FAMILY FORTUNES

FAMILY FORTUNES - Some of the biggest household names are those of firms founded and run as family concerns. In Britain, they employ more than half of all staff engaged in commercial enterprise. They are among the best-run operations, but when the sibling

by CHRIS BLACKHURST
Last Updated: 31 Aug 2010

Some of the biggest household names are those of firms founded and run as family concerns. In Britain, they employ more than half of all staff engaged in commercial enterprise. They are among the best-run operations, but when the siblings start feuding (as they do), it can turn to dust. Chris Blackhurst reports.

Many of us will lose our jobs at one time or another. These days, being fired or made redundant is almost a badge of courage, to be worn with pride. But it is a rare executive who can claim to have been sacked by his own father.

Such a traumatic event happened to Bill Jordan. In 1980, Jordan and his brother Dave went to a board meeting of Jordans, the family-owned cereal maker and flour miller, only to be shown the door by their father, William. The brothers wanted to push the business further into breakfast cereals and muesli bars. The old man, the chairman, despised their slick, modern ideas, preferring to see Jordans stick to what had been its core activity since the company was established in 1855: milling flour and producing animal feed.

'We went to the board - which was me, my brother, father, mother and another family member - and they said: 'We're sacking you,'' recalls Bill.

It was a shattering experience for both sides, but one that illustrates the emotional tug at the heart of running a family concern.

Once the dust had settled, Bill and Dave were allowed to buy out the cereals side. History records that the brothers had the last laugh. Jordans is now a leading brand in the highly competitive breakfast-food market.

Turnover has grown from pounds 4 million in 1980 to pounds 50 million today. The brothers, who have rejected numerous offers for the firm, are worth an estimated pounds 40 million. The old milling and animal-feed business continues - and is still owned by the Jordan family - but has not enjoyed anything like the success of its former stablemate. This year, Bill and Dave are stepping down from full-time management, handing over the reins to two non-family executives.

If only all family businesses were so enlightened. Even the behaviour of the father wins approval from experts in advising family firms how to run themselves. When relations turn sour in a family business, measures such as the removal of two board members will have a much more traumatic effect than they would in another company. Looking back, Bill says it was the right thing to have done. 'In many ways it was a relief. The air was cleared, the two sides went their own way and relations became a lot better.'

The latter-day decision at Jordans to pass daily control to two outsiders is also a tough call for any family business. And one not made often enough, say experts - too many families are intent on keeping power within the family, even if that means not allowing external managers in at the expense of commercial success.

The issues surrounding family businesses have never been more prominent.

In this country, Blackwell's, the family chain of university bookshops, has been riven by a public row between one Blackwell elder and the company's management team. In America, a member of the Hewlett dynasty has mounted a vocal one-man campaign against the dollars 21.5 billion marriage of Hewlett-Packard and Compaq. This saga came immediately after the removal by the Ford family of their 'hired help' at the top of the motor company. William Clay Ford, great-grandson of Henry Ford, has taken charge himself, deposing Jacques Nasser.

For every Jordans, Blackwell's, Hewlett-Packard and Ford there are thousands of much smaller, unknown concerns grappling with relatives not pulling their weight, not wanting to modernise, not wanting to relinquish ownership.

As a consequence, advising families on how to manage their businesses has become a booming and increasingly specialist activity on both sides of the Atlantic. In Britain, accountancy firm BDO Stoy Hayward, has set up The Stoy Centre for Family Business to service people in family-run firms. Another accountant, Tim O'Brien, has also carved out a niche, advising family firms on succession issues. Family business advice is much more developed in the US: there, virtually every major conurbation has specialists focusing on family commerce.

Partly, the reason for the growth in this country - Tony Bogod, the Stoy Centre's south-east head, expects to assist 30 crisis-torn family businesses this year - is the recognition of the number of family concerns, and the need for specialist help. In the past, the idea of relatives working together has been taken for granted, one of the norms of British commercial life.

But a survey by BDO Stoy Hayward and London Business School discovered that family enterprises account for 76% of all UK companies. At least half of the total UK workforce - excluding those who work for the government - are employed in family businesses. In the latest Sunday Times Rich List, about a quarter of the 1,000 richest individuals in the UK derived their wealth from family firms.

Although the local baker and funeral director (two activities that, for some reason, are nearly always conducted by family-owned enterprises) fit the traditional description of a family business, some of Britain's largest, multi-billion, corporations are owned by people who are related to each other.

Top of the list compiled for MT by Wealth Index, which conducts surveys of the wealthy, is J Sainsbury, which is still effectively controlled by the Sainsbury family by means of a 33% stake. Next comes Associated British Foods, 60% owned by the Westons, then Morrisons supermarkets.

These three are all quoted, with some of the shares resting in non-family hands. The biggest company in Britain that is entirely private is Littlewoods, which, despite its problems, still enjoys annual sales of pounds 2 billion.

Family firms enjoy advantages that other businesses can only dream about.

They are fleeter-footed, able to take decisions quickly and to adapt more easily. In times of recession, they are more resilient, battening down the hatches and cutting their own pay levels and outgoings.

Other companies are hampered by boards whose members are spread far and wide. They have to placate shareholders whose aims may be at odds with those charged with the day-to-day running of the business. Professor John Ward of the Kellogg Graduate School of Management in Illinois, an expert in family businesses, says that family companies do not live and die by earnings-per-share and are thus able to think more long term.

It cannot be coincidence that they spend more on research and development pro rata than their externally owned counterparts.

Directors of family businesses tend to be more loyal to the company, and that loyalty seeps down through the whole workforce. They do not want to be the ones who lose the business, who are unable to pass it on to the next generation. 'Keeping it in the family' is more of a driving principle than squeezing extra profits.

There is also a sense - certainly prevalent in the US since 11 September - that with their emphasis on caring and shared values, family firms offer a better corporate model than giant, faceless corporations.

Giovanni Agnelli, patriarch of the Fiat car group and probably Europe's leading family businessman, says companies such as his own stand for 'a continuity born of the belief that the company is an inheritance to be protected and handed on'. In today's fragile business climate, such a quality has come to be seen by many executives as a goal in itself - outweighing the greedy thirst for greater earnings.

Unfortunately, family firms are not all sweetness and light - hence the need for professional assistance. Despite Agnelli's boast, only 30% of family companies make it to the second generation and a much lower proportion - 13% - last to the third. Bogod devotes his professional life to trying to stop the occurrence of 'shirtsleeves to shirtsleeves in three generations', as he puts it.

The problems that he and others encounter are peculiar to family businesses.

It could be an organisation as large as a supermarket chain or a major industrial producer or as small as a corner shop, but the issues are the same - and they are quite unlike those encountered elsewhere in business.

Bogod's firm was the first to recognise the potential of setting up a family advice unit 10 years ago. But whereas in this country family business advice has come mostly from accountants, in the US, those who specialise in telling relatives how to manage their company affairs tend to be psychiatrists.

Bogod, though, acknowledges that what he does is far removed from pure accountancy. 'The skills I use now are nothing to do with accountancy.

They're to do with listening and communicating. Tomorrow, for example, I'm going to see a substantial business owned by five members of the same family. They have a problem with a cousin who is a lazy sod,' he says.

In any other business, getting rid of someone who doesn't pull their weight would be straightforward.

But, as with Jordans, sacking a relative is no easy matter. Bogod's first job will be to talk to both sides, to act as a mediator, to see if a compromise can be reached.

O'Brien too sees his job as part arbitrator, listener, counsellor and healer of old wounds - certainly not as hard-nosed, calculating accountant.

'One of the things I've often got to do is to try and stop families falling apart,' says O'Brien. 'How do I do that? To be honest, sometimes with difficulty. You've got to get them all round the table and try to find some common ground. If they can't agree, I have to tell them straight: 'There's no alternative other than to split the company up.' That may bring them to their senses, but it may not.'

O'Brien's love of what he does is coloured by his own experience. His father had his own business, factoring abrasives. There were three sons.

But at no stage did O'Brien senior ever deal with succession - who was going to inherit, what was going to happen to the firm. 'The business was his and he had all the contacts. He should have planned for his retirement or sold the business a long time ago,' says O'Brien.

His father died and the sons are left to pick up the pieces - or in this case, to try and sell it - without the key player's involvement. Contacts and expertise were not passed on. The result, says O'Brien, is effectively a forced sale of the business - something that, if he had still been alive, would doubtless have upset his father. 'It's the classic situation where, as you get older, you lose energy. You can no longer see things realistically, no longer look ahead to what might occur.'

Ask family business practitioners what is the most commonly occurring problem they encounter and they will answer as one: succession. It affects all family companies, from Rupert Murdoch's News Corporation to Agnelli's Fiat, to the smaller organisations on Bogod and O'Brien's books. At News Corp, the riddle of who will step into Murdoch's shoes is an endless source of speculation, externally and internally. At Fiat, Agnelli's plans were thrown into disarray, twice.

Driven by a desire to keep Fiat in family hands - something that wouldn't concern most heads of a business that size - Agnelli groomed his nephew to succeed him. When his nephew died prematurely, attention turned to his son, only for him to die as well. Now his grandson sits on the Fiat board and is being earmarked for the top job, while Agnelli, at 80, continues to assert his authority, turning up at the office every day as honorary chairman.

Even the sharpest business brains can come unstuck when it comes to imagining their company without them in charge. At Littlewoods, Sir John Moores was a genius who created a football pools, mail-order and stores empire from scratch. The son of an alcoholic bricklayer and one of eight children, Moores lacked the proverbial silver spoon but prospered by dint of entrepreneurial flair and sheer hard work. The same, alas, could not be said of his children: John, Peter, Betty and Janatha. The boys went to Eton, the girls to Cheltenham Ladies College.

None of them exhibited the ability and ambition of their father. On Sir John's retirement, Peter was chosen to succeed, but when the business began to drift the founder returned, his son was ignominiously removed and Sir John took charge again. When he eventually retired, outsiders were brought in to oversee the business. However, their room to manoeuvre was cramped by some of the 32 Moores family shareholders who found it hard to accept hired hands on the tiller. While other retailers adapted and modernised, Littlewoods seemed to be stuck in a time-warp. Despite the best efforts of the present management, the legacy of that period in the late '80s and early '90s has held the company back.

Bogod believes there is no hard-and-fast formula for the long, successful life of a family business. There are established reasons for failure, however, 'especially lack of succession planning and communication' - an area addressed by his list of golden rules (see 'Succession: The Next Generation' panel).

It used to be the case that a business would be handed down to the son, with the daughter kept away from the family firm. Not any more. 'In many ways, the father-daughter handover is easier than father-son,' argues Bogod. 'Sons often feel competitive, they think they have something to prove, whereas daughters are more supportive and nurturing.'

There are no limits on the number of family shareholders. All advisers stress the importance, though, of shareholder agreements, determining, for instance, that shares must be first offered to other members of the family before being sold to the public. This is especially useful, says O'Brien, when there is a divorce and a husband or wife may have to sell shares quickly to raise cash.

O'Brien is under no illusion, however. 'Ultimately, people can do what they want with the business. It's theirs. As an adviser, all I can do is try to introduce skills that the client might be lacking.'

Having suffered their own anguish several years ago, Bill and Dave Jordan believe they have created the ideal family business. 'Hopefully, it will not be ashes to ashes so quickly here,' says Bill Jordan. 'We have the good side, which is a warm atmosphere, a feeling of being supported. We've got people from big, non-family companies joining us who like the fact that we can take decisions pretty quickly - there are just two shareholders, me and my brother - and we don't have to follow other ways of doing business. We can do what we want.'

Bill Jordan is the first to admit: 'We've been lucky. There can be enormous problems and we've only seen the good side. Although, if you keep it simple and unencumbered, that should limit the potential for problems. You've got to be able to make quick decisions. It's important that you can respond to the market. After all, that's what family businesses can do.'

FAMILY ENTERPRISES ACCOUNT FOR 76% OF ALL UK COMPANIES

THE SAINSBURYS: The family's first grocery store on London's Drury Lane was opened by John James Sainsbury and his wife Mary Ann in 1869. The business remained effectively family owned and run until 1998, when David (now Lord) Sainsbury left to pursue a political career (his shares are now held in a blind trust). The other Lord Sainsbury (John) remains on the board and the family still owns about 33% of the company.

THE MURDOCHS: Children James, Liz and Lachlan were surprised by the news that Dad Rupert and his third wife Wendi Deng were about to provide them with a sibling who might want a piece of the Newscorp action.

ONLY 30% OF FAMILY COMPANIES MAKE IT TO THE SECOND GENERATION

THE HEWLETTS AND THE PACKARDS: Walter hewlett - at the time of writing, the last family member on the HP board - led a shareholders' revolt against the plans of chief executive Carly Fiorina to merge with Compaq. Despite his efforts, it's probable that HP, founded in 1945 by Walter's Dad Bill and Dave Packard, will shortly swallow its rival.

THE MOORES: Despite his humble origins, Sir John Moores created the Littlewoods retail and pools empire from scratch. But none of his four children has exhibited the same flair. After a failed attempt to hand over to son Peter, the top jobs are now held by outsiders.

SUCCESSION: THE NEXT GENERATION

Tony Bogod of the Stoy Centre for Family Business has devised a set of golden rules for running family-owned enterprises. Succession, he stresses, is the biggest issue they face.

- Think early on about succession. If you delay it till 10 years before you retire, you'll be too late.

- Recognise that succession planning is a process, not a one-off event.

- It's not what you do but how you do it. If you want to leave the shares to all the children or just to those who work in the firm, say so; make it clear.

- Communicate, communicate, communicate. 'Families talk together but they don't communicate,' says Bogod. 'They love talking but not listening.' In a client firm, two cousins ran the business in tandem. They knew that their partnership could not work (one was a charismatic chancer, the other had been to business school and was risk-averse) but neither had the courage to say so. The business was suffering. Bogod advised them to split the company in two. Since then, both halves have prospered and now the cousins get along better together.

- Write it down, otherwise it will result in: 'You told me: One day all this will be yours'; 'I never did'

- If you want your children to inherit, make them gain experience elsewhere.

'It's not fair to expect people to take over without training,' says Bogod.

'Yet you'd be surprised how the idea of having their children work elsewhere first is anathema to some owners.'

- Make retirement unequivocal. If you're going to be non-executive chairman, work out what that means. 'It's very difficult for a child to run a business if the parent is still around,' says Bogod.

THE FATHER-DAUGHTER HANDOVER IS EASIER THAN THE FATHER-SON

THE FORDS: William Clay Ford Jr, great-grandson of company founder 'Any colour you like as long as it's black' Henry, is the new ceo and first family boss of the firm since Henry II in 1945.

THE AGNELLIS: Former playboy Gianni Agnelli took over Fiat from his grandfather in 1966. Gianni's younger brother Umberto was also employed by the Italian conglomerate. Umberto's son, Giovanni Alberto was widely tipped to take over the wheel but died of cancer at 33 in 1997. Family succession now in doubt.

'THIS BUSINESS HAS A PROBLEM WITH A COUSIN WHO IS A LAZY SOD'

< TOP 15 FAMILY BUSINESSES RANK/COMPANY/SECTOR FAMILY %STAKE/ QUOTED TURNOVER FAMILY RUN pounds m 1 J. Sainsbury/Groceries Sainsbury 33/No Yes 17,244 2 Associated British Foods/Food Weston 60/No Yes 4,418 3 Wm Morrison/Groceries Morrison 40/Yes Yes 3,500 4 Littlewoods/Retail Moores 100/No No 1,942 5 Reg Vardy/Car sales Vardy 27/Yes Yes 1,303 6 John Laing/Construction Laing 23/No Yes 1,311 7 Hunting Oil/Oil & gas Hunting 30/Yes Yes 1,210 8 Linpac/Packaging Cornish 40/Yes No 1,111 9 C&J Clark/Shoes Clark 100/No No 876 10 JCB/Engineering Bamford 100/Yes No 855 11 Wilkinson Hardware/Retail Wilkinson 100/Yes No 707 12 Newarthill/Construction McAlpine 100/Yes No 641 13 John Wood Group/Energy Wood 50/Yes No 553 14 Miller Group/Construction Miller 100/Yes No 509 15 Robert Stephen Holdings/ Rubin 100/Yes No 489 Sportswear

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