also consider staff retention tobe more significant in terms of strategycompared to their non-family counterparts,which is another indication of their people-oriented, long-term approach, relying onstakeholder relationships and loyalty.”
Panikkos PoutziourisManchester Business School.“My thesis is where the family is notaccountable to outside investors, thestrategic intent is not very much tuned togrowth and financial performance metrics.”
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We askedIf a family member with a materialshareholding wanted to sell, whowould be the most likelypurchaser?
We foundFamily interest unsurprisingly andclearly comes to the fore. However,there is greater willingness to seethe chief executive role moveoutside the business than that ofthe chairman.
Coutts commentsThere is often not much choice forthe family member who wants to sell.They have to revert to the family.The challenge is what to do ifanother family member does nothave the necessary funds to purchasethe shares.
Family members who want to sellalso have to think about what pricethey can get for their shares. There isoften a very heavy discount applied.
Base: All family businesses (149)
50
8
4
4
0 20 40 60
A competitor
Othershareholders
The Companyitself
Other familymember (s)
%
Most likely purchaser
46
1916
17
28
36
0
10
20
30
40
50
Appoint within thefamilty
Independentapointment
Sell the businessoutside the family
%
Chief Executive
Chairman
Likely Action
Base: All family businesses (149)
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Contributor comments
Peter Leach and Juliette JohnsonBDO Centre for Family Business“It is no real surprise that most FB'sare likely to sell to other familymembers. A lot of families seethemselves as custodians who want tokeep the shares in the family. In factmany families have it written into theirArticles of Association that shares canonly be passed down the bloodline inorder to try to protect themselveslonger term. This rule is oftenextended to excluding spouses,particularly in light of increasing divorcerates”
Sarah GrunewaldDirectorbank“It is our experience that the higherthe social conscience within a firm, theless likely the business is to be happywith the short-termism of the privateequity arena. However, planning anacquisition strategy while maintainingfamily control and avoiding over-gearing will be fraught with frustrationand difficulty.”
Nigel Nicholson & Asa BjornbergLondon Business School“Less than half of family firms envisagefamily succession for these positions[chairman and chief executive officer]. Notsurprisingly, however, family chairmanship isviewed as being more likely than appointinga family CEO. In general terms, it is harderto fire a family CEO if things don’t workout, and harder to find a non-familychairman who can provide culturalstewardship based on family values andgreater understanding of family shareholderneeds.”
Andrew DrakePenningtons Solicitors“It would be interesting to know whetherthe relatively low likelihood of theCompany itself purchasing shares is partly aresult of family businesses notrealising that it is legally possible for aCompany to do this. This can be a veryuseful tool for family businesses.”
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We askedRespondents were askedwhether or not they hadidentified a successor for thepost of chief executive.
We foundFamily members are far morelikely to have identified asuccessor.
Coutts commentsBusiness succession is considered to be the biggest challenge facing family businesses. Advisersrecommend planning years in advance. Key is that the next generation family members earn theirplace in the company.
In the past next generation family members had fewer career choices and were more heavilyinfluenced by their parents. Today it is essential that they are given the opportunity to make up theirown minds.
Yes18%
No82%
Non-Family(n=116)
Family(n=108)
Who would be involved inappointment decision?
48%45%Board of Directors
16%21%CEO/MD
3%1%Independent nominationscommittee
5%4%Professional advisor
20%13%Shareholders
1%19%Family members
Non-Family(n=28)
Family(n=41)
Who was involved inappointment decision?
54%51%Board of Directors
18%24%CEO/MD
--Independent nominationscommittee
-2%Professional advisor
19%5%Shareholders
-27%Family members
YES NOYes28%
No72%
Non-Family Businesses
Family Businesses
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Contributor comments
John FreemanAssociation of Family BusinessAdvisers“Why do family businesses takethe lead on identifying the nextCEO? Because the topic is morelikely to be openly/”noisily”discussed where family membersare looking for the top job orwhere the partner is looking forthe “other half” to retire. In non-family businesses it may be that itis a case of selling the business.”
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håçï=ïÜÉå=íç=äÉí=ÖçWe askedRespondents were asked the extent to whichthey felt a number of issues would beproblematic when ownership successionbecomes imminent.
We foundUncertainty over succession is likely tobe driving greater fears over retirementof the current generation amongst non-family businesses
Coutts commentsWe need to remember that business succession is not justabout assessing the career prospects of the next generation. Itis also about managing the change in personal lifestyle of thecurrent generation and creating plans for a new beginning.
Very Problematic
-15%
-5%
+4%
+1%
-10%
Net Difference
24
24
21
22
28
28
29
25
24
39
23
10
12
5
15
10
8
11
15
11
8
9
0 10 20 30 40 50
Concerns of fairness of the succession arrangements to whole family
Fair valuation of the business
Extracting equity from the business
Fears over effects of passing the business to next generation
Ensuring current generation has enough wealth for its retirement
Retirement of current generation
Fairly Problematic
Base: All respondents (293)
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We askedRespondents were also asked how importantthey felt it to be that they engaged with thenext generation in a family business in certainkey areas
We foundThe desire to work in the business coupledwith outside experience are seen as keyelements for the next generation in a familybusiness
9
41
30
26
33
37
23
26
37
52
49
49
0 20 40 60 80 100
Are given priority over n0n-family members for executive
positions
Acquire formal businessqualifications
Are independently assessed forleadership potential
Are asked whether or not theywant to work in the business
Understand the principles ofinvestment management
Are encouraged to gainexperience of outside
employment first
Base: All respondents (293)
Fairly important Very important
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Contributor comments
Caroline FiennesNew Philanthropy Capital“It is odd that a quarter of [family businesses] do not think it isimportant to ask the next generation whether they want to beinvolved in the business.”
Coutts comments
Too many next generation family membersare tempted to join the family businessbecause they inherit it rather than that theyenjoy it or have any demonstrablemanagement ability.
It is interesting that family business ownersrate ‘understanding the principles ofinvestment management’ as highly as ‘gainingexperience of outside employment first’.Even if a next generation family memberdoes not join the family business, it is likelythat they will inherit significant wealth and bebetter off if they know how to manage theinvestment managers.
It is also worth noting being born into afamily business no longer necessarily entitlesa family member to a management role. Asmore families separate share ownership frommanagement control, more family membersare having to compete with non-familymembers for executive positions.
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We askedFamily businesses were askedwhat they perceived as majorcauses of conflict within afamily business
We foundThe biggest source of conflict appears tobe the unwillingness or inability toremove under-performing familymembers from their position within thecompany
Coutts commentsThe reality is that in family business is inevitable. It is often caused by lack ofcommunication and made worse by not having a system to deal with it. It isoften said that in addition to sharing many of the same problems, familybusinesses also have a set of issues of their own.
Often the best way to have improve communication between familymembers is to hold regular scheduled face to face family meetings. Whenconflicts do develop can be helpful to appoint a peacemaker in the family orappoint a professional family business adviser.
22
23
29
33
40
40
51
56
60
66
0 20 40 60 80
In-laws
Share valuation / lack of share liquidity
Dividend policy
Inter-generation rivalry
Sibling rivalry
Renumeration
Succession
Lack of family/non-family managementcommunication
Lack of family membercommunication
Competence of family membersworking in the business
Base: All family businesses (149)
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Contributor comments
John FreemanAssociation of Family Business Advisers“The family businesses appear to bemore aware of the potentialconflicts/issues that could affect thebusiness than the non-family businessowners although in many cases the issuesare the same or very similar.”
Peter Leach and Juliette JohnsonBDO Centre for Family Business“If a family member is given a job in thebusiness, then they should be madeaccountable and appraised (by a nonfamily member) just as any otheremployee would be. That way, a familyavoids the conflict brought on by havingpotentially incompetent family membersworking in the business and gives alegitimate structure within which toremove them, without conflict. Similarly,regular family meetings and regularboard meetings would be a good startto improve communication with bothfamily and non-family but many avoidthese due to time restrictions,firefighting, and the avoidance to talkabout family issues which can besomewhat uncomfortable.”
Caroline FiennesNew Philanthropy Capital“I am very struck by the (perceived)paucity of communication. That’s awell-known driver of success.”
Andrew DrakePenningtons Solicitors“Family businesses are very consciousof their own vulnerability. Thestatistics, in particular, bear out thatlack of communication, whether it bebetween family members or betweenfamily and non-family management, canbe a significant problem area.”
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båàçó=ÖáîáåÖ=óçìê=ãçåÉó=~ï~ó=~ë=ãìÅÜ=~ëã~âáåÖ=áíWe askedRespondents were asked whetherthey support any charitable causesand if so, how they decide who/whatto support
We foundWhile family businesses appearto be more likely to supportcharitable causes, they are lesslikely to do so in an organisedand structured manner
Yes87%
No13%
Yes80%
No20%
Non-Family
(n=115)
Family
(n=130)
How do you decide what causes tosupport?
50%64%Personal preference
36%42%Ad-hoc appeals
-7%Formal Family Council
-37%Family discussion
28%12%Corporate Social ResponsibilityCommittee
38%30%Board discussions
Family Businesses
Non-Family Businesses
Yes
Base: All non-family (115)
Base: All Family (130)
Base: All charitable support (245)
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Contributors comments
Nigel HarrisNew Philanthropy CapitalMany companies now recognise that social responsibilitybenefits the community and enhances employee morale andthe company's reputation. However, the companies thatspend time defining a clear strategy and getting buy-in acrossthe organisation, capture the greatest benefits.
Andrew DrakePenningtons Solicitors“The importance of social responsibility amongst familybusinesses is striking, but not necessarily surprising. In myexperience social responsibility can, in fact, often be a reasonwhy a family avoids ever selling the family business.”
Coutts comments
Family businesses and their owners are often very generousin their support to good causes. It is a way of involving thewhole family and the company even if not all the familymembers are involved in the ownership or management ofthe business.
While philanthropy can be richly rewarding, it can also posedifficult questions about how best to give in order toachieve the greatest social impact. Indeed with over 153,000charities deserving of support, according to NCVO, it can bevery hard knowing where to start. To give effectively, it isimportant to have a giving strategy.
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We askedRespondents were asked theextent to which they felt anumber of key elements wereinfluential in terms of theircompanies’ giving
We foundFamily business giving isdriven most strongly by thedesire to give back to thelocal community and theprospect of minimising taxes
Differential
Base: All respondents (293)
Very influential
• Largest single reason for not givingmore was lack of funds – 36%
- just 10 respondents cited a lack ofgiving strategy
• Lack of funds also major reasonamongst those choosing not to give –24%
- 4 respondents citing a lack of givingstrategy
15
9
17
19
25
26
29
36
32
21
36
42
52
0 20 40 60 80
Creating a legacy
Netyworking
Keeping/bringing the family together
Making the world a better place
Keeping/bringing employees together
Minimising taxes
Giving something back to local community
%Non-Family
Family
+10%
+15%
-6%
-4%
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Contributors comments
Michael MaslinskiMaslinski & Co. Ltd“I believe there is evidence that thebrightest graduates are turningtowards companies where theiremployment has a social dimension,recognises their need for life outsidework and where there is far more tostaff motivation than targets andfinancial rewards.”
Coutts comments
Understanding the motivations andobjectives of the different familymembers is the first step toidentifying the right causes andcharities to support Family businessesoften demonstrate the same longterm view to their philanthropicgiving as they do to their businessstrategy. Not only do they feel aheightened sense of communityresponsibility, but they also recognisethe long term benefits it can bring. Asan example, the best employees areoften looking for more than a salary.They also want to understand thevalues of the company they arejoining.
Nigel HarrisNew Philanthropy CapitalMany companies are increasinglyaware that a coordinated approachto social responsibility deliversmultiple benefits. Why not pulltogether corporate sponsorship,corporate donation and employee’svoluntary activity, focusing on justone or two charities?'
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fíÛë=åçí=ïÜ~í=óçì=âåçïI=áíÛë=Üçï=óçì=âåçï=áíWe askedRespondents were asked theimportance of a number ofelements in the education of a chiefexecutive
We foundFamily businesses are less likely to see havingworked for a competitor as important in achief executive officer, although this was seenas very important for the next generation.
27
20
38
32
26
34
24
17
16
23
10
11
12
14
31
29
68
68
72
68
0 20 40 60 80 100
Worked for a competitor
Worked in other industry
Formal business qualifications
Knowledge of the industry
On the job /working in thebusiness
Base: All respondents (293)
Very Important
+2%
-7%
-4%
+2%
-12%
DifferentialCurrent Chief Exec has…
91% 89%
42% 54%
46% 44%
53% 57%
85% 92%
FAMILY N0N-FAMILY
Fairly Important
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Contributors comments
John FreemanAssociation of Family Business Advisors“They also saw that training thefuture generations as being vital tomaintaining the family business andthere is no logical reason why familymembers cannot fill future executivepositions if properly trained and arecapable of doing so.”
Peter Leach and Juliette JohnsonBDO Centre for Family Business.“…families are typically quiteintroverted, concentrating on learningon the job, rather than expandingtheir horizons to work outside forcompetitors. This limits the amountof new thinking and experience thatcan be brought in to a familyenterprise. Getting experience at acompetitor can be difficult however,especially if a family member bearsthe company name.”
Coutts comments
Understanding the motivationsand objectives of the differentfamily members is the first stepto identifying the right rightcauses and charities to support.
At the end of the day, it was onthe job experience that countedmost for family and non-familybusinesses in selecting thecurrent chief executive officer.With knowledge of the industryequally as high, it suggests thatthere is not much scope forsenior management to moveacross boundaries.
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Coutts 2005 Family Business SurveyWe have recently undertaken an extensive surveyof family businesses, in association with twenty highlyrespected fellow-contributors, including The BDOCentre for Family Business,The Institute of Directors,TheInstitute for Family Business (UK), London BusinessSchool and Penningtons Solicitors. Specifically, we setout to answer the question: Are family businessesbetter prepared than other businesses to compete inthe future? Our findings, and our expert contributors'commentary upon them, make fascinating reading,To view the full report please visit our website below,
The Coutts Prize for Family BusinessHow better to help family business owners learnfrom each other than by seeking out and celebratingthe very best in the field? Under our new annualawards scheme, we will be looking to identify thebest managed small, medium and large family firms inEngland and Wales.And, with the help of our judgingpanel of independent experts, chaired by RogerPedder, Chairman of C & J Clark (Clarks Shoes), wewill be analysing what makes them successful. Pleasevisit our website below to find out more.
Coutts Education and Networking ProgrammeWe are also committed to providing family businessowners and their families with networking andeducational opportunities. And one way in which weare doing this is through an ongoing series ofdiscussions, held in London and other regionalcentres. Attendees will be able to benefit from thepractical advice and experience of other familybusiness owners, as well as the insights of leadingprofessional advisers and academic experts. Formore information on our Education and NetworkingProgramme, please see our website,
Coutts Services for Family Business OwnersThroughout our 300 year history, we have lookedafter the owners of some of Britain's most successfulfamily businesses; helping them manage their personalwealth effectively - and, in many cases, also helpingthem manage change successfully within theirbusinesses.Today, we are more committed thanever to this vital and vibrant sector of the economywhich is why we provide an integratedrange of services, encompassing the financial needsof family business owners, their families, their firmsand their trusts. Our services range from electroniccommercial banking services to personal credit cards, fromestate planning to strategic philanthropy.
www.coutts.com/familybusiness
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For more information on private and commercialbanking for family business owners and theirbusinesses, the Coutts Prize for Family Business, theCoutts Education and Networking Programme andthe Coutts 2005 Family Business Survey, pleasesend an email to [email protected], orvisit our website www.coutts.com/familybusinessor contact:
Mark EvansHead of Family Businessand Strategic PhilanthropyTelephone 020 7753 1936
Howard McMillanBusiness Development ManagerFamily Business and Strategic PhilanthropyTelephone 020 7753 1756
Robert JacobBusiness Development OfficerFamily Business and Strategic PhilanthropyTelephone 020 7957 2119
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Coutts & CoFrom the time John Campbell started his familybusiness as a goldsmith banker at the sign of theThree Crowns in the Strand, a Coutts tradition ofpersonal service based upon trust, integrity andexpertise has been continuously maintained – andappreciated by successive generations of clients.
Mark Evans: Head of Family Business andStrategic Philanthropy at Coutts & CoIn this role Mark is involved in advising family businessowners and philanthropists on a range of issues frommanaging business succession to creating effectivegiving strategies. Mark sits on the Advisory Councilof the Institute for Family Business (UK) and is aboard member of the Association of Family BusinessAdvisers. Mark is also a member of Pilotlight, workingto help small, innovative charities grow and fulfiltheir potential.
Coutts & Co is authorised and regulated by theFinancial Services Authority.Registered in England No. 36695.Registered office: 440 Strand, London,WC2R 0QS.www.coutts.com
Head Office:Coutts & Co 440 Strand London WC2R 0QS
Offices in London:Cadogan Place Canary Wharf Cavendish SquareCrosby Court Fleet Street
Offices outside London:Bath Birmingham Bournemouth Bristol CambridgeCardiff Eton Guildford Hampshire Leeds LiverpoolManchester Newcastle upon Tyne NottinghamOxford Tunbridge Wells
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The information contained within these slides has been compiled from information recieved from the Coutts Family Business Survey2005, and is believed to be correct. Coutts Family Business Survey 2005 was carried out by DVL Smith between 1st June to 30th July2005.
Issued by Coutts & Co which is authorised and regulated by the Financial Services Authority. Registered office: 440 Strand, London,WC2R 0QS. Registered No. 36695.
