MT and PWC recently brought together a panel of experts to discuss the pros and cons of running a private business. On the panel were: Kate Cawley - creative director, Wastesolve; Sian Steele - family business partner, PWC; Andy Rubin - chief executive, Pentland Brands; Henry Dimbleby - co-founder, Leon Restaurants; David Bain - family business consultant; Matthew Gwyther - editor, Management Today; Ajay Bhalla - professor of global innovation management, Cass Business School.
Matthew Gwyther: At this discussion, we're interested in looking at the difference between private and family businesses, and large listed companies. How do you feel culturally different? And what is your appetite for growth? What responsibilities do you feel to the business? Are you positive about the state of the UK economy at the moment?
Andy Rubin: Our business, Pentland Group, started 80 years ago last year. My grandparents came from eastern Europe and set up a shoe shop in Liverpool that quickly went from being a small retailer to being a shoe manufacturer. My father joined his father and soon realised that making shoes in the UK was probably not going to be a long-term business. He was one of the pioneers who went to Asia and brought products back in the 1960s. Then we began to focus on brands. We became the UK distributor for Ellesse, an Italian sport brand, and Kickers. Now we have a portfolio of sport, outdoor and fashion brands, including Speedo, Mitre and Ted Baker. In our brand management division, which I head, we have 2,000 employees and I would say I know most of them. Pentland still feels like a small family company, despite having 18,000 employees across the whole group. We do lots of little things that you would expect in a small family business, but which are unusual in a larger one - and I think that makes a real difference.
Henry Dimbleby: At Leon we employ 250 staff, have 13 restaurants and we have 30% staff turnover a year, which is pretty standard in catering. So I'm on a constant mission to learn all the names and faces. We used to have a family newspaper business, which my father sold. After university, I worked as a chef, then as a journalist, before joining the consultancy Bain & Co, advising clients such as Vodafone on acquiring businesses in Europe. But it was food I loved. I rang up my friend and now business partner John Vincent and said I wanted to set up a fast food business with nutritious food. He joined me and we launched Leon in 2004.
Matthew Gwyther: How far ahead do you think about the future of the business? Could you see yourself handing it over to your kids?
Henry Dimbleby: For John and me, this business is a passion. We've put everything into it and we are very keen to see it become a 1,000-chain restaurant. At some point, I see us having to create exit points for our shareholders, which might be us buying out the VC, or it might be another VC coming in. Clearly, we have shareholders and we have to give them a return.
David Bain: It's interesting because you're not really thinking in the long term about handing this business over to your children. And, actually, that's a mentality which is quite rare in this country. If you go to somewhere like Germany or India, that's how they perceive businesses.
Matthew Gwyther: Isn't that possibly because we're more enlightened? It may be that people like Andy might not want to join the family business. Andy, did you feel a burden growing up - was it assumed you would join the business?
Andy Rubin: No, it wasn't a burden and it wasn't an assumption. And I'm very clear that if the business wasn't something I could be passionate about, I wouldn't be here. My father was very clever at enticing me and getting me very interested without ever telling me or insisting.
David Bain: They do it extremely well in Germany. Family businesses create advisory boards, and then they become executive boards. And they bring in professionals very early on so that the family are pushed out of the day-to-day management of the company to a large extent. But they still control the business with the advisory board. That concept has never really been followed here. If you're a family business, you want control and to manage it on a day-to- day basis.
Sian Steele: In reality, though, even if the next generation isn't going to join the family business in a management role, it clearly has something to contribute and some responsibility as an investor and shareholder. Yes, lots of German institutions have multi-level boards. But, fundamentally, it's just saying that one role is your guardianship and stewardship of all the people, and the other is bringing your skills to the table and being significantly valuable to the business.
David Bain: But I don't think the UK really believes in patient capital at all. Here we have got an equity market that is 120% of GDP - in Germany, it's 30%.
Kate Cawley: Cawleys is a waste-management business. It was set up by my grandfather and his brother 70 years ago. My grandfather died when my father was 21, about 40 years ago. My dad was training to be a solicitor but he had to step in. We now have three recycling facilities in London and the South Midlands. I always said I'd never join the family business, as I didn't think the industry was particularly glamorous. But, seven years ago, my father said he was starting a partnership with the UK's first anaerobic digestion plant, turning food waste into renewable energy, and it struck a chord. My background is in marketing so I could help get the service off the ground. Waitrose was one of the first clients I won, then we began working with other retailers, including Westfield, and that was how Wastesolve evolved. It's under the Cawleys group, but it's a separate business. My father is chairman of the group. He's still a mentor and I really admire him. I run ideas past him and he's very involved.
Alison Lees: It's interesting that there are similarities between your businesses but there's also a lot of variation as well. The thing that's really consistent is the emotion. Running a business is the equivalent to having a child.
Sian Steele: If you have children growing up in a nurtured environment where they feel they have space to develop and there's not such a huge pressure, I think children absolutely embrace the opportunity to join the family firm.
Kate Cawley: Things can get emotional within families. We haven't yet had to tackle bringing in outsiders. My father's 65 so it is on our radar. I've got no ambitions to take over the Cawleys side. There's a five-year plan in place. I guess then we'll make a decision whether we bring someone external in or we sell. But on Wastesolve I couldn't bear to think of selling it. I feel I'd be letting my team down if I did sell out.
Matthew Gwyther: Andy, your business went public for some time in the 1990s. How different was it when you were in public ownership? What were the motives and the reason for returning it to the stable?
Andy Rubin: The moment we were a public company, we stopped thinking longer term. Because when you're a public company you have a duty to all shareholders to deliver against expectations constantly. Now we work in a very different way. We have a plan taking us to 2020. Since the financial crisis in 2008, we have not reduced a marketing or other budget in any of our businesses around the world. How many public companies can say that? During that time, we decided to take less profit because we're investing for the long term. If we were a public company the market wouldn't have allowed it.
David Bain: That ties in with the whole idea of the stakeholder, which is much broader than shareholder. I was in Italy recently and I had a chance to speak to John Elkann of Fiat. He's the great-grandson of the business. He very much talked about this idea of moving shareholder value to stakeholder value. The idea is that it encompasses more than just a share of the company - it encompasses the community and the workers. Are we moving towards that in the UK?
Andy Rubin: We are, because the next generations are insisting on it. Young people coming into the business talk about values and what the company stands for.
Ajay Bhalla: There is a fundamental question about innovation. Why don't we see enough cutting-edge research and development happening within the UK? There was talk about Microsoft research centres in alliance with Cambridge but it's fizzled out. There is just not enough cutting-edge R&D happening. Part of the reason is shorter-term management. And this is where the UK is fundamentally different from Germany or the US - we haven't produced anything like Google or Apple.
Sian Steele: Cambridge is a fairly unique place. It's small but the people who have experience are very keen to share it. And so the networks and the investment community are incredibly supportive. It's very tight so the entrepreneurial businesses improve: they feed off each other. There have been some great success stories such as Arm and CSR.
Matthew Gwyther: And what about governments, do you feel they're creating the right environment for business at the moment and are they doing everything they could to help business and the economy and our national prosperity?
Andy Rubin: I think it's doing a pretty good job of listening to businesses but I'm not sure it's there yet in terms of executing all the concerns. Reducing the corporate tax rate has helped bring some companies back to the UK. But there are still some things the government hasn't got right, particularly the new immigration rules. If we're going to be really successful in places like Brazil, China and India, we need the very best people from around the world here. I can't bring in people with the right skillsets because we're not allowed to. Also the Bribery Act is the most onerous in the world and has actually handcuffed British businesses.
Henry Dimbleby: In service, I think there's been a cultural shift. In the first five years after launching, I would say 80% of our workforce were made up of migrants and about 20% British. We're probably at 60/40 now. Service now seems an exciting, attractive sector where people can go on, get ahead and join as a career. I do believe we have some great immigrants who really help and I do believe that grafting is very important. But I don't see the issue about English people.
Kate Cawley: I find it very frustrating that each government isn't joined up in my sector, the environmental sector. It hasn't invested in the renewable side. When we started with Waitrose seven years ago, there was talk about having anaerobic digestion plants in every major city, and it still hasn't happened. Lots of clients want to make sure that any waste they're producing goes on for positive reuse, but the facilities and the infrastructure is woeful. We're miles behind Germany and the rest of Europe.
Matthew Gwyther: Henry, how's your relationship with the bank?
Henry Dimbleby: It's much better. We were not a struggling business and therefore we were completely ignored by it. The bank had massive problems to solve and we weren't one of them. It was good until we wanted to expand. But now we've just gone through refinancing and raising some debt for growth and it's been very competitive. We had four banks running at us, which would never have happened a few years ago. Also, we've become much more risk aware. We had a list of suppliers that we thought were in danger of going bust and we talked to them monthly to see how things were going, because we had one supplier that went under overnight. It said it couldn't deliver an ingredient that accounted for 30% of our business. We found someone else quite quickly. But now we talk to our suppliers more frequently.
David Bain: It's interesting in India. There's quite a lot of evidence to say that the family business sector is getting stronger as opposed to getting weaker.
Ajay Bhalla: I've done lots of work over the past five years on the employee-ownership sector. They are very like family businesses and are very resilient organisations. They tend to not get rid of people when times are tough because their sense of loyalty and responsibility is much higher. In a typical company, promises are linked to your individual performance rather than the company performance. The idea that employee ownership can fundamentally make a difference over a long period of time is just not celebrated and attended to within this country. And within family businesses too, research has shown that they tend to perform better in dark times on all accounts.