Family businesses must unite to dispel myths and misunderstandings that eclipse important messages about the vital contribution they make to the economy and the innovative spirit that has enabled them to prosper through different generations, delegates heard at the Family Business United Scotland (FBUS) Conference.

Tom Craig, Chairman of the newly-formed Advisory Board for FBUS said uniting to create one powerful voice under the FBUS name will engender greater awareness of the significant economic impact family businesses have and will also create a focal point and vibrant community for sharing wisdom and experiences among different sectors and across different generations.

Scotching family business myths

The conference heard that three myths persist about family businesses:

• they are small
• they are not well-known
• they are not significant employers.

In reality, although Scotland’s 180,000 family businesses naturally include small enterprises, they also include household names with multi-million (and in some cases multi-billion pound) turnover and sizeable workforces such as car dealership Arnold Clark, drinks giant William Grant, teacake maker Tunnocks, plant hire group GAP, Walker’s shortbread, Macsween the haggis maker, house builder Mactaggart & Mickel, and they include a number that have successfully transitioned into third and fourth generation family ownership.

Family firms sustain 900,000 jobs

John Anderson, Director of the Hunter Centre for Entrepreneurship at Strathclyde University and a member of the FBUS Advisory Board, said: “The government don’t have data on family firms so all the evidence to show that this is an important sector is being bluntly ignored…Family businesses are where the growth is going to come from so they need to be taken more seriously and to be moved up the political agenda. Family businesses will create more wealth and prosperity.”

Available data show that collectively family businesses contribute £50 billion to the Scottish economy or 45% of GDP and employ 900,000 people.

They include ambitious fast-growing family-owned companies that have:

• built sophisticated multi-site operations
• deployed clever use of technology
• designed and delivered innovative products and services
• created employment opportunities
• generated much-needed tax and export revenues.

History does not guarantee a future

Also, in a age when longevity in business has become an increasingly rare commodity, FBUS heard inspiring stories of family firms that have sustained Scottish jobs and families not just for several decades but in a few cases (like John White and Sons in Auchtermuchty, which began life as a scale-maker in 1715) for several centuries.

However, an illustrious past does not guarantee a future, delegates heard and if families are to safeguard their future, they must grapple with complex issues such as:

• planning for and managing succession
• attracting and retaining essential skills and expertise
• funding expansion plans
• looking after the family’s long-term financial interest.

Addressing these issues is vital to avoid a ‘clogs to clogs in three generations’ fate befalling family-owned businesses.

Future-proofing family businesses

Mairi Mickel, a family business consultant and a fourth generation member of the Mickel family that own house builder Mactaggart & Mickel, says future planning and indeed ‘future-proofing’must begin with open and frank communication among family members on critical issues. She joked that among the older generation, the only possible grounds for stepping down from control of the business was “assassination.”It is time for a more enlightened approach.

Introducing a forum for different generations of family members to exchange views in a constructive way is important, as is taking account of potentially different agendas among family members who work in the business and those who are shareholders but not involved in operations.

Passing on the family baton

Leadership transition and wealth transition are related but separate issues that can divide families if not handled sensitively and delegates heard it is vital to have clear strategies for both. Tom Craig advocated building in a review process for succession planning that enables family members to begin discussions in a calm and structured way rather than being forced to confront difficult issues in response to often unforeseen events.

Part of this should entail career planning for younger family members to equip them with the skills they need and also retirement planning for older family members. “The older generation needs to be willing to retire and the younger generation needs the aspiration and confidence to succeed,”delegates heard.

The goal, said Mairi Mickel, is to think of family succession as a relay race in which the baton change should be practised and carefully planned to ensure the smoothest possible handover.

Good governance is key

While family businesses are not subject to the same codes of conduct that compel public companies to maintain rigorous standards of governance, several family businesses at the conference had adopted formal board structures, including introducing non-family members as non-executive directors.

The general conclusion was that they had reaped benefits both as a family and as a business from introducing greater accountability, fresh thinking, different expertise and experience, and an ability to weigh risk and reward more dispassionately. Several delegates said that this held true not only-for non-executive directors but also where they had recruited non-family members into senior management roles.

“Family businesses need to look outside their four walls. If we hadn’t brought in different people we would have struggled to grow the company to the size we have,”said James Macsween, a third generation member of Macsween the haggis makers.

What makes family businesses special?

While debate on family businesses tends to focus on tough challenges that must be overcome such as access to growth finance and succession issues, FBUS will also focus on identifying and showcasing the distinct strengths of family businesses and finding ways to leverage these strengths to their competitive advantage.

Family ownership can allow companies to take a longer-term perspective when making important investment decisions rather than having to be swayed by more short-term considerations.

Also, family firms often inculcate a strong shared culture and set of values, creating a sense of purpose and responsibility that is valued by employees and other stakeholders. This can give family businesses an edge in commercial negotiations where brand and family heritage are part of the package, said James Macsween.

Education pathway

FBUS is developing an educational programme for members that will further boost their ability to compete. FBUS has forged alliances with two academic institutions with expertise in entrepreneurship and family businesses – Strathclyde University’s Hunter Centre for Entrepreneurship and Queen Margaret University.

We are jointly creating a structured educational pathway specifically for family businesses. The first three seminars will focus on managing the family company, governance of family companies and protecting family company wealth. It is the first step in a programme of lifelong learning that will underpin the continued growth and prosperity of family businesses in Scotland.