Good morning. David Elliott here again. The videos that I’ve recorded recently have been obviously of some interest to quite a number of people so this is the next in what I hope will be an ongoing series. Obviously if there are any specific subjects that people would like me to talk about as an introduction then please get in touch with me through the website. Today I’d like to talk about family companies.

There are a very large number of family companies in this country and obviously overseas. In fact there is a Chinese proverb that says no company survives three generations. This is interesting in that often companies are started by a very enlightened individual, his sons, daughters, et cetera. come in to the business and unfortunately the next generation fails to continue the success. How can we avoid these sort of situations? Well I’ve often heard said ‘that doesn’t apply to us, we’re a family company, we have our own way of doing things.’ That probably is a very bad place to start. In fact, if it’s a family company then lots of things have to be put in place simply to ensure that those members of the company who are not family feel entirely comfortable and not disadvantaged by the fact that they don’t belong to the family. What do I mean by this? Well family companies can often be run effectively on an anecdotal basis. There are no formal meetings. Dad can talk to his sons at home, on the phone day and night, and it runs on a very ad hoc basis. This makes it very difficult for those who are not part of the family. So I would suggest that a small family company needs formal meetings and a formal structure, even perhaps more than a non-family company. Succession plans have to be utterly transparent.

Dealing with mid-level managers can be quite ticklish because they feel there is no real future for them because they are not part of the family. Other issues can often crop up in the family companies where it’s not unusual for the son of the founder to go off to university, come back and assume a role in the company that perhaps doesn’t reflect his or her experience. If somebody comes back from university they have to actually be knocked into shape in the way that a large company would do. So how can a father, the owner of a company, ensure this happens? Well suggestions are if it’s a company selling consumer products or in a business to business situation then let him go out on the road in the former case, or in latter case make sure that he or she doesn’t spend too much time in the office. Don’t give big titles too early. They may be legally directors of the company but on their business cards “Manager” is often a sufficient description. This means that then the outside world will view them in the same way as similar people, similar in the sense of age, from large companies. Don’t put them in an awkward position of having to justify their title when they don’t have the experience to do it. This will facilitate relationships with third party suppliers, often who become the whipping boys of family companies, simply because there’s a huge belief in what the company’s doing, which is it’s raison d’être. This can often lead to difficulties of accepting responsibility, in that if there are problems that responsibility is often thrown at suppliers rather than internalised and a view worked through with a supplier. This is a difficult one where evidence is very much that this happens. I hope that these sort of indications are of interest.

So to sum up really, if you’re a family company then bend over backwards to make sure that those people who work for you don’t feel disadvantaged because they’re not part of the family. Ensure that there are regular formal meetings so that issues at the management level are always out in the open and are not decided behind closed doors within the family environment. Certainly financial matters that should be taken at the Director’s level need to be dealt with in that way, but often companies assume they have regular board meetings when in fact they don’t, all they have are anecdotal discussions in the family. Then make sure that graduates coming in to the family company are at the right level and are seen by the outside world for precisely what they are; that is young, talented people who lack experience and are learning the ropes as they go along. Perhaps the last point really is don’t over-reward family members when they come into the company, either in terms of status, job description or perks of the job.

I hope these comments are useful for people running a family firm.

Thank you very much.