The trials and tribulations of family businesses

By Chris Hutching

Friday 29th November 2002

Turmoil facing two successful family-owned businesses in Canterbury may have been avoided if succession issues had been settled earlier, Tim Keenan, a partner in accounting firm Grant Thornton's Christchurch office, says.

He specialises in family businesses and the issues that affect them.

The two firms affected are Taunton Engineering, whose founder Wayne Blackmore died suddenly. With no obvious successor to take over the reins the business is likely to be wound up with the loss of 12 skilled jobs.

The other family company in the limelight recently was Oderings Nurseries, whose third generation family owners have split because of differences.

Kim Odering, who appears on television advertisements for the company, has quit and plans to sell her shares. Decisions are made at weekly family meetings on a majority vote rather than by a managing director.

Mr Keenan says 75% of small to medium businesses are family-controlled and owner-managed businesses. Less than 30% survive to the second generation and less than 10% survive beyond the third generation as a family business.

But some of the pitfalls experienced by family businesses could be avoided, he says.

"Over the past 18 months we've been developing a programme or business model to help resolve some of these problems. We've had situations where a bank has called us in to give a hand. In most cases there are complex psychological issues that need to be resolved."

Grant Thornton recently commissioned the University of Canterbury to survey businesses in Australia and New Zealand about the dynamics of family-owned and
-managed businesses.

This found they tended to be more conservative and based on emotion and were more inward looking and sought to protect their own.

For example, if a report is not completed on time by a family member of a business it will not affect the usually unqualified love they enjoy from other family members. By contrast, successful businesses tend to be outward looking, task-based and unemotional in dealings and reward performance based on results.

Employees must perform or leave. But family businesses owners often remunerate a family member based on the size of their mortgage.

"Sometimes we'll encounter a situation where a salesman who is a family member may be earning much more than the other salesmen and the matriarch or patriarch of the business will explain that they have their grandchildren's welfare to think of," Mr Keenan says.

"But there are other ways to reward family members that don't interfere with the commercial aspects of business and the resentments that might result when non-family staff learn about the favouritism. The same applies to things like absenteeism."

Sibling rivalry and inadequate succession are significant issues that often require a resolution. The business founder, usually the family patriarch, often finds it difficult to move and may hang about with the best intentions giving advice to underlings.

Their presence causes much resentment from the family members trying to exert their own authority as general managers and from other staff. Often the children have little interest in the family business.

"Generally the business founder wants the children to take over but often they may have successful careers of their own and be living in other cities while one of their siblings shoulders the responsibility," Mr Keenan says.

"It can be quite distressing to parents to accept these things and realise they need to sort them out if they expect to professionalise the business so it remains viable while resolving family conflicts."

One of the themes to emerge from the University of Canterbury research was that the priorities of owner-managed businesses evolve as the business grows. Startups tend to be run by protectionists, longer established firms by dynasts.

In light of the research Grant Thornton has developed PRIMA, a 12-point model that focuses on issues such as succession planning over several years; fair remuneration; whether equity ownership should be a birthright; rights and rewards of family members not involved in the business; and retirement and estate planning so matriarchs and patriarchs have financial independence from the business.

Other issues cover the extent of "outside experience" required of family members before they take on important roles; financial structures; preserving family wealth without crippling the company; resolving conflict; and identifying the family creed or mission statement in relation to the business.

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