More than three quarters of UK Enterprises
are family businesses. Many are founded by a key individual with a
clear focus on why he is founding the business and what he wants to
achieve from it. Such individuals are often very sure of themselves.
Their management style is entrepreneurial and autocratic based on
gut instinct and business nous.
Many founders haven an ambition to pass on the business to
their children. This can lead to problems if not properly handled.
Because the business is so important to the founder, (indeed it
often gives him a platform in society as well as a powerbase at
work), a founder often finds it difficult to delegate or involve
others in decision making. Too often a family member takes up a
position in the business as a soft option or because he has had no
clear plans for himself or where he sees the family business as his
inheritance. Either way they are highly unlikely to have the same
drive or passion for the business as the founder.
Disputes between unrelated business partners can often arise and be
resolved by the business partners going their separate ways. When
you are in business with the family, however, it is difficult to
prevent disputes within a company spilling over into a family
If a family members role is not made clear, or the steps to
succession are not spelled out in advance, the outcome can be
conflict not only with the founder but also with other siblings.
Each of the family members may seek to take control of the business
once the founder has stepped down or passed on. Often a business
that runs successfully on autocratic lines does not run well by a
Friction is not limited to within a family. There is often conflict
with loyal and talented but non family employees. They can be taking
the burden of maybe running the business whilst having no share in
the ownership. Their remuneration which at the market rate may be
considerably less then that paid to under performing family members
which can cause resentment.
What working with members of your family demands is an awareness
that in business you cannot subordinate the needs of your business
to a fear of hurting your relatives’ feelings, nor be blinded to
their possible short comings. As the going gets tougher for local
business it may no longer be possible to afford the salary of family
employees who cannot pull their weight.
The good news is that many potential pitfalls facing family
businesses can be predicted and overcome.
Copyright 2006 - 2010 Taylors Solicitors
- You should establish a forum for everyone with a stake or an
interest in the family business so that they can meet together
regularly to find out what is going on in the business and to
discuss the important issues.
- A clear policy should be established for share ownership and
management. For example, if the intention of the founder is to
provide an income to the family members then perhaps non voting
shares could be considered whereby dividends can be declared on
a regular basis with the individual concerned having the right
to attend relevant meetings but unable to influence business
decisions where they lack experience.
- You should establish criteria for family members involvement
in the business. Clarify what talents if any or abilities or
qualifications they must have, how their performance will be
judged, their salaries and benefits set and training required.
Don’t assume that family members ought to be appointed to the
Board of Directors. Being a director has responsibilities with
it which can be onerous and many family members are too young or
inexperienced to hold the position. Why not invite them to
attend board meetings, to observe and listen but have the board
comprise a significant number of professional or experienced
well rewarded non family employees.
- Separate out ownership and management. The ownership of the
business or the majority of the ownership should remain within
the family but the management left in the hands of qualified
professionals. In order to motivate and ensure that the loyalty
of none family professionals consider implementing a share
option scheme or a performance related bonus arrangement which
instead of paying out in cash allocate a minority stake the
- Address matters before they begin to fester and affect the
whole organisation and the reason for founding the business in
the first place.
- Draw up an agreement. Just as those with substantial assets
entering into marriage are advised to enter into a prenuptial
agreement to minimise a dispute in the event of marriage
breakdown, ideally people going into business together (whether
they are related or not) should have clear agreements drawn up,
whether they be in business together as a partnership, limited
company or one employing the other.
- Plan - If you are that founding owner consider carefully and
discuss with family members what it is that you expect of them
and what they are prepared to contributed to the family
business. Set out a plan and try to stick to it. That way no one