business focus 17


Family businesses: how to maintain your dynasty


The importance of family businesses to the UK economy cannot be understated. According to the Institute for Family Business, there are roughly three million family businesses in the UK, employing 9.2 million people. That’s 40% of all private sector employment, meaning they represent almost a quarter of the UK’s GDP (about £346 billion), writes Michael Stace, partner and joint head of Blake Morgan’s Thames Valley corporate team


From a national perspective, the long-term outlook of family businesses creates a backbone and resilience in the economy. Millions of families rely on them for their livelihoods and futures. It is therefore imperative that they are structured in a way that allows them to thrive.


Family dynamics and history introduce a whole new level of complexity


Family businesses face the same challenges as other businesses, from succession planning and management of growth to differences in opinion over future strategy. However, based on my practice as a business lawyer, they often experience these challenges even more acutely.


Family dynamics and history introduce a whole new level of complexity. Coupled with this, there is a common assumption that because it’s family, trust and tradition will win the day. This can leave family businesses woefully unprepared for disputes and major changes.


A tendency not to document arrangements in family businesses frequently results in prolonged and damaging disputes


Informal practices cause problems


A tendency not to document arrangements in family businesses frequently results in prolonged and damaging disputes. I have seen everything from family members falling out completely to litigation that has run to hundreds of thousands of pounds and, of course, the unquantifiable damage to the value of the business. Often, much of the damage could have been mitigated, at least with a better initial approach.


Listed companies, for example, are governed by legal codes which set out clear procedures for governance and dispute resolution. Whilst no documentation or process can stop disagreements from arising, they can provide options for dispute resolution, which can ultimately benefit all stakeholders and family businesses should consider making provision for these matters.


Agreements might prescribe mediation from a professional adviser, who may have the casting vote when there is a deadlock regarding a business decision. The agreement in advance of a set process to follow, can, with no exaggeration, ensure the survival of the company.


Planning is the name of the game, and keep a hard head


Family business owners should lay sentimentality aside. They must try to keep family issues and


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – SEPTEMBER 2014 www.businessmag.co.uk Michael Stace, corporate partner, Blake Morgan


business issues separate, no matter how difficult it may seem. This means looking at the business objectively, taking appropriate advice where necessary, and leaving informality at home.


There are no shortcuts. Securing the company’s future requires ongoing vigilance and effort. The soft skills of relationship management and effective compromise are indispensable. However, remember that further down the line, a lack of planning and documentation could have dire implications for the value of the business when a critical juncture is reached.


Take succession planning, for example. There is always the tension between continuing the family dynasty and business traditions versus injecting new vigour into the company. Succession planning must be done over a long period of time, expectations must be managed, and buy-in secured. For the sake of the business, an effective handover process, which considers the future of all stakeholders, must be devised.


Similar issues occur when charting future strategy. Does a family follow the path of tradition or does it diversify and transform itself to remain competitive or expand? Once again, there can be competing ideas about the future direction, far more so when a company is run and owned jointly by several family members.


Family businesses are subject to all the same pressures as other businesses, plus those of families themselves. To ensure a continued legacy, it is never too early to start planning for the crunch points.


Details: Michael Stace 07788-9007420 michael.stace@blakemorgan.co.uk


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