Sponsored Feature: Relative values

Family-owned businesses have some unique advantages, but to capitalise fully on the growing economy they should develop some of the strengths associated with plcs argues PwC's Sian Steele.

by Gabriella Griffith
Last Updated: 06 Jan 2014

- What differentiates family businesses from other types of company?

Their ability to take a long-term view. If you look at listed companies, they have shareholders and quarterly reporting, so they're under lots of scrutiny from investors. The motivation for family businesses is different. They're able to make decisions without this kind of attention, and make them quickly. This gives them agility and potential advantages over larger companies.

They look for longevity and tend to have strong values. There's often an overriding feeling of doing the right things and being part of a community because they expect to be there for a long time.

- Are family businesses confident at the moment?

I think, fingers crossed, people are feeling more positive. A survey we conducted last year showed that family businesses, like all companies, were finding it tough. But, increasingly, there's a feeling of confidence and planning for the future. They've been through the storm and are stepping outside to look around and think about what to do next.

- What are the key issues for growth?

Clearly external economic conditions have a big impact - it's the same for family businesses as for other companies.

Globalisation is a significant theme because it's an area for growth for family businesses but also a challenge. Another key issue is innovation: a lost art many UK businesses need to rediscover. Tech is moving increasingly fast. The question is, how do family firms innovate and stay relevant and modern? Their agility should be a strength here, helping them to adapt quickly.

- What are the other challenges?

Transition: family businesses need to look at the next generation and think about whether it has the requisite skills to take the company forward. Does it even want to be involved? Firms must find a way to manage succession.

The next challenge is the war for talent. As we head out of recession, attracting and retaining the right people may be difficult because family businesses rarely give away equity. If you look at plc chairmen, they often have a high proportion of value in share options. For this reason, family businesses have to get creative and this is often more directly expensive.

Obtaining finance can be a problem at family firms for the same reasons, so taking money from private equity investors or raising money on the market is not an option. Instead, in many cases, they have to mortgage assets, which can be at odds with their attitude to risk and a strong balance sheet.

When family businesses look to scale up, often with an eye on globalisation, the challenge of raising finance may be inhibiting.

- How do family businesses prepare to launch in foreign markets?

This is a live issue. As well as being competitive, companies have to protect their reputations and their intellectual property in new markets. It's a mistake to believe business culture elsewhere will be like that of the UK. At the same time, family businesses have to retain their own values and sense of identity. Older leaders may see the value of overseas expansion but be unwilling to take on risks of this nature. Younger members may be impatient to get going. This will be a source of debate and tension for years to come.

- What can family businesses learn from other companies?

Governance is a relevant point here. Some family businesses will have strong governance and will run themselves like a listed company, but others will have family members running the company without external input. Family firms benefit from having non-executive directors to challenge decisions, build a strong and reliable decision-making culture and consider external perceptions.

Skills evaluation is tricky for family businesses. Big organisations have policies for appraisals, evaluation and rewards. In family businesses, this is not always the case, particularly for working family members. They need to be clear about what skills individuals have, whether people are in the right roles and how their development should be managed. With rewards, there needs to be a distinction made between a family member being rewarded as an investor in the business, or for the job he or she is doing - the waters can get muddied.

- Are family businesses better placed to deal with economic volatility?

I don't think they necessarily suffer more pain or gain but, because they have longevity of purpose and are without the pressure of external investors, you can find they perform slightly less well in good times but are able to avoid short-term, knee-jerk reactions when things are less positive. Often, they're less leveraged and this puts them in a stronger position during a recession.

They're also less inclined to make redundancies - again this comes back to their understanding of their place in the community. Overall, they are looking to protect the family silver - and have become quite good at it.

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